Almost everybody knows the hit TV series Downton Abbey.

Even if you weren’t a fan, you probably know it tells the story of a family of British aristocrats and their servants in the early part of the last century.

One of key plot point revolves around the fact that the patriarch, Lord Grantham, doesn’t actually own Downton Abbey. Instead, it’s held in a type of family trust.

Under the terms of the trust, the estate has to be kept together and passed on to the closest male heir. That stipulation causes all sorts of problems for Lord and Lady Grantham who are parents of three daughters.

Unfortunately, the trust didn’t also prevent Lord Grantham from almost bankrupting the family in a disastrous investment in a Canadian railway.

Used by many families

Now, family trusts aren’t fiction. And they’re not just for aristocrats. They’re used by many Canadian families as part of their estate planning. And, yes, they can be used to prevent younger generations from squandering the family wealth like Lord Grantham did. But they also have many other benefits.

The easiest way to understand a trust is by thinking about an example most of us are familiar with: a deceased person’s estate.

Your will expresses your wishes on how you want your estate to be divided up among your heirs, charities and other beneficiaries. The will’s executor is responsible for carrying out your wishes and typically does so in the months following your death.

Within your will, you can also set up a trust to administer some portion of your estate after your death. For example, imagine you have a disabled child who needs to be cared for. In your will, you could arrange for a trust to be created to provide for the care of that child until his or her death. This is known as a testamentary trust.

Established while you’re alive

There’s another kind of trust–one you establish while you’re alive. With this one, you also put assets into a trust for the benefit of your children, grandchildren or other beneficiaries. It’s called an inter vivos—or between living people—trust.

How does it work?

Let’s say you’ve looked at your financial situation carefully. You’ve got more money than you will need to live on or give away to your favourite charities.

You want to give the surplus to your kids or grandchildren. Now, you could simply give it to them as a gift. But then you wouldn’t have any control over how they use it. That’s okay for some people but not for others.

Say you have an incapacitated child or you’re worried one of your kids is going to blow the money in Vegas. Or maybe you just don’t trust your son-in-law and want money put aside and paid directly to your grandchildren when they reach a certain age.

Assets belong to the trust

To take care of these situations and many others, you could set up a trust and put your excess capital into it. Now the money belongs to the trust and is administered by one or more trustees in the interest of the beneficiaries.

You set out the terms of how the property will be administered in a formal trust agreement and you may decide to be one of the trustees. So, you are in control.

You could say, for example, your kids get just the income from the investments in the trust—the interest and dividends. Or you might decide they get a certain percentage of the capital each year. It’s up to you.

Apart from the Las Vegas gambler or the ne’er-do-well son-in-law, you might just want to avoid making your children too wealthy at too young an age—the proverbial trust-fund kids. You might decide they should have enough to meet their basic needs but still have to work for a living.

Or maybe some disaster occurs and all of a sudden you need the money yourself. While you no longer legally own the assets—the trust does–it’s still possible to pull back the money and use it yourself.

Can reap some tax benefits

And finally, there are tax planning benefits. You have to be careful here and make sure a tax expert advises you. But the main benefits involve paying income from the trust to beneficiaries who have lower marginal tax rates than you do. Also, investments can grow in the trust without creating capital gains in your hands.

What are the pitfalls of using a trust?

They’re mainly the costs involved in setting up and maintaining one—and a family holding company, a structure that often goes along with a trust.

There are expenses to establish and register these structures and then annual administration fees. So you need to have a certain amount of money for it to make sense. How big an amount is a judgment call and should be discussed with your financial advisor.

In fact, trusts can be complicated so it’s important to discuss all your options with investment, legal and tax advisors who have lots of experience with them.