Trusts

Simply put, a trust is a management vehicle for assets. A “Grantor” creates a trust by giving instructions to a “Trustee” for the management of certain assets, which are used to benefit one or more “beneficiaries.” Whether a trust is needed or advised in an estate plan is dependent on the type and level of a person’s assets, the identity and characteristics of their beneficiaries, and the person’s goals.

Revocable Living Trust

A Revocable Living Trust is a trust commonly used in estate planning. These trusts are created during a Grantor’s lifetime, to manage the Grantor’s own assets and provide for the disposition of assets at the Grantor’s death. 

These trusts are essentially alter-egos of the Grantor, so they do not have a separate tax ID number, and all income is reported on the Grantor’s personal Form 1040. In many states, residents are all encouraged to create Revocable Living Trusts in order to avoid a long, costly probate process. However, in Texas, probate avoidance is rarely a good enough reason alone to create a Revocable Living Trust; a properly drafted Will can be probated quickly and easily, without a lot of court involvement. 

There are other reasons to explore the use of a Revocable Living Trust in Texas, such as:

• Planning for the Grantor’s possible future incapacity and need for assistance in managing his or her affairs
• Complicated dispositions of assets, such as the establishment of trusts at the Grantor’s death for his beneficiaries, or providing for various “pots” of assets with contingent distributions
• Estate tax planning
• Maintaining privacy regarding the disposition of assets
• Avoiding probate in other states where the probate process is more onerous.

Other Types of Living Trusts:

Revocable Living Trusts are called “inter vivos trusts” because they are created during the Grantor’s lifetime. Other types of inter vivos trusts, with varying uses and goals, include the following:

• IRA Trusts to provide for specific uses of inherited IRAs at the owner’s death
• Life Insurance Trusts to remove the value of life insurance from a person’s estate
• Gun Trusts to legally hold and transfer Title II NFA weapons 

• Special Needs Trusts to benefit recipients of government benefits without causing disqualification from the benefits.

Testamentary Trusts

Some trusts are established upon the death of the grantor, either through a decedent’s Will, or according to the terms of the decedent’s Revocable Living Trust. These are called “testamentary trusts” and include the following:   

• Family “pot” trusts for the care of minor children in a family
• Spendthrift trusts for the protection and preservation of assets left to beneficiaries
• Educational trusts to provide for education expenses of future generations
• Bypass trusts to ensure the full use of a decedent’s estate tax exemption and minimization of estate taxes
• QTIP Trusts to ensure that a deceased spouse’s assets, when left to the surviving spouse, are used according to the deceased spouse’s desires, but still subject to the estate tax unlimited marital deduction, and inclusion in the surviving spouse’s estate value
• Pet trusts for the continued care of a beloved family pet
• Qualified Domestic Trusts for leaving assets to a non-US-citizen spouse
• Special Needs Trusts for beneficiaries on means-tested government benefits, other than a child of the testator.

Work With Experienced Texas Estate Planning Attorneys

It is important to have an honest conversation with your estate planning attorney regarding your goals or concerns for the use and disposal of your assets at your death.  You also need to discuss any foreseeable health issues you may have. Virginia Hammerle and Kendra Rey regularly guide clients through the discussion of what trust structures may be most appropriate for them. Schedule a consultation to understand your options and get your questions answered.