A Trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries
There are many types of trusts. Trusts created during the lifetime of the trust-maker, the “Grantor” are referred to as “inter vivos” trusts. Trusts that “spring” into existence at the death of the Trustor are referred to as “testamentary” trusts. Trusts are either “revocable” or “irrevocable.” Revocable trusts are only inter vivos trusts but irrevocable trusts can be inter vivos or testamentary. Estate planners use both types of trusts for many reasons and to address many of the challenges in customizing your estate plan for you and your family’s situation.
Revocable Living Trusts
Revocable Living Trusts avoid probate and are a must for clients who meet any one of the following criteria:
- If you own real property or will inherit real property in another state or country (yes, timeshares too)
- If you or your spouse have been diagnosed with a debilitating illness
- Privacy is important to you and your family. The probate process (when a Will is filed with the court and administered) is public record.
In Texas, avoiding the costs of probate is not usually a primary reason for creating a revocable trust. In other states, the probate process can be very intimidating and expensive, making it almost mandatory to create a trust to save expenses. In Texas, an independent probate administration is not cost prohibitive, so creating a trust-based estate plan is generally spurred by one or more of the above listed reasons.
If you or a family member may be applying for Medicaid or other federal assistance you will also want to consider a trust.
If you have a revocable living trust from another state you will want to have it reviewed to “Texas-size” it as soon as possible.
Estate planners use irrevocable trusts for many purposes. If properly administered and funded, irrevocable trusts have their own separate legal identity and play a significant role in estate and asset protection planning.
The irrevocable trusts can be drafted to:
- “supplement” the benefits of a person who receiving SSI (Supplemental Needs Trust)
- hold the income or resources of a client who is applying for Medicaid (Miller or Qualified Income Trust)
- care for a child or grandchild with special needs after the death of the parent or grandparent for the lifetime of the child or grandchild
- “bypass” all or part of the estate tax liability of the estate (Bypass Trust)
- hold life insurance separate from the estate so that it avoids the estate tax but is available to assist the family when needed (Irrevocable Life Insurance Trust)
- assist with educational expenses for a child or grandchild (2503(c))
- set aside property in second marriage situations for the benefit of the new spouse and still protect the familial wealth for the children
- protect family wealth
- hold marital deduction property (Qualified Terminable Interest Property Trust)
- protect a spendthrift child from himself or herself
- preserve familial wealth
- protect assets from creditors
More Types of Trusts
More complex estates or estate plans may benefit from:
- Special Power of Appointment Trusts (SPAT)
- Gift trusts
- Spousal Lifetime Access Trust (SLAT)
- Charitable Remainder Trusts (CRT)
- Life Insurance Trusts
- Generation-Skipping Trusts
- Grantor Retained Annuity Trusts (GRAT)
- Qualified Personal Residence Trusts (QPRT)
- Charitable Lead Trusts (CLT)
- Asset Protection Trusts (APT)