In this article, you will discover:
- The purpose of trusts
- When you must have a trust
A trust is a written document that specifies who you want to handle your estate at your death and who gets your assets at your death. It sounds like a will, but it functions very differently.
1. A trust provides for you
- To understand how a trust works you need to know certain terms
- Grantor – when you create a trust you are the Grantor of the trust
- Trustee – every trust has someone who manages the trust, known as the trustee. You are the trustee of your trust
- Beneficiary – trusts are created to benefit one or more persons, known as the beneficiary. You are the beneficiary of your trust
- So, when you create a trust and transfer your property into the trust, you continue to manage your property for your own benefit. Nothing changes in your day-to-day life.
- But you don’t own the property, the trust owns it. At your death, therefore, you don’t own any property so there is nothing to go through probate
- Successor Trustees – these are the individuals you name to manage your trust after your death. They also have the authority to manage your assets for your benefit should you become disabled because of an accident, illness, or old age. For example, when a person develops dementia, the trust can have a provision that allows a successor trustee to take over the financial management of the trust assets.
- This will help you avoid the expense and embarrassment of a court ordered conservatorship or guardianship.
- Contingent Beneficiaries – these are the persons you want to get your assets after your death. Your successor trustees manage your assets after your death and disburses those assets to the individuals you name as your contingent beneficiaries.
- A trust takes effect when you sign it.
2. A trust provides for your loved ones:
- After the death of the trustee, a successor trustee takes over the management without having to appeal to a court.
- The result is that the trust efficiently leaves your property to your loved ones while avoiding the delays and costs of probate court.
- Avoiding probate court also lowers the likelihood of someone contesting the estate at the death of the trustee.
3. A trust does not take your family public.
- A trust completely avoids probate, so there is nothing for the curiosity seekers to see.
- There are no attorney fees, no court costs, and no appraiser fees after death.
- All assets go directly to your loved ones exactly as you specify.
4. A trust always works.
- A trust is a private arrangement and courts will not interfere with them.
- Disgruntled beneficiaries cannot easily challenge a trust.
5. A trust can become unchangeable.
- A trust can specify that some or all of the estate becomes unchangeable at the death of the first spouse, so that the surviving spouse cannot either intentionally or unintentionally disinherit children of the deceased spouse.
You Must Have a Trust If …
1. You Have Beneficiaries Who are Minors
- Without a Trust, a minor’s inheritance is held in a court supervised conservatorship and paid out in a lump sum when the minor turns 18 years old. It is never a good idea to turn over a large sum of money in cash to an 18-year-old.
- With a Trust, you can set up rules as to when and how much money is given to a child and who will oversee it.
- The process requires no court supervision or intervention.
- The Trust is flexible and can be set up with whatever rules and regulations you want
2. You Have Disabled Beneficiaries
- A disabled beneficiary may not have the mental or physical capacity to handle the ongoing management of their money.
- They may be subject to coercion, undue influence, or making bad management decisions.
- An independent Trustee solves these problems.
- Leaving money to a disabled beneficiary may be like leaving them nothing at all.
- Disability benefits and Medicaid for medical costs are “needs based,” so leaving money to a disabled beneficiary may result in them not qualifying for benefits.
- With a “special needs” Trust, you can let the disabled beneficiary benefit from inherited assets during their lifetime, with the remainder going to another beneficiary at death.
3. You have Spendthrifts
- Spendthrifts are people who cannot hold on to their money.
- Trusts provide a way to protect spendthrifts from themselves.
- Allowance – leave a share of Trust assets but have it given out only a limited amount per month so they do not get a lump sum to waste
- Set Number of Years – have the Trust pay out installments over 5, 10, 15, or 20 years
- Retirement Accounts – set up a plan that pays a percentage at the death of parents with the balance held in
- Trust and invested until the beneficiary reaches retirement age
- This is a good way for parents to help children who may not be spendthrifts but may be in poor paying jobs or professions where they will have only a little retirement built up.
4. You have Blended Families
- Estate planning is essential for blended families to keep everything from ending up in the hands of the children of the spouse who lives the longest.
- A Trust can provide flexible options to insure the spouses’ intentions are followed:
- At the death of a spouse, there can be an immediate transfer of certain assets and money to that person’s children, with the rest staying in the Trust to benefit the surviving spouse.
- The Trust can become unchangeable at the death of the first spouse to ensure that the children of the deceased spouse are not disinherited by the survivor spouse.
- The most common technique is that the surviving spouse gets the use and ownership of all Trust assets, but cannot change the Trust to disinherit the children of the first spouse to die.
5. You Have a Disability
- A Trust avoids the need for adult guardianship.
- Combining a Trust with a DPOA and a MPOA, there is no need for a court supervised guardianship.
For more information on Common Types Of Trusts In The State Of Texas, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling 254-233-7300 today.