TEXAS ESTATE PLANNING

What Is A Trust?

Why Should You Create A Trust?

Trusts can be used for many purposes. They are often used to:

• Minimize estate taxes
• Shield assets from potential creditors
• Avoid the expense and delay of probating your will
• Preserve assets for your children until they are grown (in case you should die while they are still minors)
• Create a pool of investments that professional money managers can manage
• Set up a fund for your own support in the event of incapacity
• Shift part of your income tax burden to beneficiaries in lower tax brackets
• Provide benefits for charity

The type of trust chosen should depend on what you are trying to accomplish. You may need more than one type of trust to complete all of your goals. Since some disadvantages may affect you, it's wise to discuss the pros and cons of setting up any trust with your attorney and financial professional before you proceed:

• A trust can be costly to set up and maintain. There are trustee fees, professional fees, and filing fees that must be paid
• Depending on the type of trust you chose, you may end up giving some control over the assets in the trust
• Maintaining the trust and complying with recording and notice requirements can take up considerable time
• Income generated by trust assets and not distributed to trust beneficiaries may be taxed at a higher income tax rate than your individual rate

Wilson Whitaker Rynell

The attorneys here at Wilson Whitaker Rynell are prepared to guide you in all of your estate planning and questions. If you are looking to take the next step in preparing your assets, please contact our firm for a free consultation to discuss your best options. 

Frequently Asked Questions

The Duties Of The Trustee

The trustee assigned has specific fiduciary duties to uphold the loyalty to the beneficiaries. The trustee must act in the best interests of the beneficiaries at all times. They must preserve, protect, and invest the trust assets for the benefit of the beneficiaries, no matter what. Also, the trustee must keep accurate records, exercise reasonable protection when managing the trust, and avoid mixing trust assets with any other assets, especially their own. A trustee that lacks the knowledge regarding a trust should hire professionals such as attorneys, accountants, brokers, and bankers for the sake of protection for all parties. However, the trustee shouldn't solely delegate the responsibilities to another party.

Although many of the trustee's duties are established by state law, the trust document defines the others. If you are the trust grantor, you can help determine some of these duties when you set up the trust.

Living (revocable) Trust

A living trust is a particular type of trust. It's for you to create a legal entity while you're alive for your property, such as your house, a boat, or investments. Property that passes through a living trust is not subject to probate and won't be treated like the property in your will. Meaning, the property transfers through a living trust and won't be held up while the probate process is pending. Instead, the trustee will transfer the assets to the beneficiaries according to your instructions. The transfer can be immediate, or if you want to delay the transfer, you can specify that the trustee holds the assets until a particular time.

Living trusts are great because they are revocable. You are able to maintain control and can change the trust for as long as you live. Living trusts are also private and not public records like a will. No one can review details of the trust documents unless you allow it.

Living trusts can also be used to help you protect and manage your assets if you become incapacitated. If you can no longer handle your affairs, your trustee steps in and manages your property. Your trustee must administer the trust according to the terms you selected and always act in your best interests. A court could appoint a guardian to manage your property in the absence of a trust.

Despite these benefits, living trusts have some drawbacks. For example, assets in a living trust are not protected from creditors, and you are subject to income taxes on the income earned by the trust. Furthermore, you cannot avoid estate taxes using a living trust.

Irrevocable Trust

An irrevocable trust can not be changed once created. You are not able to remove assets, change beneficiaries, or rewrite any terms. Regardless of these stipulations, it is an extremely valuable estate planning tool to utilize. You can begin by transferring the assets you don’t mind losing control over into the trust, then evaluate whether you will have to pay gift taxes on the total value for the property that was transferred.

If you have given up control of your property, the taxes are the taken out of your taxable estate. Meaning, your ultimate estate tax liability might be less, which allots an overall higher amount going to your beneficiaries. The property passed through an irrevocable trust does not have to go through the probate process, also protecting the said property from creditors.

Keep in mind, there are many different kinds of irrevocable trusts. Many have special provisions and are used for special purposes with some holding life insurance policies or personal residences. An irrevocable trust can also be set up to generate income for you. 

Testamentary Trusts

Additionally, a testamentary trust can be established by your will. However, these trusts don’t come into existence until your will is probated. Once you have selected assets to pass on through your will, you can “pour over” into the trust, which then allows these kinds of trust to work just like other trust. The terms of the trust document will control how assets are managed and distributed to your heirs. Since you have the ultimate say in the trust terms and how they are written, testamentary trust can give you a certain amount of control over how the assets are used, even after you have passed.