Trusts
Trusts are entities designed to hold assets for many purposes. A trust’s most basic function is to avoid probate and distribute your legacy to your loved ones faster, cheaper, and more privately than a will.
When most people think of trusts, they think of the tax-saving and asset-protection trusts used by the rich to preserve wealth. Trusts can be drafted with those goals in mind, but the most common trusts today simply ease the burden on your loved ones after you pass.
Trusts are rising sharply in popularity because of their flexibility and because they enable several advanced asset protection strategies. However, trust-based estate planning remains a niche area of focus that requires a great deal of research and training for even seasoned estate planning attorneys.
Hunter Sargent, PLLC is committed to delivering premier trust-based estate plans with the most current laws and asset protection strategies available.
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How Do Trusts Work?
All trusts are created by “Trustors” who are planning to secure their legacy, usually a married couple or an individual.
The Trustor selects an individual or corporation to manage and distribute trust property; this person is called the “Trustee”.
The Trustee must follow the Trustor’s instructions written in the trust while managing and distributing trust property to the “Beneficiaries” – the people who will benefit from the trust property.
Once the trust is created, the Trustor transfers their property into the trust and the trust takes care of the rest.
For most revocable trusts, the Trustor acts as Trustee and Beneficiary while they are alive – in that case, the person who created the trust can use their property just like they did before and not much changes during their lifetime.
However, when that person loses capacity or passes away, the trust names a successor Trustee to step in automatically and continue managing or distributing trust property to the trust beneficiaries. This is the primary value of a trust – without a trust, your loved ones may have to ask a court for guardianship over you or your legacy may have to go through the probate process.
Irrevocable trusts may have several goals that make this kind of structure unusable. Whether the goal of an irrevocable trust is privacy, tax planning, special needs planning, life insurance planning, or any other estate planning objective, you need to speak with an experienced estate planning lawyer before considering whether an irrevocable trust is right for your legacy.
What Kind of Trusts Are There?
There essentially 3 different types of trusts used for estate planning purposes:
- Revocable Trusts (sometimes called Living Trusts) are the workhorse of all trust-based estate plans. Simply put, revocable trusts distribute your legacy to your loved ones without anything becoming public record and without having to ask a court for permission. They can be changed and amended at any point before you pass or lose capacity.
- Irrevocable Trusts are extremely flexible tools that are used for estate planning goals ranging from protecting a special needs child to making sure your great great grandchildren have money to go to school. As the name suggests, irrevocable trusts cannot be changed or amended at any point.
- Testamentary Trusts are trusts created by a will. Many benefits of a revocable trust are lost on testamentary trusts because the will must go through the probate process before the testamentary trust can exist. However, there are several reasons a testamentary trust may be a good option for you.
- Qualified Domestic Trusts (QDOT) for protecting marital property from taxes when the surviving spouse is not a United States citizen.
- Marital Deduction Trusts for keeping marital assets free from federal transfer taxes upon death.
- Irrevocable Life Insurance Trusts (ILIT) for holding life insurance policies, which leverages the GST exemption and reduces the size of the taxable estate.
- Crummey Trusts for maximizing the annual gift exemption by managing unrestricted gifts to named beneficiaries.
- Medicaid or Asset Protection Plan Trusts for maintaining individual autonomy over assets while safeguarding your legacy from Medicaid or creditors and lawsuits.
- Perpetuity or Education Trusts for providing a benefit (often education or annual income) to a class of beneficiaries as long as the class exists.
- Special Needs Trusts for protecting a special needs beneficiary from losing public benefits while still utilizing trust property.
- Pet Trusts for making sure your pet has the assets they need to continue their quality of life after you’re gone. This idea may seem strange, but Texas law considers pets personal property that cannot own assets themselves. In other words, if you want to make sure your pet is taken care of after you’re gone, you need a pet trust.
