Trusts are a fundamental estate planning tool that have many purposes. At its core, a trust is a legally defined three-part relationship between the grantor (the person creating the trust), the trustee (the person managing the trust), and the trust beneficiaries (those for whom the trust is intended to benefit). Trusts can be used to reduce estate taxes, shield assets from creditors, avoid the probate process. Trusts also allow grantors to exercise more significant control over their assets after they pass on. At McCulloch & Miller, PLLC, our Houston trust planning attorneys have over a half-century of collective experience advising clients and creating effective estate planning documents, providing them with invaluable peace of mind.Revocable and Irrevocable Trusts
There are many different types of trusts, each offering its own unique benefits. However, for the uninitiated, the topic of trusts can be overwhelming. Before you begin planning a trust, it is important to understand the types of trusts available in Texas and some of the common trust terminology.
Trusts generally come in two forms, revocable and irrevocable trusts. A revocable trust is one in which the grantor retains the ability to change the terms of the trust during their lifetime. Assets placed in a revocable trust generally pass directly to trust beneficiaries upon the grantor’s death, bypassing the need for probate. However, while revocable trusts are flexible, assets contained in a revocable trust are still subject to estate taxes and other creditors.
Irrevocable trusts are less flexible in that, once they are established, the grantor many times does not have the authority to amend the trust’s terms. Thus, these trusts can only be modified under certain conditions. While this lack of flexibility is a considerable drawback, the trade-off is that assets in an irrevocable trust are not counted when assessing estate taxes and are often beyond the reach of creditors.Common Types of Trusts
In Texas, there are few types of common trusts used by estate planning lawyers. These include:
Testamentary Trusts – A testamentary trust, or pour-over trust, is created through a person’s last will and testament. Thus, testamentary trusts do not exist until the grantor passes away, at which point, designated assets will automatically transfer to the trust. Assets in a testamentary trust must first pass through probate before being distributed to trust beneficiaries. Testamentary trusts are often used to pass on assets to minor children.
Living Trusts – A living trust, or an inter vivos trust, is created through a trust instrument (rather than a will) during the grantor’s lifetime. Because of this, assets in a living trust do not pass through probate before being distributed to trust beneficiaries. Living trusts can be revocable or irrevocable.
Special Needs Trusts – Often, individuals with special needs rely on government benefits that require beneficiaries to meet strict asset limits. If someone receiving Medicaid or Social Security benefits inherits a large sum of money, house, or other assets, it may render them ineligible for benefits. A special needs trust, or supplemental needs trust, is a trust set up to provide for a loved one with special needs without jeopardizing their eligibility for critical needs-based benefits.
Spend-Thrift Trusts – Occasionally, individuals want to leave significant assets to a loved one, often a child, but worry about the beneficiary’s ability to responsibly manage a large sum of money. A spendthrift trust allows the grantor to name an independent trustee who oversees all distributions. This type of situational trust can also support passing on values and other goal-oriented principles that the grantor deems important.
Determining the types of trusts that suit your particular needs requires a detailed review of your familial and financial situation, as well as a thorough discussion of your wishes. A trust planning lawyer can help you understand the various trust options and select those that fit your unique needs.Contact an Experienced Trust and Estates Attorney Today
If you have questions about trusts or general questions about estate planning, contact the knowledgeable attorneys at McCulloch & Miller, PPLC. At McCulloch & Miller, we work closely with our clients to assess their needs, creating comprehensive estate planning strategies to protect wealth, eliminate unnecessary taxes, and provide our clients with peace of mind. We take as much time as necessary to listen to your needs before recommending any course of action and will never pressure you to make a decision. To learn more, and to schedule a free consultation with one of our Houston trust planning lawyers, give McCulloch & Miller a call today at (713) 333-8900. You can also reach us through our online form.