Manage and Protect Your Legacy
Dallas, Texas Trust Attorneys
What is a Trust?
A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in a variety of ways and can specify how and when the assets pass to the beneficiaries. One of the benefits of trusts is that they usually avoid probate and allow a quick transfer of assets and can help avoid estate taxes. Ultimately trusts can save time, fees and reduce your tax burden.
Why do people set up (or need) Trusts?
Although a Last Will and Testament is usually sufficient, occasionally clients should consider a trust to more effectively help them in their estate planning. Trusts can be beneficial in the following circumstances:
- Clients have a net worth which would create a Federal Estate Tax liability upon their death (more than $11 million)
- Clients desire to provide very detailed limitations or instructions on how or when assets may be used for the benefit of a beneficiary
- Clients feel as though one of their beneficiaries would need significant safeguards in dealing with the assets, other people, or personal circumstances (such as drug or alcohol addiction)
- Clients desire to set up a fully-funded trust during their lifetime which can be used as a vehicle to take care of them during an extended disability
- Clients desire to avoid the probate process altogether (either because they don’t trust the court system or want complete privacy)
Setting up a trust gives you peace of mind knowing your legacy will be honored as you envisioned well after you pass. Trusts give you maximum control over your wealth and privacy. A trust can minimize conflict and ensure your family gets the full benefits of your life’s work. Working with a estate planning attorney to help set up the right type of trust for your circumstances is the best way to protect your assets far into the future.
Also known as a “living trust,” a revocable trust can help your assets pass outside of probate while allowing you to retain control of the assets during your lifetime. A revocable trust is flexible and can be dissolved at any time, should your circumstances or wishes change. Although a revocable trust may help avoid probate, it is typically still subject to estate taxes.
An irrevocable trust usually transfers your assets out of your estate and potentially out of the reach of estate taxes and probate. However, it cannot be altered by the grantor after it has been executed. Once you establish the trust, you will lose control over the assets and cannot change any terms or decide to dissolve the trust. An irrevocable trust is generally desired when your primary aim is to reduce the amount subject to estate taxes.
Essentially, these are limited trust provisions which are included in a Last Will and Testament (internal link). Testamentary trusts, sometimes called will trusts, are irrevocable once the testator dies. They are created to manage your assets on behalf of your beneficiaries. Testamentary trusts are frequently used when the beneficiaries are children or disabled people.
Supplemental Needs Trusts
A supplemental needs trust allows a physically or mentally disabled or chronically ill person to receive income without reducing their eligibility for public assistance disability benefits. Supplemental needs trusts are popular strategies for those who want to help someone in need without taking on the risk that the person will lose their eligibility for programs that require their income or assets to remain below a certain limit.
An insurance trust is another irrevocable type of trust. It’s set up with a life insurance policy as the asset and allows the grantor of the policy to exempt the asset away from his or her taxable estate. After the life insurance policy is placed in the trust, the insured person no longer owns the policy, it will be managed by the trustee on behalf of the policy beneficiaries upon death. Insurance trusts can help reduce beneficiaries’ estate tax burden.
Frequently Asked Questions
Unless you agree that the Trust is not revocable upon being made, any trust can be changed or revoked until your death.
Yes. Texas law allows the creator of a trust to serve as the Settlor, Trustee, and Beneficiary as long as certain requirements are met.
It depends. Just as an individual who receives income must file an income tax return, a trust may need to as well. Sometimes the Settlor (or “Grantor”) of the Trust may include trust income on his/her income tax return. You should consult a licensed and qualified attorney or Certified Public Accountant regarding specific tax questions.
A trust is not “better” or “worse” than a Will; it is simply different. Like tools used by a carpenter, trusts and wills have entirely different uses. While some law firms try to sell every client who can afford one a trust, regardless of wealth, not every client needs a complex (and expensive) trust. If a lawyer recommends that you create a trust, he or she should be able to explain in detail why you would benefit from such a trust.
A trust is a legal relationship where one or more persons transfer property to a trustee to hold and administer for the benefit of beneficiaries. While it is not strictly a legal entity, a trust is easily thought of like a company. The maker of the trust (sometimes known as the “Settlor” or “Trustmaker”) conveys money or property to a Trustee (like the CEO) who administers the assets of the trust for the benefit of the beneficiaries (like the stockholders). Trusts can be created for a number of purposes including tax savings, privacy, creation of unique or special estate plans, holding specific assets (such as real estate, art or a firearms collection) or simply because they offer the Settlor a level of certainty that other types of estate planning may not. The creation of trusts can be more complex than traditional wills and are not appropriate for every client.