Types of Trusts
The most basic and often utilized of all trusts in estate planning is called a living trust, which means that you create it while you’re alive and transfer your assets into it. Assets placed into a trust avoid probate court entirely.
In creating this instrument, you, as the trustor or grantor, name a trustee to manage your assets and to distribute them according to your wishes when you are gone. You can even name yourself as the trustee with a clause that transfers that role to another person should you become incapacitated or pass away.
A living (or inter vivos) trust is revocable. A revocable trust can be changed or amended as you see fit, or even discarded altogether. You can add or delete items to and from the trust, or change beneficiaries, whenever you like.
Another option is an irrevocable trust. Unlike a living trust, an irrevocable trust is basically cast in stone from the moment you create it. The assets placed in the trust will stay there forever, and your named trustee will be in charge of managing them.
The main advantages of an irrevocable trust are that it provides more legal protections against creditors and, in some instances, can help lower taxes. Since Texas has no estate tax, and the federal estate tax doesn’t kick in until one’s assets reach approximately $12 million, an irrevocable trust in Texas is mainly a hedge against potential legal assaults on your assets.
Shared and Individual Trusts
Living trusts can also be individual or shared. If a married couple has jointly-owned property, a shared trust will automatically transfer that property to the surviving partner when the other passes away. An individual trust can be used to protect any property you obtained before marriage or during marriage by gift or inheritance. The trust can then name who receives that property.
Even if you set up a living trust, you still should have a will, which can cover assets not specified in the trust or acquired after it was drafted. A will is also needed if you want to name a guardian for your minor children, which a trust cannot do.
The Process of Creating a Trust
Estate planning is generally not something you want to undertake without seeking qualified legal advice, so the first step is to consult with an estate planning attorney. I will certainly guide you every step of the way and explain your options to you in detail before you finalize your trust.
Here are the steps and main considerations in creating a living trust in Texas:
- Decide whether it’s an individual or shared trust
- Decide what property to include in the trust
- Name a successor trustee, who will take charge of the trust when you become incapacitated or pass away
- Name the trust’s beneficiaries — who gets what
- Create the trust document
- Sign the document in front of a notary public
- Change the title of your property placed in trust — house, cars, etc. — to reflect that it is now owned by the trust
What Assets Should Be Placed in a Trust?
You should place everything of value into your trust. This includes, of course, homes, land, vehicles, stocks, bonds, precious metals, interest in any businesses, patents and copyrights, heirlooms, antiques, and stamp or coin collections.
Insurance policies and retirement plans that name a beneficiary will transfer to that party automatically and will not have to go through probate.
The Value of a Skilled Attorney
A living trust and an irrevocable trust are just two of the different types of trusts that can help you plan for the future and prepare for uncertainties. Both allow you to name a trusted individual to handle your affairs when you cannot and oversee the distribution of assets to your beneficiaries. They also enable you to avoid the probate process that is required when you die with only a will.
My firm has helped countless others like you explore their estate planning options and arrive at the optimal solution to care for everyone involved. Remember, creating a trust not only avoids probate but also expedites the entire inheritance process.