Creating an effective estate plan used to mean drafting a will. However, modern estate plan options can help to transfer property more easily. Not only can this result in the transfer of property at any time, but it can also provide protection against taxation and help to simplify the probate process. Creating a Trust can serve each of these purposes.
A Houston trusts lawyer may be able to help you. A dedicated attorney can work with you to understand your estate planning goals, determine whether a trust is right for you, and craft trust documents that carry full legal effect.
What is a Trust?
A trust is a way to transfer property to another party. These parties can be individuals, businesses, or even charitable organizations.
To create a trust, state law under Texas Trust Code § 112.001 provides three options. These are:
- A property owner’s declaration that the hold the property as trustee for another
- A property owner’s transfer of property to another person with that person named as a trustee
- A property owner’s transfer upon death of property to another as a trustee
In simpler terms, a person creates a trust when they transfer property to another to hold. A Houston trusts lawyer can help you to better understand the basic concept of a trust.
How Do Trusts Function?
The purpose of any trust is to transfer property from one person to another. An essential player in this concept is the trustee. A trustee takes temporary control over the property until the designated time arrives. At this time, that trustee must give the property to the beneficiary or beneficiaries. This time may be a specific date in the future or the time of the trust maker’s death.
Trusts may serve many purposes. Common reasons to create a trust include:
- Preventing beneficiaries from being disinherited which occurs a lot with second marriages and will based planning
- Owning real property in more than one state
- Passing the estate to more than one generation
- Providing for aging parents
- Providing funds to a charity
- Holding property for a minor heir until that person becomes an adult
- Distributing funds at a set rate for a certain period of time
A skilled Houston trusts attorney could help to identify your needs and craft documents that further your goals.
What Advantage Come With a Trust?
Many people are unaware of the advantages of using a trust. One advantage to creating a trust is avoiding probate. Property that moves as the result of a will must flow through the state’s probate process. This can be both lengthy and costly. Additionally, interested parties may dispute the authenticity of the will. Once property goes into a trust, it is no longer part of a person’s estate. As such, it is not subject to scrutiny in probate.
Another advantage is avoiding taxation. Once property is gifted into a trust, the original owner no longer controls it. Due to this, that trust maker does not need to pay taxes on it. Similarly, beneficiaries will not need to pay a gift tax when they receive the property.
How Various Trusts Protect You, Your Family, and Your Accumulated Assets
Because of the variety of types of trusts, and the complexities of each, it is essential to have a skilled trust attorney working with you as you plan your estate. Hegwood Law Group has experience handling all of the following:
Revocable Trusts are also known as living trusts; as such they can be altered or revoked throughout your lifetime. The price of this flexibility is that the revocable trusts remains part of your estate and can therefore be taxed. Even so, when you die, the revocable trust will become irrevocable and the property held in trust will be passed on to your beneficiaries. Two major advantages of revocable trusts are that  they avoid probate and  they preserve your financial privacy since, unlike wills, they are not public documents. At the time of your death, a revocable trust becomes irrevocable.
These cannot be changed or revoked once they have been created. Examples of irrevocable trusts are trusts for minors, insurance trusts, and charitable trusts. Though they are permanent and don’t give you the flexibility of revocable trusts, they are advantageous in terms of taxation.
Trusts for Minors
Trusts for Minors are established to protect a minor child until he or she reaches adulthood. While some minors trusts provide specific benefits to the minor during childhood, others designate that the funds are only to be distributed when the minor reaches adulthood. Some have restrictions that only permit the minor to inherit funds when he or she reaches a particular age or achieves a particular goal, like finishing college.
These trusts are created to protect individuals who are disabled in a way that prevents them from consistently managing their own finances. The beneficiary may be cognitively or psychiatrically disabled to the point that he or she is incapable of using money in a reasonable way. The trustee of a special needs trust is tasked with doling out money gradually so that the vulnerable individual will have enough money for the rest of his or her life. The trustee also manages the funds so that the special needs person does not “own” them, and is therefore still eligible to receive government benefits like Medicaid.
Spendthrift Trusts protect irresponsible beneficiaries from their own potential bad choices. Individuals who are addicted to alcohol, drugs, gambling or wild shopping sprees need someone else (the trustee) to keep them from having access to a large sum of money. The trustee is given the power to dispense assets in reasonable amounts for rational purchases. In other words, the trustee’s sound judgment substitutes for the spendthrift’s questionable one.
Testamentary Trusts are designed to go into effect after you pass away. They can hold assets you have amassed during your lifetime as well as assets that are only dispensed when you die, such as life insurance proceeds or funds from a wrongful death settlement.
Married A-B Trusts
Also known as bypass trusts, allow spouses to combine their exemptions for use by either individual. When one spouse dies, instead of his or her assets being transferred to the other spouse, those assets are transferred to an irrevocable trust. It may even be possible for the surviving spouse to receive income generated by this trust for living expenses. This is helpful when a very large estate is involved, one which, if not for the marital trust, would be vulnerable to a heavy estate tax after the death of the second spouse.
Qualified Terminable Interest Property (QTIP) Trusts
These trusts qualify spouses for an unlimited marital deduction, meaning that no estate taxes will have to be paid by the surviving spouse when the first spouse dies. In addition, a QTIP trust also permits successor beneficiaries to receive untaxed assets after the surviving spouse dies.
Qualified Personal Residence Trusts (QPRTs)
Qualified Personal Residence Trusts (QPRTs) permit you to give your beneficiary your house as a gift, paying a low gift tax rate, while you continue to use your home during your lifetime. With a QPRT, estate tax is also avoided.
These trusts as mentioned earlier, are irrevocable. In Texas, a charitable trust receives favorable federal tax treatment. Texans have the added advantage of not having to pay state income tax. It is possible for Hegwood Law to set up your charitable trust as a remainder trust which means that you and your family retain the income generated by the amount given to charity. In some cases we can arrange for the surviving spouse to receive remainder benefits when the first spouse dies.
This type of trust make it possible for you to give gifts while taking advantage of the gift tax exclusion and retaining the ability to limit the recipients access to the funds.
Pet trusts allow you to ensure that your beloved pet will be well cared for during its lifetime, even if you predecease your pet or become too incapacitated to tend to it yourself.
Contact a Houston Trusts Attorney Today Today
Trusts offer a modern solution to the problem of distributing assets. Unlike traditional wills, trusts allow for an easier way to transfer property. At the same time, they allow beneficiaries to avoid the probate process.
Reach out to a Houston trusts lawyer today. An attorney could talk with you concerning your estate planning needs and to determine whether a trust is the right option for you. This includes identifying your goals and crafting the documents necessary to make those goals a reality.