Trusts can offer individuals and families an effective way to protect and preserve assets, ensuring they are passed on to succeeding generations according to their wishes and usually without the typical delay of probate court. If you are considering establishing a trust in Texas, you should understand the types of trusts available under Texas law so that you can choose a form of trust that best serves your goals and needs.
What Is a Trust?
A trust is a method for a person, known as a trustor, to give assets and other property to be held by another party, known as the trustee. The trustee then holds these assets for the benefit of the beneficiaries of the trust. The trustee manages the trust’s assets and distributes income and principal from trust assets to the beneficiaries in accordance with the terms of the trust document.
Trusts are commonly used as a means of passing on one’s property to heirs without the need to probate. This maximizes the value of the assets being passed on, since the expense of probate and estate and inheritance taxes can often be avoided. Trusts are also often used to ensure that family members who are disabled or have special needs are provided for.
In a probate, the costs of the will are small, but the costs of the probate in both time and money are unknown. But if a trust is used, the cost for the trust is known, and there is no probate.
What Types of Trusts Are Available in Texas?
Texas law recognizes different forms of trust. Each type of trust has different benefits and powers aimed at achieving certain estate planning goals of the grantor. Examples of trusts available in Texas include:
- Testamentary trust – A testamentary trust refers to a trust that is created by a grantor’s will. Because the trust does not exist until the grantor’s death, the given assets will usually need to pass through the probate process. A grantor may change the terms of a testamentary trust by amending their will, with the trust becoming irrevocable upon the grantor’s death.
- Living trust – (Also known as a revocable trust), a living trust refers to a trust that is created and funded during the grantor’s life. A living trust may continue following a grantor’s death, or the trust may be terminated upon the grantor’s death and the assets paid out to named beneficiaries. This allows the assets that a grantor turns over to a living trust to avoid the probate process upon their death. This type of trust can be modified after it is created.
- Irrevocable trust – Conversely, in an irrevocable trust, the grantor cannot change any aspect of the trust once it is created. Thus, assets in an irrevocable trust avoid estate taxes* upon the grantor’s death, although placing assets in an irrevocable trust may trigger transfer tax liabilities. These types of trusts are frequently used to apply for VA benefits.
- Special needs trust – This is a type of trust that allows someone to ensure that a disabled person is financially cared for. Special needs trusts are crafted in such a way that the value of the assets of the trust does not jeopardize the beneficiary’s eligibility for government benefits that may have financial restrictions, such as Medicaid.
*Currently, very few estates pay any estate taxes!
How an Estate Lawyer Could Help
An estate lawyer can help you through the trust planning and formation process by:
- Consulting with you about your estate planning needs and goals.
- Explaining the types of trust forms available and advising you as to which structures might best serve your goals.
- Helping you understand the tax implications of trust formation.
- Drafting the trust documents and other paperwork needed for you to form and fund the trust.
If you have questions about setting up a trust in Texas, contact the Bedford trust lawyer at Hargrave Law, PC, for an initial consultation. We’ll discuss your situation, your legal options, and how we could help you protect your assets through a trust. Call us today at (817) 282-0679 or get in touch with us online.