TRUSTS

Living Trusts and Testamentary Trusts

What is a Trust and Who is it For?

Trust Definition

A trust is a legal entity that holds onto your property for the benefit of a named party.

If you have any assets, take notice: what you earned over a lifetime can easily be reduced or wind up going to the wrong people if you don’t take steps to protect it.

Trusts provide legal protection for your assets and set terms for the way assets are to be held, gathered, and distributed in the future. The ability to set the precise terms for assets you own today is what distinguishes this from other estate planning tools.

At its core, the intricacies of a trust are surprisingly straightforward.

Steve C. Holman

A trust can hold a variety of assets including money, stocks and bonds, real estate, or even a business. You (the trustor) give another party (the trustee) the right to hold title to property or assets for the benefit of a third party (the beneficiary). In many cases, you are both the trustor and trustee while you are alive. You may also choose to be the beneficiary during your lifetime as well.

A Few Key Benefits of Trusts:

You can avoid probate.
They can allow you to transfer assets without incurring huge tax burdens.
Gives you significant control over how your assets are used after you are gone.
Can protect assets from creditors.
They can even be used to help create or preserve eligibility for public funds when your assets or income might otherwise render you ineligible.

By setting up a trust, you reduce stress and emotional toll on loved ones and protect assets from misallocation, taxation, or misuse. It allows you to direct how your assets are used after you are gone. If you have any assets at all (a house, retirement savings, stocks, etc.), you will likely benefit from this estate planning tool.

Read our recent blog on this topic to see the top 10 ways trusts can help middle-class families.

How Do I Create A Trust?

Trust law is state-specific and complex.

Once you understand some of the basic mechanics you’ll be able to do a lot of the preparation legwork on your own, but you should seek professional guidance to draft or review your actual trust agreement.

Much of the beauty of a trust lies in its ability to carry out your wishes after you’re gone. By consulting a professional estate planner or elder law attorney you can be certain that the language of the trust agreement will actually fulfill your intent.

Identify the Components of the Trust

What people and property are involved?

A trust works by creating a new legal entity—the trust—and transferring legal ownership of personal assets to that entity for the benefit of another party. The first thing you’ll need to do is specify the components.

Grantor

You are the “grantor” (also called the “trustor” or “settlor”), the person creating the trust.

Trustee

You need a “trustee” to distribute the assets in accordance with the directions in the trust document. In many cases, you are both the trustor and trustee while you are alive and capable, but you will also name a “successor trustee” to act when you become disabled or deceased.

Beneficiaries

Who is the trust for, during your lifetime and after your death? You need to identify all beneficiaries---everyone you want to benefit from the trust. Beneficiaries are typically spouses, children, or other family members, but you can include anyone you choose.

Assets

Finally, you will need to identify what property and assets will be placed into the trust. It can hold a variety of assets including money, stocks and bonds, real property, a business, or even a life insurance policy.

What Are Your Goals?

Before drafting the actual document, consider your goals.

"Before you start the Trust process, ask yourself two questions: What do you want the trust to accomplish? What concerns or issues do you want to address?"

Steven C. Holman, Estate Planning Attorney

The trust agreement is the actual document that formalizes the trust. The agreement lists the assets, specifies the parties (trustees, successor trustees, and beneficiaries), and lays out the provisions to formalize your wishes.

Provisions of a trust agreement usually contain two sets of instructions. The first set of instructions describes how the trust will operate during your lifetime and the second describes how it will be managed after your death. If a married couple set one up together (as they would in a “joint trust”), a third set of instructions may be included to describe how it will be handled on the death of the first spouse.

Drafting A Legal Trust Document

Executing and Funding the Trust

Once you have a completed trust agreement, you will need to follow state-specific requirements to make a valid trust. This may include signing the documents in front of witnesses or having the agreement notarized. Some states also require public registration.

Finally, any property you want to be covered must actually be transferred into the trust. For any titled property, you need to have it retitled in the name of the trust by a deed, but for many things, you just need to execute an assignment of that property to the trust. You won’t place retirement accounts or annuities into the trust, so you need to make sure that the beneficiaries of those accounts are adjusted in order to operate in coordination with your trust.

Do you know what type of trust you need?

Learn more about Revocable and Irrevocable Living Trusts, Testamentary Trusts, and frequently asked questions about Trusts.

TYPES OF TRUSTS

We Can Help You Set up a Trust in Texas

Consult an expert estate planning attorney to help you match you with the appropriate trust to meet your goals. To get started, schedule a free consultation by filling out the form below.

Adult child shaking father's hand as mother looks on with a smile

Financial And Estate Planning For Your Young Adult Children

You’ve finally made it, your adult children have graduated high school. It’s a big moment for the whole family. All your hard

Special Needs Trusts In Texas Estate Planning

If you have a special needs child, you’re probably very concerned about the level of care your child will receive after you’re

How Trusts Can Fit Into Your Estate Plan

There are many reasons to use a trust when preparing your estate plan, and there are various types of trusts, each of

What Assets Can Go Into a Revocable Living Trust?

Many people think they should create a trust, but they don’t quite understand how it might benefit them. A revocable trust can both mitigate your tax burden and help beneficiaries avoid long and costly probate processes. Before you start a trust, though, you must ensure it will work for your goals. If you don’t, you may be wasting time and money and create a big mess for your family.