Trusts are commonly used estate planning tools for management of assets during lifetime and after death.

Terms used with trusts are:

Trust agreement
Written document by which trust is created and which describes the purposes and administration of trust. Your trust agreement should clearly describe all rights, obligations, authority and duties of the trustee and beneficiaries.

(also called Settlor or Trustor) – person who establishes the trust

The person or financial institution, such as a bank trust department, named in trust agreement to manage trust and its assets and administer trust according to the provisions of trust agreement. The grantor may also serve as trustee

Beneficiary or beneficiaries
The person(s) who benefit from the assets held in trust. Grantor may also be a beneficiary

Fiduciary relationship
(also known as fiduciary duty) – the Trustee’s obligation to administer trust and manage trust assets in the best interest of the beneficiary or beneficiaries

Two general categories of trusts

Living Trusts (also called “intervivos trusts”)
a. Revocable living trusts
b. Irevocable living trusts

Testamentary Trusts

Living Trust – grantor creates trust during lifetime for management of assets but often trust continues after grantor’s death; grantor dies but the living trust does not die.

Revocable living trust

  • Grantor retains power to change or revoke trust during lifetime
  • Commonly used to avoid probate and public disclosure of assets in probate court
  • If grantor/beneficiary becomes incapacitated, revocable living trust may avoid guardianship of assets
  • Can contain provisions to minimize federal estate inheritance taxes

Irrevocable living trust

  • Grantor cannot easily revoke or change trust; probably requires court action
  • Assets transferred into irrevocable trusts involve federal gift tax
  • Irrevocable life insurance trust (“ILIT”) very useful tool to minimize federal estate inheritance taxes

Testamentary Trusts – in his will grantor provides for a trust to be created upon grantor’s death. Trust agreement is contained in the will. These trusts often contain provisions to minimize federal estate inheritance taxes. Very useful to manage assets and control distributions of money to beneficiaries for years after grantor’s death.

Trusts, whether living trusts or testamentary trusts, are wonderful tools. Trusts permit you to manage assets during your lifetime, provide for family and descendants after your death, minimize federal estate inheritance taxes, make charitable gifts, supplement governmental benefits for beneficiaries; just a few of the advantages of trusts.

Your circumstances, family, goals and needs are unique, therefore, your trust(s) must be custom designed for you by an experienced estate planning attorney. Beware of living trust mills or “financial specialists” selling “one-size-fits-all” trusts. An excellent article on the State Bar of Texas website exposes these living trust scams.