Do You Really Need a TRUST ?
By LEU & PEIRCE , PLLC
As Elder Law attorneys , one question we hear often from our clients is : Do I need a trust ? And , ordinarily , the answer is : It depends . In its most basic form , a trust is a document setting forth an intent that assets be held and managed for the benefit of certain persons . The person making the trust is the Grantor ( also Settlor or Trustor ). The Trustee is the person administering the trust . Sometimes the Grantor and Trustee are the same person . The Beneficiary is the individual who will receive the benefit of the trust assets . The Trustee has a fiduciary duty to manage the assets in the trust for the benefit of the Beneficiary . Trusts can be revocable , such as a Revocable Living Trust , or irrevocable , such as an Asset Protection Trust or Testamentary Trust .
REVOCABLE LIVING TRUST Also known as Inter Vivos Trusts , Revocable Living Trusts are trusts that you set up during your lifetime to hold assets . If you have a Revocable Living Trust in place upon your death , it is possible that your loved ones may avoid the probate of your estate . During your lifetime , although your assets are titled in the name of the Revocable Living Trust , you always have the right to revoke the trust or amend its provisions . Therefore , ownership of the assets will be attributed to you for income tax , bankruptcy , creditor , and public benefits purposes . Revocable Living Trusts can be helpful for people who own property in states other than Texas , or where a grantor is expecting disputes amongst family members after his or her death . However , Revocable Living Trusts are not a one-size fits all solution . For example , a Revocable Living Trust is not an appropriate planning tool for someone who may need public benefits in the future .
IRREVOCABLE TRUST By contrast , an Irrevocable Trust cannot be revoked or amended after it is signed , and the transfer of assets into an Irrevocable Trust is considered a completed gift .
COMMON TYPES OF IRREVOCABLE TRUSTS INCLUDE
THE FOLLOWING : IRREVOCABLE LIFE INSURANCE TRUST Also known as an ILIT , this type of trust is created to assume ownership of a life insurance policy , so that the proceeds from the policy are not included in the grantor ’ s taxable estate upon their death . The insured individual is the grantor of the trust .
The grantor cannot retain any economic interest or control in the policy , or it remains subject to estate taxation .
ASSET PROTECTION TRUST This type of trust is sometimes used as a long-term planning tool to prepare for qualification for future public benefits , such as Medicaid and Veteran ’ s Benefits . Because a transfer into an Asset Protection Trust is considered a transfer of assets for public benefits purposes , a transfer penalty will apply if done within five years of applying for Medicaid and three years of applying for Veteran ’ s Benefits .
SUPPLEMENTAL NEEDS TRUST A Supplemental Needs Trust (“ SNT ”) is used to hold funds for a person who is receiving needs-based public benefits . The Trustee of the SNT makes distributions to the beneficiary for the purpose of enhancing the beneficiary ’ s quality of life , not for basic support , such as food or shelter . Particular care should be taken in the creation and maintenance of SNTs . Specific rules apply to SNTs based on whether the SNT is created by the beneficiary or a third party . And , distributions from SNTs must be handled carefully to avoid disqualifying the beneficiary from eligibility for public benefits .
TESTAMENTARY TRUST A Testamentary Trust is a trust created through the terms of a Will . Testamentary Trusts can be a helpful for protecting incapacitated or minor beneficiaries , or to allow the testator some control over the future use of assets .
Despite all the buzz about avoiding probate , probate in Texas is relatively quick and inexpensive . Do not allow yourself to be pressured into purchasing a complicated trust plan under the logic that the probate process is something to be feared and avoided . Further , even if you have a Revocable Living Trust in place , you still need current ancillary documents , including a Statutory Durable Power of Attorney , Medical Power of Attorney , HIPAA Release and Authorization , and a Living Will ( Advanced Directive ), among other documents . Schedule a visit with Leu & Peirce at 972-996-2540 or leulawfirm . com to discuss the estate planning options that are available and advisable for you .
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