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A few of the reasons people have trusts drafted are for asset protection, to avoid the need for probate, to provide financial care for children, aging parents or other loved ones.
There are many different kinds of trusts and the type you want to have drafted depends upon your reasoning for having the trust drafted in the first place. A trust can be drafted with the intent that it exist during your lifetime. This is called an "intervivos” or “living trust." A "testamentary trust" is another type of trust that does not exist until your death. These are trusts that come into being at the time of your death and originate through instructions left by you in your will.
"Living trusts" start during your lifetime and serve the purpose of having a trustee manage assets you put into the trust. This property can be for the care and maintenance and for the benefit of the beneficiaries. Living trusts can survive your death with the benefit being received by beneficiaries named in the trust document allowing the benefits to continue uninterrupted following your death. This is an excellent way to completely avoid probate if handled correctly.
Testamentary Trust
A testamentary trust does not begin to exist until the time of your death. The terms of this trust are determined in your will. You can limit the powers you give the trustee of the trust only as to specific duties or you can grant the trustee very broad powers. This is left to your discretion.
A few of the uses of a testamentary trust are to provide for the health, welfare and education of your children or grandchildren; to provide a fund to children or grandchildren for a time in their lives when they may not be able to support themselves or for the care and maintenance of aging parents who may need care following your death.
Revocable Trust
A "Revocable Trust" is probably the most common type of trust clients want. Revocable trusts allow you to avoid the expense and time of probate, allowing for an easier transition and transfer of assets to the beneficiaries while preserving your privacy. A revocable trust authorizes a trustee to own and manage their assets while they are inside the trust. The trust can allow the trustee to make changes in the trust and revise it up until their death. Also the trust can be dismantled and all of the assets can be taken out of the trust if necessary.
Irrevocable Trust
An "Irrevocable Trust" is different from a revocable trust in that it cannot be changed, modified or altered without the permission of the beneficiary. After transferring the assets into the irrevocable trust, the grantor loses all of his/her rights of ownership in the asset and the asset becomes the property of the trust.
How specifically does a trust work? You hire a lawyer to draft your trust. You make an appointment to discuss the reason for the trust. You decide on the person or company you want to designate as the trustee and name the beneficiaries. You "fund the trust" by placing the assets you want put into the trust. [NOTE: any assets kept out of the trust are not part of the trust and may need probate to pass those assets to your heirs. I recommend putting all your assets into the trust, but we will need to discuss this.] The trustee manages the assets or property of the trust and protects it for the benefit of the beneficiaries. For the most part, the powers and duties of the trustee are governed by the Texas Trust Code, but these powers and duties can be restricted or broadened accordance to your designs. The trustee is charged with protecting and preserving the assets within the trust for the beneficiaries. The trustee is legally accountable to these beneficiaries for any mismanagement of the assets that conflict with the Texas Trust Code and the instructions as you have outlined them in the trust document. Regarding bonds, an individual named as the trustee of the trust will be required to post a bond unless you specifically relieve them of that requirement in the trust document. A corporate trustee will not be required to post a bond.
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What Is A Trust
A trust is a legal way to protect assets and possibly avoid the need for probate altogether. A trust is a powerful tool in estate planning. A trust establishes a fiduciary relationship with a trustee (this can be a person or a company) that requires the trustee to perform certain duties (spelled out in the trust document) to protect and take care of specific assets for the benefit of the beneficiaries.
POUR OVER WILL
A "Pour Over Will" is often drafted for people with trusts. A pour over will simply states that following the issuance of letters testamentary, any assets not in the trust, be put into the trust and then the trust dictates how the assets are to be treated.
Can my estate be too small for a trust? Maybe. However, if you own a home, the equity in that home is most likely enough to justify a trust. Even if the
Michael L. Holland Attorney At Law
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[This article is for informational purposes only and is not to be considered legal advice. For more information please contact our office and ask to speak with the attorney.]
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purpose of the trust is to avoid the expense and trouble with probate.
How many restrictions are placed upon the trustee of my trust? The Texas Trust Code requires the trustee to “exercise the judgment and care under circumstances then prevailing that persons of ordinary prudence, discretion and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income from as well as the probable increase in value and the safety of their capital.” The specific details governing the trustee and the assets and distribution of those assets upon certain triggering events can be dictated by you when the trust document is drafted.