What Trust Should I Choose in Texas?

An overview of the types within which you might place your assets

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Trusts are not just for the ultra-wealthy. They are a common estate planning tool that can help keep your assets out of probate court following your death. But there are multiple types of trusts used in Texas, each of which serves a different function. Here is a brief overview of some of the more common types of Texas estate planning trusts.

Revocable Living Trusts

Also known by lawyers as “inter vivos” trusts, this is a document transferring legal title to certain assets from a grantor to a trustee. In most living trusts, this is actually the same person. In other words, Jane Smith gives her property to Jane Smith, as trustee of the Jane Smith Revocable Living Trust. Because the trust is revocable, the grantor has the freedom to alter or revoke the trust at any time prior to their death. Once the grantor dies, however, the trust becomes irrevocable, and its assets are managed or distributed in accordance with the grantor's instructions. And since the assets belong to the trustee, they do not pass through the grantor's probate estate.

Irrevocable Trusts

The main drawback to a revocable trust is that it does not shield assets from the settlor's creditors. This is where an irrevocable trust may be useful. As the name implies, these are trusts that cannot be altered or revoked by the settlor once created. A common example of this is an irrevocable life insurance trust or ILIT. This is basically a holding device for the settlor's life insurance policies. The settlor pays the insurance premiums to a trustee, who holds the policy for the benefit of someone other than the settlor, such as a child or spouse. But since the settlor retains no control over the ILIT, his creditors cannot touch its assets.

Charitable Remainder Trusts

This is a special kind of irrevocable trust. The grantor turns over certain assets to the trustee. For a specified time period, the income from the trust is paid to the grantor or another person they designate, such as a family member. When the time period expires, the remaining trust assets are then paid to one or more beneficiaries, which must be charities.

Testamentary Trusts

This is a trust created as part of an individual's last will and testament. So unlike an inter vivos trust, the testamentary trust does not exist until the testator–the person who made the will–dies. Testamentary trusts are often used to handle conditional bequests of property. For example, John Smith creates a testamentary trust in his will appointing a trustee to distribute certain property to his children when they reach 30 years of age.

Which Trust Is Right for Me?

These are just a few of the trusts you might want to consider as part of your own estate plan. A qualified Texas estate planning lawyer can provide you with an individual assessment of your assets and tailor a trust to meet your needs.

Texas

An irrevocable trust, such as an ILIT, can help you shield certain assets from your creditors.

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