Once regarded as an estate planning tool for only the ultra-rich, trusts have gained popularity among Texans of varied social and economic standing. There are many different types of trusts, each providing various advantages. Texas estate planning attorneys regularly help clients of all circumstances determine which type of trust will best meet their specific objectives.
Generally, the primary concerns of those seeking to establish a trust include:
- Probate avoidance
- Maximizing tax exemptions
- Managing asset distribution
In response, experienced estate planning attorneys list the top 5 types of Texas trusts.
Top 5 Common Types of Trusts in Texas
Of the many different trusts, a handful seem most commonly preferred, each of which offers one or more of the benefits mentioned above.
- Living Trusts are established and funded by the grantor while the grantor is living. Assets are transferred into the trust by the grantor and ultimately disbursed from the trust to heirs of the estate after the grantor dies. Living trusts supersede any wills, and assets held in the trust do not pass through probate.
- Revocable Trusts may be changed or fully revoked at any time by the grantor. Upon the grantor’s death, a named trustee oversees the distribution of assets from the trust to the beneficiaries. Unless the grantor empowers a named designee to amend the terms of the trust, provisions of the trust may not be modified after the grantor’s death. Assets held in revocable trusts are not subject probate, yet they are included in the grantor’s taxable estate.
- Irrevocable Trusts allow an exclusion of assets held in trust from the grantor’s gross taxable estate. As such, assets placed into the trust cannot be removed, and changes to the terms and beneficiaries of an irrevocable trust cannot be made. Irrevocable trusts provide extremely favorable tax protections for assets of significant value, such as life insurance policies, personal residences, and annuities.
- Crummey Trusts are structured to allow gifts of assets to children over time, while excluding those “current” gifts from the grantor’s taxable estate. Further, the transfer of “gifts” into the trust allows the grantor to gift assets while avoiding potential gift tax penalties. Under a Crummey trust, the gift recipient has the right to claim the gift within 30 days, while it is in their interest not to. Unclaimed gifts roll into the trust, and are later distributed according to the terms of the trust. As the gift rolls into the trust, the grantor is incentivized to continue making future gifts.
- Educational Trusts are often used by parents and grandparents who wish to provide money toward the education of their children or grandchildren. Stipulations regarding the distribution of funds are built into the trust, ensuring that the money is used for its intended purpose.
Contact a Texas Estate Planning Attorney About The Types of Trusts That Are Right for You
There are many factors to consider when incorporating a trust into your estate plan. The type of trust you choose will depend heavily on your financial situation and family dynamics.
You need a knowledgeable trust attorney to explain the available options based on your particular circumstances and goals.
We encourage you to contact our office to speak with an experienced Texas estate planning attorney who will customize a plan to protect your assets for future generations. Reach out to us today for more information.