Trusts hold property while a grantor or testator is living and allow those assets to be passed down more simply than by a Will upon the death of a family member.
Trusts can also reduce a family’s taxes by shifting certain assets and fiduciaries to relatives in lower tax brackets or by controlling the finances of spendthrift family members.
As you can see, trusts serve many types of functions. There are several types of trusts created for various reasons.
Understanding Testamentary Trusts
In Texas, testamentary trusts are a type of trust or estate created upon and resulting from the grantor’s death. The terms of such trust are written in the grantor’s Last Will or are established via a court order concerning the deceased’s estate. Essentially, the trust does not exist until the grantor’s death, and upon this event, all of the grantor’s assets listed in the Will pass through probate after being moved into the trust.
You may change the terms of the trust any time before the grantor’s death. They can be contingent, indicating that the trust will only be developed or developed differently, depending upon certain conditions.
Understanding Living Trusts
Often known by the Latin name “Inter Vivos,” a living trust is created during the life of a grantor and is funded in the same way. Assets contained within living trusts bypass typical probate procedures. Also, a grantor’s death may end the terms of the living trust, or the trust can be designed to persist long after.
Living trusts may be created as “revocable,” meaning the grantor can terminate the trust itself or “irrevocable.”
What are Irrevocable Trusts?
When a grantor makes their trust irrevocable, it can no longer be revoked or amended. This designation means that even the grantor cannot change the trust’s recipients, alter the trust’s terms, or remove any asset from the trust.
The assets within an irrevocable trust are not included in the grantor’s gross estate for estate taxes, which means that the grantor may save substantial amounts of money in estate taxes, which is often why these types of trusts are created.
Understanding Totten Trusts
A Totten trust is created to deposit assets, typically financial, to beneficiaries gradually throughout their life. Often this is to keep the ‘presents’ off the taxes of the children who control their property or estate.
Do I Need a Trust, and If So, Which Type?
The misunderstandings and misinformation surrounding Texas trusts is vast and varied. If you want to understand the best possible routes to make your money and assets move in the ways you wish for them to, call Rainey & Rainey, Attorneys at Law, LP, for assistance at (254) 457-5083.