Trusts Resource Center

Living trusts

A living trust is created and funded by an individual who appoints himself as the trustee as well as beneficiary. Income is personal income and creditors can seize assets held within the trust. Upon death or incapacity, a substitute trustee identified in the trust is appointed and at death, new beneficiaries are identified. On the upside, living trusts are great for those who desire to avoid having their assets listed on court documents. A living trust is also a tool for managing one's assets upon incapacity. For those persons with real property located in other states where a sometimes costly ancillary probate procedure would be required, a living trust is sometimes helpful. On the downside, living trusts can be costly both in terms of initial and ongoing expense. A living trust only works as to property held by the trust. Many times, individuals forget to convey title into the trust. In such instances, such assets will pass pursuant to the Texas laws for persons without a will. Finally, a will (pour-over will) is still needed to transfer ownership of certain smaller assets that are not part of the living trust at death. Such will still requires probate.

Irrevocable life insurance trusts

This type of trust places a life insurance policy payable upon the death of an insured into a trust that the insured does not retain incidents of ownership on. Since the insurance is owned by a trust, the value of the death benefit is not included in the insured's estate for taxation purposes. Yearly insurance premiums, in an amount up to the yearly gift tax exclusion, are paid into the policy without payment of any tax. The beneficiaries are provided a period to withdraw the funds but make a decision to not withdraw such funds, thus the determination that the money to pay such premiums was a gift to such beneficiaries and not a taxable payment directly to a trust or directly to purchase insurance. This type of trust is a particularly clever means of avoiding taxation at death yet must be used cautiously in consideration of IRS challenges to administration in the past.

Miller trusts

This type of trust places certain monthly income into a trust so that an individual's income is reduced to less than the maximum amount the person needs to qualify for medicaid. The individual then qualifies for medicaid. The amounts placed into the miller trust will go to the government when the individual dies.

By-Pass Trust

A By-Pass Trust is sometimes also known as a credit shelter trust. A By-Pass Trust allows an individual (settler) to place assets equal to that individual's federal estate tax credit in a trust. The trust can be set up to allow the living spouse to operate as trustee for that person's benefit and/or the benefit of others designated by the settler or the living spouse. Upon the living spouse's death, property can pass to the settler's children or others without ever being taxed. For further information on estate taxation, click on Estate, Gift, and Generation Skipping taxation.

Marital deduction trust

Estate tax laws allow an individual to transfer an unlimited amount of property to that person's spouse at death without estate taxation. This can be accomplished by completion of an outright gift. It can also be accomplished by the use of a marital deduction trust which conveys the property into trust for the benefit of the living spouse during life and to others previously designated upon that person's death.

Spendthrift trust

This type of trust allows an individual to place assets into a trust for the benefit of a beneficiary, such as an adult child, who would otherwise be unable to manage trust assets properly or who's creditors would seek to take the property to repay debts if the property were given outright. In this type of trust, the trustee typically pays certain third parties for the beneficiary's benefit as provided for in the trust.

Information provided in this website is a courtesy, should not be relied on, does not create an attorney-client relationship, and is not a substitute for actual legal advice from an attorney you have retained. To schedule an initial consultation with Watson & Maynez, P.C. to discuss your matter and mutually determine if retention is appropriate, call today.

Inquiries