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The Zendeh Del Law Firm, PLLC Serving, Plano, Dallas & Ft. Worth Clients in Real Estate Planning

Trusts

Trusts are an extremely powerful, useful, and advantageous tool in estate planning.

In general, a trust scenario arises when a property owner wants to bestow benefits on a worthy individual or charity but does not want to make an unrestricted outright gift. Thus, the owner transfers legal title to a reliable individual or financial institution and equitable title to the individual or charity deserving the windfall.

The holder of legal title manages that property following state law requirements and the original owner’s instructions as specified in the trust instrument. The trustee then makes payments to or for the benefit of the individual or charity according to the original owner’s instructions. When the property is exhausted or the instructions are completed, the trust ends and, once again, title to any remaining property is unified in the hands of the individual or charity the property owner specified.

A trust involves three essential elements:

  • a trustee, who holds title to the trust property and is subject to equitable duties to deal with it for the benefit of another;
  • a beneficiary, to whom the trustee owes equitable duties to deal with the trust property for his or her benefit; and
  • trust property, which is held by the trustee for the beneficiary.

Creation of a Trust

A trust is created when a property owner (identified as the trustor or grantor or settlor or donor) transfers legal title of assets to a person (the trustee) who has the duty to hold and manage the asset for the benefit of one or more persons (the beneficiaries).

The settlor is usually the initial trustee. The terms and provisions of the trust may be in a trust agreement document or in the property owner’s will.

Purposes and Uses of Trusts

  • Provide for beneficiaries
  • Protect beneficiaries (e.g., minors, individuals who lack management skills, or individuals who are susceptible to influence)
  • Flexible Distribution of Assets
  • Protection Against Settlor’s Incompetence
  • Professional Management of Property
  • Probate Avoidance
  • Tax benefits
  • Avoidance of conflicts of interest

What is a Trustee?

Implicit in the statutory definition of a trust is the requirement of a trustee with administrative powers and fiduciary duties, as well as separation of legal and equitable title. A trustee is one to whom property is transferred for the benefit of someone else (the beneficiary). The trustee is the person who holds the legal title to trust property and has the fiduciary duty to manage that property according to the settlor’s instructions and applicable trust law.

If a trust appears suitable for your estate plan, you will want to select the trustee carefully. The family member or friend who comes to mind as a logical first choice may not really want to deal with the management of your assets. If a corporate trustee appears appropriate, we will suggest that you have a conference with a trust officer of the proposed bank or trust company. Further, you should consider giving someone, such as a committee, the power to change trustees. This could obviate the need to go to court to have a trustee removed and a successor appointed.

Common Types of Trusts

  • A testamentary trust is created in a will and comes into being at death or some future time.
  • An inter vivos trust is created during the life of the trustor and can be revocable or irrevocable.
  • Revocable inter vivos trusts are called “living trusts” and provide for asset management during the lifetime of the trustor and can provide for the disposition of assets held in trust after the death of the trustor.

Living Trust

A “living trust” is a trust that a person (the “Grantor”) establishes during his or her lifetime. A living trust may be for the Grantor’s own benefit or for the benefit of others. The trust may be funded either during the Grantor’s lifetime or at the Grantor’s death.

Revocable living trusts for the Grantor’s own benefit are appropriate in the following circumstances:

  • A will contest is likely or anticipated
  • The Grantor owns real property in another state
  • The Grantor is likely to become incompetent
  • The Grantor wants the disposition of his or her property to be kept private, and not in the public record
  • The Grantor wants his or her property holdings to be kept private, and not in the public record

With a living trust, the settlor continues to manage the estate during the settlor’s lifetime. The trust can be revised, amended or revoked for any reason, at anytime before the death of the settlor as long as the settlor is legally competent. Then, once the settlor dies, the trust owns the property. The successor trustee can immediately transfer all property owned by the trust to the trust beneficiaries.

Marital and Bypass Trusts

Marital and bypass trusts are probably the most commonly used trusts. These trusts enable a married couple to effectively use their unified federal tax credits and unlimited marital deduction to minimize federal estate taxes.

A bypass trust is a trust that is designed to be excluded from or “bypass” the surviving spouse’s estate for federal estate tax purposes. It enables a couple to utilize the applicable exclusion amount of each spouse. The surviving spouse can be a beneficiary of the Bypass Trust even though the Bypass Trust property is excluded from the surviving spouse’s estate for federal estate tax purposes. Without a bypass trust, any property left to the surviving spouse will be taxed in his or her estate at his or her death and, thus, the applicable exclusion amount of the first spouse to die would be wasted.

If you believe that a trust is a suitable option for your estate plan, please contact The Zendeh Del Law Firm, PLLC today.

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The Zendeh Del Law Firm, PLLC

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