To start, let’s break down ten common types of trusts in simple terms, so you can get a basic idea of what’s out there.

Bypass Trust

Holds a portion of a deceased spouse’s assets and property. It uses the deceased spouse’s lifetime exclusion amount to potentially eliminate estate taxes. This trust is significant as estate tax calculations occur at the first spouse’s death, thus bypassing it for estate tax purposes at the death of the second spouse. It is often known as a credit shelter trust or family trust.

Generation-Skipping Trust

This trust allows you to distribute wealth to grandchildren or subsequent generations, free from taxation, by utilizing your lifetime exemption to offset potential taxes.

Special Needs Trust

Designed for supporting individuals with special needs. This trust also ensures that the eligibility for government benefits is not jeopardized due to the financial assistance.

Charitable Lead Trust

This trust channels income to your chosen charity for a specified period or lifetime. Afterward, the remaining funds benefit you or your loved ones, bringing substantial tax advantages.

Charitable Remainder Trust

Provides income to you for a specific period or lifetime. Afterwards, it directs the remainder to your chosen charity, yielding significant tax savings after the designated time or death.

Marital Trust

Geared toward the surviving spouse, this trust safeguards assets and property for their benefit and qualifies for the unlimited marital deduction. Assets are excluded from estate tax at the first spouse’s death but included for tax purposes.

Irrevocable Life Insurance Trust

Holding high-value life insurance, this trust receives the death benefit after the trustmaker’s passing. It exempts life insurance proceeds from the estate for tax purposes while serving liquidity needs.

Grantor Retained Annuity Trust

This irrevocable trust offers you an annuity for a specific period based on trust property’s value. Upon annuity completion, the remaining assets are given to named beneficiaries, advantageous for making substantial financial gifts.

Qualified Terminable Interest Property Trust

Offering income to the surviving spouse, this trust ensures beneficiaries receive the remaining assets upon the spouse’s death. It maximizes estate and tax exemptions, often applied in second marriages.

Testamentary Trust

Created within a will, this trust safeguards assets for beneficiaries instead of transferring them outright. Beneficial for those needing financial management or asset protection, testamentary trusts require probate before becoming active.

Let’s work together to determine the right trusts for your needs. Reach out now to schedule an in-person or virtual appointment. We’re here and eager to assist you.

If you think a trust might be warranted in your situation, you should sit down with an attorney experienced in estate planning to assist you in making sure a trust is correct and which type of trust.  We have the experience and would be glad to help you in this regard.

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The Texas Constitution Article I, §26 adopts the common law version of the Rule Against Perpetuities.  In 2021, the Texas Legislature made extensive revisions to Texas Property Code §112.036 that may extend the time period to 300 years from the effective date of a trust.  This was done to permit the creation of dynasty trusts in Texas.  Previously, the rule had stated property must transfer or vest within 21 years after some life in being at the time the interest was created, plus a period of gestation. 

The effective date of a trust is the date it becomes irrevocable, meaning the date the person setting up the trust dies or declares the trust is irrevocable.  This date is important because it is the date the interest in property is created and the time period subject to the Rule Against Perpetuities begins.  Thus, if grandfather’s trust states the property is to not be sold, but held in trust for grandson during grandson’s life, the maximum duration of the trust was the grandson’s life, plus 21 years.  If grandson had not been born, but was in gestation, then the period could be the grandson’s life, plus 21 years and an additional 9 months (gestation).  Now if that isn’t a complicated enough set of terms, imagine that the Texas Property Code now says that period maybe 300 years.  Article I, §26 of the Texas Constitution hasn’t changed.  So, the time period might be 300 years or the person’s lifetime plus 21 years.  

Head swimming yet?

Dynasty trust isan irrevocable trust that lets people keep wealth in the family for multiple generations.  Families can reduce the tax burden on successive generations of beneficiaries.  Now mind you, the current estate tax exempts the first 22 million dollars of a couple’s assets from estate tax.  So unless you are a professional sports athlete, politician or super rich, then this may not be an issue. 

It will be interesting to watch the legal battles over the issue of the Rule Against Perpetuities versus the Texas Property Code, but lawyers have certainly found a way to insure they will have work.  Not only will they have work, they will certainly be able to charge a high fee to their super rich clients. 

If you are thinking of leaving property to your family and want to protect the value of that property from taxation or make it a simple process to transfer those assets, you should seek the assistance of an attorney with experience in estate planning.  A little spent now, will save money and headaches for your family later.  If you are a professional athlete, politician or super rich, I would be glad to set up a retainer.  

Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C.  He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.  www.moakandmoak.com

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A trust is a legal instrument that transfers title to designated property from the owner, called the donor or grantor, to a trustee, who holds the property for the beneficiaries of the trust. The grantor can also serve as the trustee, thereby enhancing control over the trust during the life of the grantor. In such a case, a successor trustee is usually named in case the grantor dies or is incapacitated. Depending on the size or complexity of the trust, the trustee, or cotrustee, might be an institution, so as to bring more expertise to the position.

Testamentary Trust

A trust that is created as part of a will is called a testamentary trust. Testamentary trusts take effect when the grantor dies. It names the beneficiaries and gives directions for payment of the income from the trust and for disposition of the assets. The testamentary trust has the advantage of increasing the odds that an inheritance is used prudently. The trustee can manage the assets of the trust until such time as the beneficiaries are prepared to do so, as opposed to an immediate transfer of assets to the beneficiaries.

Living Trust

The second category of trusts is the living, or inter vivos, trust, which is created during the grantor lifetime. An important decision for a living trust is whether the trust will be revocable by the grantor or irrevocable. In either case, the assets are retitled in the name of the trust. This is often an area that is overlooked. Many grantors spend a great deal of money and time having a trust prepared, but fail to place their property in the trust or as assets change or are acquired, they do not continue to put them in the trust.

Many package trust I have reviewed also contain a pour over will. The purpose of this will is to convey anything that was not placed into the trust during the grantor’s lifetime into the trust at his/her’s death. However, this will equire probating the will to do so. A fact that is often overlooked by those creating the trust for the purpose of avoiding probate.

As the name suggests, a revocable trust may be dissolved entirely by the grantor. But short of that, the grantor may also change beneficiaries, replace the trustee, or change the composition of the assets in the trust. Revocable trusts do not remove assets from the grantor’s estate. The trust pays taxes on its income, and if any assets remain in the trust at the death of the grantor, they are part of his estate and at least potentially taxable as such. A revocable trust has few tax advantages.

An irrevocable trust permanently takes assets out of the grantor’s estate and puts them into the trust. While tax savings can be realized with an irrevocable trust,this type of trust is not to be entered into lightly, as it will take action by a court to alter it later. For tax purposes, the trust becomes a separate entity. Assets in the trust generally are not subject to estate taxes on the death of the grantor, but the transfer of assets into the trust may be subject to gift taxes. It is important to note that estate taxes may not even apply to the grantor’s estate. In order for them to apply the estate must exceed $2,000,000.00. An amount that will increase over the next several years.

When the grantor for a living trust dies, the trust assets pass directly to the beneficiaries. This is a way of conveying the property to who the grantor wishes outside of probate. However, avoiding probate should not be the main factor, especially in Texas where probate is relatively simple and inexpensive. A living trust also maintains the privacy of the estate. In Texas maintaining the privacy of the estate’s assets may also be achieved through probating an estate as a Muniment of Title. So again, this should not be the only factor the creation of the trust is based on.

Effective use of trusts in estate planning requires not only awareness of these trust basics, but familiarity with specialized trusts that might be a good fit for particular cases, such as those involving life insurance policies and charities. To decide on and implement the best option, use the services of a qualified attorney.

The attorney should be familiar with probate in Texas and the many advantages Texans have. Additionally, your attorney should work with your financial advisor with your estate plan to make sure everyone is working on the same goal.

Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas. www.moakandmoak.com

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Write down your goals. You may have a number of intertwined goals for your estate plan (this is especially true for blended and multigenerational families), or one simple-but-important goal such as “ensure my minor children have a place to go” or “keep the family business intact.” Knowing your goals from the outset will make all subsequent decisions much easier.

Make a list of the people you trust. Throughout your estate plan you’ll be nominating people to take over financial, healthcare, and guardianship responsibilities if something happens to you. Have a rough list of people you would trust in these roles. Begin with your initial goal and go from there. For example, if your initial goal was guardianship of minors, make a list of people you would trust with the care your child(ren), and move from there to financial and healthcare decision-makers.

Make a list of people you don’t trust. If you’re having trouble coming up with people for the list above, it sometimes helps to consider the people you would NOT want to be responsible for your child, your finances, or your healthcare. Write down those people and work backward from there. If your kids must be kept from crazy Uncle Joe at all costs, would your cousin Emily be an acceptable alternative, even if she does have a different parenting style?

Know your assets. Make a list of all your assets and their approximate values. This will help your estate planner determine what kind of asset protection you need in your plan. Assets include:
• Your Home
• Investment/Vacation Property
• Bank Accounts
• Savings/Investment Accounts
• Retirement Accounts
• Life Insurance
• Family Owned Business
• Farm/Ranch Property or equipment
• Art, Jewelry and other personal property of significant value

Bring In the Professionals. Estate planning is a very technical process, and the laws may frequently change, so you’ll definitely want professional help with the details of the process. The good news is that now that you’ve completed the beginning steps, the follow-through with your chosen professional advisor will be a snap! If you already have a relationship with a trusted attorney, insurance agent, financial advisor or CPA you’ll want to start there. Let that person know your goals and that you’re ready to begin planning in earnest. He or she will be able to guide you onto the next steps or give you the name of an estate planning professional who will help you build your ideal plan.

Although it looks overwhelming from the outset, estate planning is really just a series of small steps, each of which leads you to the achievement of your ultimate goal: Preserving your assets and protecting your loved ones. Now that you know it’s so easy… what are you waiting for?
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Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas. www.moakandmoak.com.

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