Estate Planning Series Continues
Welcome to entry #5 of our estate planning series—Estate Planning 101. Long time readers will remember that Trusts aren’t just for rich people.
If you will recall from Estate Planning 101, a Living Trust can to “help manage your assets during life and to distribute those assets at your death.”
What is a Trust?
A trust is a fiduciary instrument created by a “grantor”, managed by a “trustee”, and created to benefit the “beneficiaries.”
A grantor is the person who “grants” the trust into being; the trustee is the person appointed by the grantor to manage and care for the property within the trust; and the beneficiaries are those who benefit from the trust and will receive the property once the trust ends.
There are many different trust types, two of the most common being the testamentary trust, and the inter vivos trust. We will focus on those two in this post.
A testamentary trust is a trust created in a testamentary document, meaning a will. A testamentary trust is only created following the grantor’s death and will possibly be subjected to the lengthy probate process. An inter vivos, or “living trust”, is a trust created while the grantor is still living to protect the trust property, or res, from passing through probate.
How is a Trust Created?
As mentioned above, a testamentary trust is outlined and created through a will. A living trust however, is created by drafting a trust instrument which appoints a trustee, designates the beneficiaries, is signed by the grantor, and notarized. Trust property is then transferred into the name of the trustee as trustee of living trust.
A trust instrument may designate whether a trust is revocable or irrevocable. An irrevocable trust, is by nature, irrevocable. Therefore, once the grantor has created and transferred property into the trust, they effectively remove all of their rights to the property.
The trust can only be modified or terminated with the consent of all of the beneficiaries. A revocable trust, however, can be changed by the grantor at any time. Note that a revocable living trust may become irrevocable upon the death of the grantor.
Who Can Be a Grantor?
The simple answer: Anyone. Many people hear the term trust, and assume only the rich need to worry about a trust. While there are many advantages to setting up a trust when you have a sizeable estate, there is no reason any person should not create a trust if they feel they have property to protect.
Who Should Serve as Trustee?
As mentioned above, the trustee is the person appointed to manage the property in the trust. The trustee must only have the legal capacity to take, hold, and transfer the trust property to be qualified under the Texas Probate Code.
In a testamentary trust, that person would be appointed in the will and in many cases would be the same individual appointed as executor of the estate. Most often in a living trust, the grantor appoints himself as the trustee allowing the grantor to maintain control of the property and protect it for the beneficiaries.
A grantor may choose anyone to serve as trustee, however, you must consider the type of property to be managed and the skills of the person you are considering. If a large amount of money is involved, a bank or professional trust company may be your best option; if stocks and bonds are the crux of the property, a stock broker may be the best fit. Make sure your trustee can prudently handle the property you are trying to protect.
It is also important to ensure that you trust your trustee. The purpose of a trust is to protect property while avoiding probate. When picking a trustee, use the same judgment that you would use when Picking an Estate Executor.
What Kind of Property Goes Into a Trust?
A trust cannot be created unless there is trust property. Once created, more property may be added to the trust unless prohibited by that trust’s terms. Trusts can be created to protect almost any property: homes, cars, money, stocks, bonds, even animals (more on that in a later post).
—See Trusts for Your Pets—MHL Blog
Is a Trust for You?
A trust can be a valuable estate planning tool for any estate. The trick is determining which trust is right for you. Start by contacting your estate planning attorney to first determine if a trust fits your needs, and if so, which trust is your best option.
Then, determine who you want appointed as your trustee, whether you or someone else. Your attorney can then draft the documents and help you get started transferring the property. While you’re there, review the rest of your estate plan for accuracy and to keep it current with your needs.
–Authored by Kayla R. Wimberley, Esq.,
Matthew Harris Law, PLLC – Estate Management Division
1001 Main Street, Suite 200, Lubbock, Texas, 79401-3309
Tel: (806) 702-4852 | Fax: (800) 985-9479