What Types of Trusts are There?

Trusts are a viable estate planning tool for many individuals and families. While they are typically more expensive than a will, they also come with their own benefits.

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At Hardie Alcozer, we do not enter any attorney-client relationship with preconceived notions about what plan may be best for our clients. What is right for one person is not necessarily the correct course of action for another, and our guidance comes down to what we believe to be the best approach for your needs now and what you want to focus on for the future.

Using a Trust As An Estate Planning Tool

Depending on the type of trust you create, such as choosing between revocable trusts and irrevocable trusts, you maintain control and may even be able to remove assets if you find a better estate planning option.

One of the most important conversations you will have with your attorney will be whether you are ready to commit your assets for the long term and to enjoy the benefits of doing so, or if you would prefer to retain control or flexibility. Naturally, they will discuss the cost implications of each option prior to finalizing the trust agreement.

Types of Trusts

There are various types of trusts to choose from and your estate planning attorney will be able to discuss the many benefits of the various available options. Professional advice can make a difference here, especially for those wondering how much they can expect to pay to create the trust, as different options will vary in price.

Testamentary Trusts

A testamentary trust is created according to the terms of someone's will. It effectively does not exist, nor does it hold assets while the person is alive. Instead, the trust acts like a beneficiary in its own right, with assets entering the trust upon the grantor's death.

While arguably the simplest trust available, it also misses out on many of the benefits of trusts as part of an estate plan. It cannot, for example, produce trust income while someone is alive, as there are no assets involved.

Living Trusts

A living trust also known as a revocable trust is created while the grantor is still alive. Anyone can set up a trust fund and begin adding assets at any point, safe in the knowledge that those assets will avoid probate upon death.

This format is better for those that want to retain some control, as nothing is set in stone, even after the trust has been formed. The trust document can be amended and altered as required, and assets can be added or removed from a revocable living trust at any time.

The grantor also remains the legal owner of any property contained in the trust. As such, they continue to benefit from income earned from their assets, such as interest and dividends. However, this does mean an additional trust cost in the form of taxation, which remains the grantor's responsibility.

Irrevocable Trusts

With an irrevocable trust, any decisions made when someone decides to set up a trust are final. Trust assets are no longer considered part of the grantor's estate, with the trust itself becoming the legal owner of any property and anything else contained therein.

While the idea of transferring control into irrevocable trusts may be daunting, doing so can have its advantages, especially when it comes to tax planning. Your attorney can help you weigh up the benefits of an irrevocable trust compared to other options.

Charitable Trusts

A charitable trust fund is designed to ensure that the causes closest to someone continue to benefit after their death. Assets held in the trust are earmarked for distribution to non-profit organizations according to the grantor's wishes, with the trustees tasked with carrying out those wishes upon their death.

Special Needs Trusts

A special needs trust enables a grantor to place assets in their own trust with the goal of using them to ensure that someone with special needs continues to receive support even when the grantor is no longer alive.

Just as an individual may create a trust to avoid probate or minimize estate taxes, a special needs trust is designed to ensure needs such as medical expenses are met and that assets are managed on their behalf. The trust can also confer a degree of legal protection over assets, ensuring that beneficiaries receive support as the grantor intended when they created the trust fund.

Unsurprisingly, there are numerous different ways to approach the formation of a trust. For example, disabled individuals could conceivably create a special needs trust for themselves, thereby serving as both grantor and beneficiary.

Deciding Whether to Create a Trust

If you find yourself asking, 'is it expensive to create trust?' it may be wiser to ask, 'is a trust the right estate planning solution for me?'

While we would reiterate that trusts are not exclusive to the extremely wealthy and should not be perceived as such, they are not necessarily the correct solution for anyone considering their estate planning options. They can provide significant benefits through the handling of taxes and can ease the for your loved ones after you pass away. However, some find that trusts create too much work during their lived and opt towards a will based plan.

Trusts also represent a somewhat significant commitment and can be relatively difficult to manage. For example, while a will typically remains the same until the holder decides to change it, ongoing maintenance may be required to ensure that a trust continues to serve your best interests.

Everyone's circumstances are different and that is what makes advice from an experienced estate planning attorney so valuable. Your needs vary depending on all sorts of factors. Hardie Alcozer will not only ensure that your estate plan operates as it should in Texas but that it genuinely makes sense for you and your beneficiaries.

Beyond expertise and extensive experience, what really matters is your unique circumstances. Your attorney will consider everything from your net worth and current assets to the likely beneficiaries and how your portfolio is likely to change over time.

There is no such thing as "default settings" when it comes to planning for what happens to your personal property when you die. By working with us, you can be confident of a comprehensive estate plan, whether that involves creating a trust, writing a will, or combining the huge number of other estate planning options out there.