In order to work properly, many estate plans require the incorporation of some type of trust. Below are explanations of the types of trusts that can be incorporated into your estate plan to further protect your interests and effectively pass on your assets to those you love. It's important to note that these are complex legal instruments and that in order for them to be effective, you should consult a qualified estate planning lawyer who can thoroughly explain them to you and advise you on how they can serve your specific needs. Bear in mind that every trust is a single component in your estate plan and should only be used in tandem with a basic will, powers of attorney and an advanced directive. All of these tools work together to build a solid plan that can (1) ensure your property is in the right hands — either during your lifetime or upon your death, (2) guarantee that your money and property is used for the purposes you intended, (3) potentially save your estate a significant amount in estate taxes, and (4) ensure your loved one qualifies or continues to receive public assistance monies for which they become eligible.
The concepts of wills and trusts combine when you consider the creation of a testamentary trust. These trusts are created together with your will and control the management of your assets after your death. They have a wide array of uses but are often used to provide for the management of assets for minors and young children in the event they might become entitled to receive property under a will or in connection with tax planning.
Estate planning documents, including living trusts, ensure that your assets pass in accordance with your wishes. If you want privacy, own any out-of-state property, or hope to avoid probate, you may want to consider a living trust. In Texas, however, the use of these trusts as effective estate planning alternatives has limited usefulness other than the reasons outlined above. There are many myths and misconceptions related to the use of living trusts. For instance, they don't save estate taxes and they don't help your estate avoid probate unless every asset owned by a person had been correctly transferred into the trust or handled via beneficiary designation prior to their death. In states where the probate process is much more costly and burdensome, living trusts make a lot of sense. But the reality is, these types of trusts are sometimes oversold, so we recommend that you learn as much as possible about them before electing to use one.
One of the primary concerns that many parents and grandparents have is setting aside money to provide for the education of their children and grandchildren. Those same parents and grandparents are wise enough to recognize that the best interests of their children are generally not served by leaving large sums of money to minors or young adults who may choose alternative uses for a cash gift, such as buying a new car instead of paying their tuition. Because of this, an educational trust can be a very appropriate option for providing money for education while creating a mechanism that ensures the money is used appropriately. Most importunity, educational trusts can be drafted in such a way that potential creditors and others, including the child/beneficiary, are unable to receive payment from the trust for debts unrelated to the express purposes outlined within the trust.
Irrevocable Life Insurance Trusts
Most people don't realize that life insurance policies can often present estate tax problems for the policyholder. One way to combat these estate tax compilations is through the protection afforded by an irrevocable life insurance trust, or "ILIT." Basically, the ILIT you create becomes the owner and beneficiary of your life insurance policy and, upon your death, its applicable proceeds get funneled through the trust and never become part of your estate. This means the proceeds are completely excluded from the estate for tax purposes.
Special Needs Trusts
These types of trusts help a loved one preserve his or her right to need-based public benefits in Texas such as Medicaid or SSI despite an inheritance. In situations where the beneficiary of an estate is disabled or suffers from chronic illness, a special needs trust is a way of ensuring that if they were to receive an award, settlement or disposition of assets through the death of another, they do not inadvertently disqualify themselves from receiving the public benefits to which they are otherwise entitled. A special needs trust will allow you to put your assets into a self-funded trust or give assets to someone you love through a third-party funded trust either during your lifetime or upon your death via your will, without causing those assets to make the beneficiary ineligible for benefits such as Medicaid. In essence, this type of trust allows the special needs person to have many of the "extras" that the government will not otherwise pay.
When appropriate, we'll work together with personal injury and litigation attorneys to help a plaintiff retain eligibility for Medicaid, SSI and other government benefits, while still having their settlement or award available to supplement the plaintiff's needs. In many instances, a plaintiff who is expecting a settlement or award will become uninsured or uninsurable during the litigation process and become dependent upon government health care benefits and other forms of government aid. Without property planning, the settlement that was long-awaited will not only have a negative effect upon the plaintiff's health care benefits and other aid, but will be spent down on the plaintiff's health care much more quickly than anticipated. We will work with the plaintiff's personal injury or litigation attorney to ensure continuation of the plaintiff's government benefits, as well as retention of the plaintiff's award or settlement to supplement the plaintiff's needs.