In general, establishing a trust can help you and your family with the following:
- Protect your family’s financial stability
- Avoid probate or the contest of your Last Will and Testament
- Lower your estate tax and gift taxes
- Provide an excellent management tool in the event you later become incapacitated.
There are several different types of trusts:
- A “Testamentary Trust” is a trust that is created in your will to hold and protect the assets being given to the beneficiary named in the Will. A beneficiary is sometimes a minor child, an incapacitated person, or even a surviving spouse. In this situation, upon your death, the trustee collects the property designated in your will for the beneficiary and distributes the assets to the beneficiary according to the terms of the trust. A common example is to provide payments for the child’s healthcare, education, maintenance, and support until the child reaches a certain age.
- A “Living Trust” (aka “Intervivos Trust”) is a trust made during your lifetime for your benefit. It can either be (1) a revocable trust (meaning you can change it or terminate it at any time while you are alive, but it cannot be changed after your die) or (2) an irrevocable trust (meaning it cannot be changed or terminated after you have created it). A common living trust is called a “Management Trust” or a “Standby Trust” which is normally used by people who want to avoid probate. It also is an excellent tool to help you in the event you later become incapacitated.
- An “Irrevocable Life Insurance Trust” (aka “ILIT”) may be used to own a life insurance policy while excluding it from the proceeds of your estate for tax purposes.
- A “Crummey Trust” makes it possible to make gifts to a trust while excluding some of the gift or the entire gift from your estate thus reducing potential tax consequences. This type of trust is commonly used by parents or grandparents who want to set up a trust to help pay for their children or grandchildren’s education.
- A “Spendthrift Trust” allows a person to create a trust for their loved one and protect the assets in the trust from being confiscated by potential overzealous creditors of the Grantor or Beneficiary.
- A “Special Needs Trust” allows a physically or mentally disabled person (satisfying SSI disability) under the age of 65 to receive funds from the trust without losing government benefits such as Medicaid. Normally, a parent or guardian establishes a Special Needs Trust for a disabled child or relative. This trust requires careful planning in order to maintain the government benefits. There are two types of Special Needs Trusts:
- A “Self-Settled Special Needs Trust” is a trust established by using the beneficiary’s own assets or a from a lawsuit settlement. This trust allows funds to be paid from the trust to the beneficiary in addition to Medicaid. When the beneficiary dies or recovers from the disability, the trust has a payback provision to the State of Texas.
- A “Third Party Special Needs Trust” is established by a third party and uses the third-party’s assets to create the Special Needs Trust. Normally, the Grantor is a parent or grandparent. Upon its termination, the assets can be distributed according to the wishes of the Grantor. It does not have a payback provision to the State of Texas.
- A “Qualified Income Trust” (aka “Miller Trust”) can be used to help a person qualify for Medicaid when that person’s income exceeds the eligibility limit for long-term care assistance from Medicaid.
- A “Pet Trust” can be created to make sure your pets are well taken care of in the event you later become unable to do so or after you pass away.
- To discuss any of the above trusts or any questions related to trusts, please contact Maverick Law to schedule an initial consultation.