The Legal Corner by Sam A. Moak: Trust Options

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The information in this column is not intended as legal advice but to provide a general understanding of the law.  Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.

While the simplicity of a Will driven estate plan in Texas is most favored, some situations dictate using a trust instead.  Navigating the different trust options in the pursuit of crafting an optimal estate plan can be overwhelming. If you are worried that things might go wrong, you can reach out to us and we can help you put together a plan that uses the right legal documents to match your needs.

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.

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 and is a Member of the State Bar College.