Articles Posted in Trusts

While people think about their loved ones receiving their assets—and being financially secure—after their passing, they often do not consider how the loved ones will receive these funds. It may seem simplistic; however, there are a few different ways for loved ones to receive their inheritance. These different methods will all impact how quickly beneficiaries—the individuals who will get the assets after the person’s passing—will receive their inheritance. Below are explanations for the various types of asset distributions utilized by Houston trustees at the end of the estate planning process.

3 Ways To Distribute Assets to Beneficiaries

By creating a trust, a three-party relationship is formed between the grantor—the individual creating the trust, the trustee—the individual who will oversee the trust’s management and ultimately disburse the trust funds—and the beneficiaries. All of these parties play a different role in the estate planning process.

With President Biden’s inauguration, many Americans are wondering if the estate and gift tax exemption will revert to a lower level, as well as what they can do to protect their assets. While there are many Houston estate planning options for individuals to shelter funds from the estate tax, SLAT trusts may be the right option for married couples. Because most Texans are unaware of a Texas SLAT—and how it could benefit them—below are the common questions and explanations of why a SLAT might help their loved ones.

What Is a SLAT Trust, and What Are Its Benefits?

A Spousal Lifetime Access Trust (SLAT) is a gift from one spouse to an irrevocable trust for the other spouse’s benefit.  When creating a SLAT, one spouse gifts funds to an irrevocable trust for the other spouse to access once they have passed away. A person creates a SLAT for their spouse to allow them to (i) receive assets up to the federal estate tax exemption; and (ii) prevent the value of the trust from being included in the surviving spouse’s gross estate tax when the spouse dies. The spouse that benefits from the SLAT—often called the beneficiary spouse—can receive assets that are sheltered from the gift tax.

Many individuals – especially those with children – do not want to think about what would happen to their family if they passed away. Although many people have life insurance to cover the cost of raising a child in the event of their untimely death, they do not think about establishing a trust to hold the money for them. Despite the common misconception, trusts are not just for the rich. Rather, they are critical tools for young families and an important part of a comprehensive Houston estate plan. Below are some of the common questions that individuals have about life insurance trusts.

How Does a Life Insurance Trust Work?

Individuals will set up a trust as part of their overall estate plan, typically, when they are creating a will and naming guardians if they have minor children. A trust holds assets – including property and money – for the listed beneficiaries, and the individual creating the trust details how the assets should be utilized. Additionally, the person appoints a trustee to oversee the process and ensure the assets are handled as written.

In Houston and throughout Texas, living trusts allow property owners to use their assets during their lifetime while ensuring that their assets are securely transferred to their beneficiaries. The legal document is similar to a will in that it allows financial assets and personal property to be passed on to named beneficiaries. However, the terms of a will become effective after they die, whereas a revocable living trust becomes effective immediately. These trusts allow property owners to keep control of their assets while living even if they become incapacitated.

Establishing a legally binding living trust is crucial to ensuring that a person’s wishes are appropriately documented and carried out. The trust documents should list the property, the trustee, and the beneficiaries. The relevant property is transferred to the trust, giving the trust control over the assets. Trustees should designate a successor who will be responsible for effectuating the trustee’s wishes. These trusts are useful for controlling and transferring various types of assets, but it is incredibly helpful for property owners. Regardless of age, marital status, or wealth, living trusts are an inexpensive and effective way to reduce and eliminate the stress of distributing assets while maintaining control and privacy.

Not only do living trusts help individuals avoid probate and court control, but it also allows trustees to control the assets during their lifetime. The trustee maintains the ability to buy, sell, modify, or even cancel the trust. Further, revocable living trusts allow the trustee to efficiently transfer assets such as jewelry, furniture, clothes, and art into the trust.

In estate planning, the term “trustee” is often tossed around, but many people do not know what a trustee actually does. In short, a trustee is a person that administers the property or assets for a third party, often for a trust fund or retirement plans and pensions. While the specific duties of a trustee depend on the trust document and what assets are held in the trust, the following describes the duties of trustees and addresses a few of the more common questions people have about a trustee’s responsibilities.

What are a Trustee’s Duties?

First off, the trustee has the responsibility to safeguard the trust assets and act in furtherance of the trust’s goals. Trusts will often have a trust agreement, which specifies how a trustee utilizes the assets in the trust and specific details regarding its management. As such, the trustee must keep accurate records, file tax returns, and report any activity to the beneficiaries, those who are to receive the assets, as required by the trust. Trustees are the decision-makers for any issues that arise regarding the trust and must make the decision based on the trust agreement and with the interests of the beneficiaries in mind.

Ensuring how a person’s assets and property will be handled after death is a critical first step when drafting a Houston estate plan. Often, a comprehensive estate plan involves the creation of one or more trusts. Thus, the second step of estate planning, determining who to name as a trustee, is often just as vital.

Serving as a trustee is time-consuming and complex. Although individuals often select a family member or close friend to serve as the trustee, picking a professional trustee can often eliminate a lot of the common issues that trustees face when executing an estate plan. Because a trustee will be responsible for ensuring an individual’s assets are distributed in a fair and legal manner, there are factors to consider when choosing a person to serve as the trustee of the estate:

Ability to Make Difficult Decisions

2.17.20A will and a trust are separate legal documents that typically share a common goal of facilitating a unified estate plan. While these two items ideally work in tandem, since they are separate documents, they sometimes run in conflict with one another–either accidentally or intentionally.

A revocable trust, commonly called a living trust, is created during the lifetime of the grantor. This type of trust can be changed at any time, while the grantor is still alive. Because revocable trusts become operative before the will takes effect at death, the trust takes priority over the will, if there is any discrepancy between the two when it comes to assets titled in the name of the trust or that designate the trust as the beneficiary (e.g., life insurance).

A recent Investopedia article asks “What Happens When a Will and a Revocable Trust Conflict?” The article explains that a trust is a separate entity from an individual. When the grantor or creator of a revocable trust dies, the assets in the trust are not part of the decedent grantor's probate process.

12.20.19Consumers often find themselves with investments with one company, insurance with another, a financial advisor with a third company and one or maybe more banks. Depending upon the asset level, it may make sense to put all of this under one roof.

Trust companies provide clients with a variety of services, so that they are all managed in one place, by one individual or one team of professionals. Trust companies manage trusts, trust funds and estates for individuals, businesses and other types of entities. They also provide investment, tax and estate planning services.

Wealth Advisor’s recent article, “Understanding How Top Trust Companies Operate,” gives us a high-level overview of the nature and function of trust companies, as well as the services they provide.

11.25.19Both of these deeds are used widely, but they are very different. Choosing the wrong one, could lead to a lot of legal headaches.

Deeds are the legal documents used when real estate properties are purchased, sold or transferred from one owner to another. The deed is used to transfer title or ownership from one person to another.

Bankrate explains in its recent article, “Quitclaim vs. warranty deed: What you need to know,” that a quitclaim deed is a deed that transfers the actual legal rights to a property (if any exist) that the grantor has to another person. That is without any representation, warranty, or guarantee. A quitclaim deed gives no guarantee of the title status of a property, any liens against it or any encumbrances. It really means that you get only what a grantor may have—nothing more. Therefore, if the grantor has nothing, you get nothing.

11.20.19Many instances of estate planning disasters start when well-meaning people try to use a simple solution for what is ultimately a complicated problem. It’s better for all concerned to meet with an estate planning attorney who can present strategies that will achieve goals, rather than attempt a do-it-yourself plan that creates more problems than it solves.

In one example of a do-it-yourself estate plan, a husband decides to use his inheritance to purchase the family home. His wife signs a quitclaim deed to him that puts the property into his living trust, on the condition that if he dies before she does, she is allowed to live in the home until death.

However, the living trust was never signed. So, what would happen to the property if the husband were to die before the wife?

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