Trusts

Protecting Estate Assets from a Child with Poor Money Management Skills

Published on: August 31, 2023 | By David W. Miller

As you go about your estate planning process, you will necessarily think about who you want to be the beneficiary or beneficiaries of your assets. If you are leaving behind money for your children, you have worked hard to earn that money and keep it safe for future generations in your family. If you have a child with poor money management skills, then you might be worried that the money will be spent frivolously. In this blog post, we go over a few ways you can protect estate assets from heirs who might be at risk for depleting assets you leave behind.

Option One: Spendthrift Provisions

One solution to the problem of untrustworthy beneficiaries is creating a trust with a “spendthrift provision.” This kind of provision essentially puts limits on how a beneficiary can use the money he or she inherits in a trust. For example, you can explicitly state that you only want a beneficiary to benefit from a trust if he or she is gainfully employed. You can write that the money is only to be used for specific purposes, such as rent, utilities, or car payments. You can also give restricted deposits so that the beneficiary does not receive too much money from a given payment.

Setting up spendthrift provisions requires specificity in order to eliminate the risk that the provision can be interpreted in ways that are different from how you intended. Contacting a qualified attorney to help create your spendthrift provision is always a good idea.

Common Misconceptions About Texas Trusts

Published on: June 30, 2023 | By Thomas W. McCulloch

For many of our clients and potential clients, trusts are a somewhat foreign concept and are thought of as inaccessible tools only for the uber-wealthy. Fortunately, this is a misconception, and individuals with all different kinds of estates, assets, and debts are able to benefit from establishing a trust. In today’s blog, we take the time to walk you through several key misconceptions we see about Texas trusts. Here are several myths and realities that we think every Texan should know:

Myth: Only wealthy individuals should consider setting up a trust.

Reality: Trusts can benefit those with large estates, small estates, and everything in between. One possible trust purpose, for example, is protecting assets from creditors if you think you might have debts to pay. By putting money into a trust, you can insulate it from the outside world and make sure it is only used for your desired purposes.

Myth: Trusts cost too much money to maintain – they just aren’t worth the hassle and money.

Reality: While some individuals do invest considerable time and money into creating and maintaining their trusts, there are ways to go about the process that actually saves you money in the long term. For example, assets in a trust can avoid the probate process, which saves your estate considerable time and money after your death. Additionally, you can appoint a trustee that is a family member – if your family member does not want payment for being the designated trustee, you’ve avoided a major expense commonly associated with trusts.

How an Irrevocable Trust Can Be Incorporated into a Houston Estate Plan

Published on: June 13, 2023 | By David W. Miller

In the past, on our blog, we have gone over the possible benefit of establishing a trust when you are engaging in the estate planning process. Forming a trust can be complicated, and there are several different kinds of trusts that fit different sets of needs, depending on the nature and size of an individual’s estate. In particular, an irrevocable trust is a tool that might be right for you as you are thinking about how to organize your estate.
An irrevocable trust is a specific kind of trust that allows the trust’s creator to designate assets to a beneficiary – once transferred, the trust cannot be altered. The trust’s creator automatically loses control over the assets once the beneficiary receives them.

Advantages and Disadvantages: What You Need to Know

An obvious disadvantage to the irrevocable trust is that as soon as the transfer happens, you (the grantor) lose control over the trust property. The irrevocable trust can also be subject to higher tax rates than other kinds of trusts.
On the other hand, however, any assets that are part of an irrevocable trust do not contribute to the value of a person’s estate, which is what often determines how much an individual pays in taxes outside of the trust. In addition, property in an irrevocable trust avoids probate, which can be extremely beneficial for a person’s loved ones after that person is gone.

Irrevocable trusts can also allow individuals to continue accessing government benefits like Medicare and Supplemental Security Income. The government will generally refrain from counting money in an irrevocable trust as part of someone’s total net worth when deciding whether that person qualifies for important benefits, which allows those individuals to avoid being exempt from receiving the money they might need.

Choosing the Right Trustee to Manage Your Trust

Published on: June 10, 2023 | By Thomas W. McCulloch

Choosing the Right Trustee to Manage Your Trust

Organizing your assets in the form of a legal trust can be a valid and helpful tool in estate planning. If you are establishing a trust, you are likely trying to decide who to appoint as your trustee, which can often be a tough decision. A trustee, by definition, is an individual with the power to administer the trust’s property in accordance with the desires of the trust’s owner. In thinking through who to choose as your trustee, there are several main considerations you should keep in mind.

Trustworthiness

The most important quality of a trustee is trustworthiness. When you establish a trust, you articulate your goals, priorities, and desires for how the trust property will be administered. The trustee is the person that ensures this process goes smoothly and is in accordance with the owner’s goals. If you do not trust the person you appoint, there is always a risk that he or she will not work with your best interests in mind. Appointing someone trustworthy can help ensure that the entire process goes as you plan when you establish the trust.

If you appoint a trustee that is also a close family member or friend, consider possible implications if a conflict arises out of issues around the trust. While trustworthiness can be inherent in close personal relationships, sometimes hiring a third party can be helpful to make sure things run smoothly without additional interpersonal conflicts.

The Revocable Living Trust: What You Need to Know

Published on: April 11, 2023 | By David W. Miller

Unfortunately, the law around estate planning can be complex and technical in a way that makes it difficult to sort through. Fortunately, though, the law provides for a diverse array of options for those undergoing the estate planning process. Many of our clients come to us, for example, asking us to help them create a thoughtfully written will. It is important to note that wills are not the only option for those looking to make long-term plans. Another tool, the trust, comes in the form of a revocable living trust, which can be beneficial for those looking to both use their assets now and securely transfer them after their death.

What is a Revocable Living Trust?

When done correctly, creating a trust allows individuals to forgo the probate process and pass assets directly to their beneficiaries after they die. If the trust is revocable, the individual maintains the right to suspend the trust at any time, taking back the assets that are hers or his in order to use them in the short-term future.

As we have discussed elsewhere in our blog, the probate process can be long, drawn out, and public. Creating a trust, however, allows for a secure and private transfer of assets upon the designator’s death. By forming a trust, designating a trustee, and naming beneficiaries, individuals can make sure their assets will pass on seamlessly to those they care about.

Trust Interpretation Up for Debate in Recent Texas Court of Appeals Case

Published on: March 31, 2023 | By Thomas W. McCulloch

Recently, a court of appeals in Texas had to decide an important case regarding the interpretation of a decedent’s trust, which had implications for several family members who stood to benefit from the sale of a property specified in the trust. The trust in question was created by a man who intended to leave his property to his brothers, his sisters, and their children after his death. Fifty years after he died, however, the man’s nieces and nephews had questions about how the trust should be interpreted.

Facts of the Case

The decedent in this case passed away in 1964; according to his will, his property was put into a trust for the benefit of his siblings, nieces, and nephews. Per the terms of the trust, the properties would bring in income, and that income would be distributed to the siblings, nieces, and nephews as time went on. Twenty-one years after the death of the last niece or nephew alive at the man’s death, the trust would terminate.

In 2020, the trustee initiated this litigation, asking the court to determine whether one of the pieces of property could be sold. The court’s ruling would be important, said the trustee, because it would affect how income would be distributed to the nieces and nephews, as well as how much income they would receive. One of the nephews became involved in the litigation, arguing the property could not be sold and had to stay as it was.

Brother and Sister Litigate Trust Distribution Case in Drawn-Out Legal Battle

Published on: March 21, 2023 | By Thomas W. McCulloch

Brother and Sister Litigate Trust Distribution Case in Drawn-Out Legal Battle

In a recent case before the Fourteenth Court of Appeals, two siblings asked for a decision regarding the assets left in their father’s estate. Originally, the siblings fought when one took longer than the other wanted to distribute funds from their father’s trust. Without clear guidelines for how to handle the father’s estate, the siblings found themselves in a legal battle that went on for years after their father’s death.

Facts of the Case

This case originated when the father of two siblings died in October 2014. After the death, the decedent’s daughter was named trustee of the family’s trust, and it was her responsibility to distribute the money in the trust.

Several years later, the trustee’s brother sued her, arguing that she was intentionally and maliciously keeping funds from him by delaying the distribution of funds. He asked the trial court to order his sister to distribute his share of his father’s estate immediately, as well as to order her to pay the attorney’s fees he accrued in the lawsuit.

A Living Trust: When to Get One and How to Know if It is Right for You

Published on: February 21, 2023 | By Thomas W. McCulloch

When clients and prospective clients come to us for their estate planning needs, their first priority is often asking us to help them write their wills. What many clients don’t know, however, is that wills are only one option clients have at their disposal. Trusts are another tool that can create security throughout the estate planning process. Trusts come in many forms – some address specific needs, while others are general and help individuals avoid the probate process.

A common misconception we see is that trusts are only for the super-wealthy. Trusts can be utilized, however, by any individuals that have assets they don’t want to go through the probate process. Probate is a legal procedure through which assets owned in a decedent’s name are distributed by a court. The kinds of assets that go through probate are typically assets like bank accounts, homes, cars, art, and bank accounts. These assets don’t pass directly to a decedent’s spouse or heirs, so it is the court’s job to make sure they are distributed fairly. Using this kind of trust instead of a will means that assets owned by your trust will totally avoid the probate process and go directly to your loved ones.

When an individual creates a living trust, then, they can take more control of where these assets will end up. Assets held in a trust are also taxed differently than if they are owned outside of the trust. Trust planning can reduce estate taxes, creating yet another benefit that many clients do not know about.

What is a Fiduciary Duty with Regard to Trusts and Estate Planning?

Published on: February 8, 2023 | By David W. Miller

There are many terms in the field of estate planning that have become ubiquitous in the field, however, their meaning is often misunderstood. Trustee, beneficiary, executor, and fiduciary are some of these terms. The personal term “fiduciary” comes from the type of duty that a fiduciary owes to a beneficiary in a trust or financial management decision. This “fiduciary duty” is generally based upon a relationship or contract between a beneficiary and a fiduciary, or trustee.

The fiduciary duty is built upon a contractual relationship whereupon the fiduciary agrees to accept responsibility for the duty to manage the beneficiaries assets in the best interest of the beneficiary. An example of a fiduciary in the field of estate planning is the relationship between the trustee and the beneficiaries of a trust. A trustee is a person or entity (often a bank or law practice) that takes legal ownership of the trust assets and manages them in a way to benefit the beneficiaries and honors the trust. This management may include investing money, purchasing or selling assets, paying taxes, and managing legal or financial issues and disputes.

Fiduciary duties related to trusts and estate planning may involve specific obligations. The fiduciary has a duty of care to diligently inform themselves of the details of the trust assets in order to exercise sound judgment to protect the interests of the beneficiaries. Furthermore, fiduciaries owe beneficiaries a duty of loyalty, which includes removing themselves from decision-making that could pose a conflict of interest. Another duty of a fiduciary is to act legally and in good faith. A fiduciary should not break the law or behave unethically when handling the beneficiaries’ assets, especially if such dealings collaterally benefit the fiduciary. Finally, a fiduciary owes beneficiaries a duty of confidentiality. The fiduciary should not release the identity or any information about beneficiaries without a mandate or good cause.

What Happens if Someone Challenges the Terms of a Texas Trust?

Published on: January 26, 2023 | By David W. Miller

While establishing a trust for your loved ones is often a wise choice, a number of pitfalls can make the experience more stressful than it has to be. Financial matters—and, in the case of a trust that goes into effect after the death of the grantor, grief—can make an already delicate situation even more challenging. While nobody wants to plan for the worst-case scenario, doing so can ensure your wishes are carried out, and your trust remains unchallenged. In addition to being very clear about your trust terms and working with an estate planning attorney to ensure procedural compliance, trusts can also incorporate a no-contest clause that removes a challenging beneficiary’s right to the trust if they challenge the trust and fail.

Reasons to Challenge a Trust

A trust can generally be contested in the same way that a will can. These include a wide range of reasons that can vary based on your own personal circumstances. For example, someone challenging a trust may claim that the person who formed the trust lacked the capacity to do so or did so under duress or undue influence. There are also certain procedural requirements a person must meet when establishing a trust, and a challenger can attack on those grounds if any steps are missed, or any T’s are uncrossed or I’s undotted. Specific terms of the trust can also be challenged if ambiguous or unclear or somehow against reasonable public policy. Alternatively, beneficiaries can sue the trustee directly if the trustee acts outside of the bounds or spirit of the trust.