Trusts

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.

Why a Will and a Trust Do Not Make a Complete Estate Plan

Published on: December 27, 2022 | By David W. Miller

Horror stories abound of individuals with plenty of assets passing on without a will, throwing their loved ones into chaos and probate drama. You may have heard of these stories and made sure to establish a secure will. You may have even gone a step further and placed some assets into a trust for your heirs so those assets can avoid probate. Unfortunately, a will and a trust do not make a complete estate plan. Here are 5 other things to consider when evaluating the completeness of your estate plan.

Regularly Update Your Documents

First, even a will and a trust won’t do what you want them to if you do not regularly evaluate and update them. Changes to your financial or personal circumstances should prompt an update. For example, a divorce, marriage, death of a spouse or beneficiary, or a loss of a job or large inheritance could all require changes to your estate plans.

Include Health Care Designations

If you have a will and a trust, you still may wish to put specific documents in place that designate your healthcare wishes in the event you become incapacitated. These documents are called advance directives. A medical power of attorney grants a person of your choosing the right to make your medical decisions for you, while a directive to physicians will outline wishes for your care in advance.

Can You Change Your Mind After You Transfer Assets in a Trust?

Published on: November 22, 2022 | By Thomas W. McCulloch

A trust is a legal entity set up during a beneficiary’s lifetime by a third party to ensure assets are spent in accordance with the person setting up the trust’s wishes. Trusts can also avoid certain tax consequences and the headache of the probate process. If you have set up a trust, you may be wondering if the terms of that trust are modifiable after it’s been signed on the dotted line. Changes in circumstance, such as a changed relationship with a beneficiary or a change in your financial situation, may spark reasonable questions about any trusts you have set up.

The short answer: it depends. If your trust is set up as a revocable trust, you can change the terms at any time. If your trust is set up as an irrevocable trust, it can’t be modified unless any and all relevant beneficiaries provide consent. There are different benefits to each type of trust, and different circumstances may indicate the need for one, the other, or a combination.

What is a Revocable Trust?

A revocable trust is also known as a living trust. The person who created the trust, or grantor, can change the terms of the trust at any time. Changed terms include changed requirements on asset management requirements and the removal or addition of beneficiaries, but the exact rules vary by state.

The Two Types of Special Needs Trusts in Texas

Published on: November 15, 2022 | By David W. Miller

Loved ones, family members, and parents of special needs individuals know they often need a unique approach in helping care for the special needs child or adult in their life. This approach is often augmented by help from government benefits established to make life easier for people with special needs, such as Medicaid and Social Security. These programs, however, become unavailable to individuals above certain asset thresholds.

To help preserve access to this much-needed medical and living expense coverage granted by the federal government, caretakers and financial providers for special needs individuals may wish to set up special needs trusts. In a special needs trust, a grantor names a trustee to administer the trust and a beneficiary, who is the special needs individual. Funds are distributed from the trust without impacting income eligibility for these government programs. Special needs trusts must not be used for living expenses or medical expenses already covered by Medicaid or Social Security, but can be used for supplemental expenses, such as job training or educational program tuition, and even luxury expenses and non-essential costs like vacations, hobbies, or home furnishings. The beneficiary never has direct access to the trust.

There are two main types of special needs trusts: first-party and third-party. The following summarizes the key differences between the two types of trusts. An estate planning attorney can help determine which type, if any, of these two trusts makes the most sense for your family.

How Trustees Can Protect Themselves When Managing a Texas Trust

Published on: July 18, 2022 | By Thomas W. McCulloch

On one hand, being appointed as a trustee for a Houston trust can be something of an honor, as it shows that the grantor of the trust considered you to be a trusted person capable of carrying out the goals of the trust. However, on the other hand, it can also raise concerns, as serving as a trustee is a critical role that can, in some cases, expose a trustee to personal liability in the event they are accused of mismanaging trust assets. Thus, it is imperative that trustees not only understand their duties and how to carry them out but also that they know when they need to outsource certain roles to third-party professionals.

A Trustee’s Duties

Trustees have several duties, most of which are owed to beneficiaries of the trust. Perhaps the most important duty is a trustee’s fiduciary duty to beneficiaries of the trust. A trustee’s fiduciary duty includes the duty to administer the trust in accordance with its terms, preserve and protect the trust assets, and the duty to avoid conflicts of interest.

Administering a Trust in Accordance with Its Terms

Simply put, a trustee must perform their duties in such a way that is consistent with the terms of the trust. For example, if a trust contains an investment policy statement, trustees ensure all investment management decisions comport with the investment policy statement. Thus, even if an investment may be suitable in a trust as a general matter, if the chosen investment disregards the investment policy statement, a trustee may be found in violation of their duties.

Investment Management Pitfalls in Estate Planning

Published on: July 18, 2022 | By David W. Miller

Investment Management Pitfalls in Estate Planning

Trusts offer a wide range of estate planning benefits depending on a trust’s structure and its ultimate goals. Of course, one of the primary purposes of estate planning is the preservation and growth of estate assets through the effective use of trusts. However, from the investment management perspective, trusts are only effective to the extent that they are well managed. Thus, it is imperative that those who are considering the creation of a high-value trust take special care in avoiding the most common investment management pitfalls.

Be Careful About Who You Put in Charge

When a grantor creates a trust, they must also name a trustee to oversee the administration of the trust. While selecting a trustee is almost always one of the most important decisions when creating a trust, the factors you should consider when reviewing potential candidates depend on the type of trust, the value of the assets contained in the trust, and your goals in forming the trust.

For example, many grantors name trusted loved ones to manage a trust. This is a workable solution in many cases. However, just because you have someone in your circle who is willing to serve as a trustee doesn’t necessarily make them a good fit. For example, managing a multi-million-dollar trust is very labor intensive and requires the trustee have significant investment experience. While some grantors may have loved ones who can adequately handle these responsibilities, those for whom an obvious choice doesn’t stand out should at least consider naming a corporate trustee. However, it is important to note that corporate trustees are typically much more conservative in their approach than individual trustees.

Advantages of a Revocable Trust in Texas

Published on: July 10, 2022 | By David W. Miller

In Texas, a revocable living trust, also known as a trust, is a legal entity designed to control one’s assets. Trusts are created when one person, referred to as the trustor, settlor, or grantor transfers a property interest to a trustee to be held for a beneficiary. Trusts creator during the trustor’s lifetime are intervivos or living trusts. Revocable trusts refer to situations where the trustor retains the right to dissolve the trust. On the other hand, irrevocable trusts refer to situations where the trustor does not maintain the power to change or dissolve the trust. In most cases, a revocable trust becomes irrevocable when the trustor passes away. Both revocable and irrevocable trusts provide certain benefits, and it is important for anyone considering a trust to consult with an experienced estate planning attorney to ensure they select the appropriate product based on their family’s needs.

Benefits of a Revocable Living Trust

The most significant benefit of a living trust is that the assets in the trust can pass to the beneficiaries without probate. The Texas probate process is more straightforward than many other states; however, a revocable trust is advisable in certain situations. For example, a revocable trust is recommended for those who:

Want privacy during the estate settlement process;
Own property outside of the state;
Have blended family, business interests, or estate taxes; and
Anticipate that someone will contest their estate plan.

Establishing a revocable trust can enhance privacy, avoid probate court, and prevent hefty tax implications. Further, revocable trusts can protect inherited property and assets in the event of a divorce.

Implications of Selling a Business on a Texas Trust or Estate

Published on: June 26, 2022 | By Thomas W. McCulloch

Implications of Selling a Business on a Texas Trust or Estate

Estate planning requires individuals to take an inventory of and consider what they wish to do with their bank accounts, homes, car, and other personal belongings after they pass. In addition to these contemplations, Texas business owners must undertake strategic decision-making to pass on or dispose of their business interests correctly. Selling a business is a complex endeavor, and many owners focus on the immediate impact of selling their business without considering personal planning or potential beneficiaries.

Understandably, the immediacy of a deal may usurp the owner’s thought of personal planning; however, consulting with an attorney can maximize the owner and their beneficiary’s interests. An attorney can assist business owners in determining their best course of action.

An attorney can help the owner articulate what they need from the sale. Many business owners use the proceeds of a sale to fund their retirement. However, before deciding to sell a business, an attorney can work with a third-party valuation specialist to provide the owner with an accurate market value of their business. This undertaking allows for wealth planning ahead of a formal sale.

What is a Texas Living Trust?

Published on: May 26, 2022 | By David W. Miller

When beginning the estate planning process, most people begin with creating a will and other documents like healthcare directives, medical power of attorney, and funeral arrangements. However, they often forget about living trusts, which have many unique benefits. Unlike a will, a living trust allows an individual to transfer assets to loved ones and avoid the probate court process entirely for the assets placed in the trust. Below are some of the most common questions about living trusts, along with answers to these questions.

What Should I Know About a Living Trust?

A living trust allows the creator—also known as the grantor—to transfer assets to beneficiaries after they have passed away without having those assets go through probate, unlike those bequeathed in a will. The grantor still holds ownership to the assets in the trust until they pass away, meaning the grantor can remove or add assets in the trust—or change the named beneficiary—until their death. Once the grantor dies, the assets are distributed to the beneficiary of the trust.

What Assets Should be Placed in a Trust?

There are some assets that estate planning attorneys recommend placing in a trust, and there are some assets and accounts they recommend do not go in a trust. Some assets that people can fund a trust with include financial accounts, like stocks, mutual funds, bank savings accounts, and money market funds. Property, like a title to a house, can also be put in a trust. While individuals may become hesitant about putting such valuable assets in a trust, it is critical to remember that the trust is revocable, and the assets can be removed at any time. Personal property, like family heirlooms, can also be put in a trust. While most people will instead put these items in a will, a will becomes a matter of public record, unlike a living trust.

How to Incorporate Bypass Trusts in Texas Estate Plans

Published on: May 10, 2022 | By David W. Miller

Because estate planning laws are constantly changing, individuals often wonder if they should be changing their estate plans or utilizing other strategies. Some of these changes are known—such as the reduction of the federal estate tax exemption in 2026—whereas others are passed by Congress last minute and can be difficult to predict. In order to prepare for these changes, estate planning attorneys have recommended two strategies for some married couples hoping to limit their federal estate tax liability: the spousal portability election and bypass trusts. Below is information about both of these strategies, and how they can be helpful to Texas married couples going through the estate planning process.

What is a Bypass Trust?

A bypass trust allows married couples to not have to pay the estate tax on certain assets after one spouse passes away. When one spouse dies, the assets within the estate are split into two separate trusts: a marital trust, and a bypass trust. For those assets placed in the bypass trust, the surviving spouse does not own those assets but can access the trust and utilize some of the funds within it. Someone must act as the trustee of this trust, it can be the surviving spouse, and ensures the assets are divided appropriately into each trust and that the trust’s assets are being carefully managed. The assets not placed in the bypass are placed into the marital trust, which the surviving spouse can access at any time and use the funds as they see fit.

Bypass trusts are useful for individuals hoping to limit their federal estate tax liability because up to $24.12 million in the bypass trust are not subject to the estate tax. And assets in a bypass trust are not overseen by the probate court process. Similarly, assets in a marital trust are not subject to the estate tax at all.