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What is a trust?
A trust is that relationship formed when one person (the "trustee") receives
legal title to certain assets and has the duty to use or keep those assets
for the benefit of another person (the "beneficiary"). The property owner
(the "settlor" or "trustor") transfers the assets to the trustee, usually
through a trust agreement or a will.
What kind of trusts are there?
In general, trusts can be grouped into two main types. One type is a testamentary
trust, in which the trustor creates the trust in his or her will. A testamentary
trust comes into being at the trustor's death. Another type is an inter
vivos trust, or living trust, which is created during the trustor's life.
What are some advantages to creating a testamentary trust?
A testamentary trust may be used to provide for management of the assets
or to gain some tax benefits. Instead of transferring the assets outright,
the trustor may prefer using a trust when providing for minors, spendthrifts,
or those whom the trustor believes lack sufficient skills to manage the
transferred assets.
What are some advantages to creating an inter vivos trust?
An inter vivos trust may either be revocable (the trustor may take the assets
back from the trust) or irrevocable (the trustor may not take the assets
back from the trust). In Texas, all trusts are revocable unless the trustor
expressly makes the trust irrevocable. An inter vivos trust may be used
by the trustor who wishes to plan for the possibility that the trustor will
become disabled and unable to manage his or her assets. Through a trust,
the trustor can avoid the costs of a guardianship proceeding in the event
of incapacity. An inter vivos trust can also be used to provide for the
disposition of the trust property on the trustor's death and eliminate the
need for a will and the complications of a probate administration. An inter
vivos trust also provides married couples a way to make a unified settlement
of the couple's community property interests; otherwise, each spouse may
only create a testamentary trust by will for only his or her one-half community
interest.
Are inter vivos trusts a good way to avoid probate?
If all of the trustor's assets are transferred to an inter vivos trust,
those assets are not part of the trustor's probate estate at the trustor's
death. The trust assets would pass as provided for by the trustor in the
trust agreement to designated persons outside of the probate process. In
those states with cumbersome and costly estate administration procedures,
using an inter vivos trust to transfer the trustor's assets would provide
a significant benefit. However, because of Texas' independent administration
rules, there are no significant advantages to using inter vivos trusts to
avoid probate.
Are trusts a good way to gain some tax benefits?
Trusts may be structured in such a way as to gain certain estate tax benefits
upon the trustor's death.
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