By: James M. Bright
Attorney at Law
The following is provided for informational purposes only and is not, nor should it be construed as legal advice.
A trust is a means by which you may establish a fiduciary (hence “trusting”) relationship with a person (or company) which subjects that person (or company) to duties to care for specific property for the benefit of the person or persons that you designate as trust beneficiaries.
Some of the common uses of trusts are to provide financial care for children, aging parents or other loved ones (even pets).
There are many types of trusts, each of which is intended to accomplish a particular task or serve a particular function. They can be trusts that exist during your lifetime called “intervivos” or “living” trusts, or they may not exist until the time of your death. Trusts that come into being at the time of your death and originate through instructions left by you in your will are called “testamentary” trusts.
Living trusts, just as the name implies, begin during your lifetime and serve the purpose of having a trustee manage property that you designate. This property is used for the care, maintenance, etc. for the benefit of the person(s) that you name as beneficiary.
Testamentary trusts do not come into being until you die. At that time, your trustee is charged with accepting title to your property for the benefit of your loved one(s).
Living trusts may survive your death, and the benefit being received by beneficiaries can continue uninterrupted. Many persons consider this as a preferred alternative to probate.
Which is better, a trust or probate?
The answer to this question cannot be responsibly offered until it is determined exactly what your goals may be. If your goal is to maintain continuity of care to a loved one who receives support from a trust prior to your death or to maintain the strictest possible confidentiality, a living trust may be your choice of legal vehicle to accomplish these goals.
If your primary goal is to avoid probate, you may wish to consider the relative ease and simplicity of Texas probate versus the sometimes difficult and time-consuming tasks of maintaining the status of trust property.
It is recommended that, even if you elect to follow the route of a living trust, you also have a valid will. If you wish for the living trust to continue after your death, then the will shall serve to pour assets into the trust upon your death. This might be as a repository for unaccounted for assets which were overlooked by the trust or as a device to provide primary funding.
How does a testamentary trust work?
A testamentary trust does not begin to exist until the time of your death, and the terms of that trust or those trusts are determined by the instructions set out by you in your last will and testament.
You may give your trustee very broad powers of investment or management, or you may limit those powers to certain types of transactions which you dictate.
Examples of testamentary trusts can be almost as varied as the limits of imagination, but common uses of testamentary trusts serve the following purposes:
1. Provide for the health, welfare and education of minor children or grandchildren;
2. Provide a fund to children/grandchildren for a future time in their lives when their power to provide self-support may have diminished;
3. Care and/or maintenance of parents if they are still living and in need of care at the time of your death;
4. Pursuant to relatively recent legislation, you may now even provide for your special animals by providing for their care and maintenance in a “pet trust.”
What are the mechanics of a trust?
1. A person or business entity that you designate is given title to trust property (particular property specified by you) and serves as trustee.
2. The trustee manages the property and protects the property for the benefit of those that you have named as beneficiaries of the trust.
3. The powers and duties of the trustee are largely as dictated by the Texas Trust Code, but may be enlarged or reduced pursuant to your particular wishes.
4. The trustee’s loyalty should be to the beneficiaries of the trust(s) and he/she is accountable to the beneficiary for any mismanagement of the fund outside the authority given by the Texas Trust Code and your instructions.
5. A corporate trustee will not be required to post a bond, but a non-corporate trustee must post a bond unless you relieve him/her of that duty through a provision in the trust.
A testamentary trust is a workable way to provide for the needs of loved ones long after your death and you are unable to do so.
Is my estate too small for a trust?
In almost all cases the answer is no! If you are a homeowner (even if it isn’t paid for), you almost certainly have sufficient assets to justify the rather minor act of establishing a testamentary trust.
It is estimated that 98% of the wills drafted by my law firm contain some form of a testamentary trust.
What is the “standard” that my trustee must observe in making investment decisions?
Under §113.056 of the Texas Trust Code as well as under common law, the trustee must “exercise the judgment and care under circumstances then prevailing that persons of ordinary prudence, discretion and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income from as well as the probable increase in value and the safety of their capital.”
As with all wills and all trusts, these instructions should be made personal to express your exact desires which can only be accomplished by working with an attorney of your choice.
James Bright is admitted to practice before the Federal Courts for the Southern District of Texas and Eastern District of Texas as well as all of the Justice Courts, Probate Courts, County Courts at Law, District Courts, Courts of Appeal and Supreme Court for the State of Texas. He maintains an office in Houston and by appointment another at 208 McCown Street
in the heart of historic Montgomery. Contact may be made by telephone (936) 449-4455 or (281) 586-8277. For more information about wills or probate in Texas, please see- www.houstontxprobate.com