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What are trusts, and why are they important in estate planning?

Have you ever heard the phrase "trust fund kid?" it refers to a person who grew up with a silver spoon in their mouth, able to take advantage of every luxury known to mankind. Fancy this and fancy that. Their life would always be easy because of the financial assistance of their parents while they were a child and the parents' money as an adult. The money would stay in a trust until the person reached a certain age and then the party could truly begin. This is a tale as old as time.

The other circumstance that may call to mind the term trusts is one involving elderly people who are in the final stages of their life and just need to put the finishing touches on their end-of-life planning. This could involve some wealth as we talked about in the prior paragraph. After all older people tend to have more money than younger people just by, they have lived longer and have had more of an opportunity to accumulate some degree of wealth. A trust could be something that this elderly person does to prepare their property to be distributed or protected after they pass away. It seems like the prudent thing to do- like double-checking that you did shut the garage door before you left the house for work in the morning.

You may be in a position where you can benefit from having a trust set up than you may realize. Estate planning is all about the specific circumstances that you have now and anticipating what the future may hold for you and your family. That's the tough part- trying to offer an educated guess as to what the future has in store for your family is not easy. It certainly takes some planning and some forethought. Estate planning may make little sense in your mind right now, but the thing is, time marches on. It is not something that only rich people or only older people should consider. I'd even make the argument that you've made some mistakes along the way if you are older and wealthy but have not begun to plan for your future estate needs. The time to engage in this type of planning is now.

What is trust?

A trust is a fiduciary agreement that is created as part of your estate plan. A fiduciary agreement means that another person has agreed to act based on what is in your best interests rather than your own. An attorney is a fiduciary. Financial planners are fiduciaries. A trustee, the person who oversees and can make decisions regarding the property within a trust is also a fiduciary. The trustee can listen to you while you are still living and then would follow the terms of the trust once you pass away. Whether money in the trust needs to be distributed or property needs to be sold, it is important to understand that a trust offers a great deal of security for those of you who want to make sure that your assets are protected upon your passing. A person or a firm like a bank can be named as trustee within the trust documents you create.

You do not need to have a huge or valuable estate to potentially benefit from the creation of a trust. The attorneys with the Law Office of Bryan Fagan see all the time people whose first reactions to estate planning are to be dismissive of how the process can benefit them as individuals. These folks assume that because their assets are modest, and their age is not advanced that this is not necessary for them. Maybe later- once they have built up some wealth or some years of their life- will they do something to plan for their future estate needs? However, for now, estate planning is not something that is needed or even beneficial for them.

Do not let this be a mistake that you make. Not only can estate planning generally and trust creation specifically be a great step for you personally to take but it could also be something that benefits your family a great deal. Remember that estate planning is not something that you can necessarily put off for another day. This is the case for no other reason than we do not know when our last moments will come. This is sort of a bleak point to make in this setting, but it is true. Estate planning is something that becomes relevant only after we have passed on. Then all the work that you put in can make a difference. Until then, estate planning seems like something relevant for another person but not for us.

Benefits of creating a trust

Creating trust has many advantages for you and your family, potentially. First off, creating a trust puts your estate in a position where it would not have to go through probate. Probate is the legal process where the distribution of property and the payment of debts of an estate is overseen by a probate court judge. Usually, this involves hiring an attorney, paying court costs and fees as well as requiring a great deal of patience from parties involved in the process. By creating a trust, you can likely put your estate and your family in a position where they do not need to go through probate just to have property and assets distributed to the correct parties. Your family and other beneficiaries under the trust will appreciate that, for sure.

Next, trusts can help maintain privacy for your family when it comes to estate planning and property-related matters. Going through probate is not only time-consuming but it can also be a situation where any interested party (or random person) can come to view the proceedings of the probate court as they pertain to your case. Rather than having the matters be kept in-house for your family to consider probate court proceedings force what should be family issues into the open for all the world to see. This is not ideal especially if your family has any issues that you would like to keep private- and what family doesn't if we are being honest with ourselves?

Property is kept safe in a trust. Yes, mistakes and malfeasance happen all the time in our world. This is one of the risks that we take doing anything in life- nobody knows exactly what will happen in the future. Control is an illusion that we work hard to convince ourselves of in many areas of life. However, creating a trust to house and then distribute your property is a great way to help ensure some degree of protection for the property that you own. Imagine the alternative. If you pass away and have done nothing to plan for your end-of-life circumstances, you will be relying upon the state to divide up your property through a probate court proceeding.

Even if your family can manage to avoid probate and simply divide up the property between itself that doesn't exactly give you a ton of confidence given that you have no idea how or who will oversee that. Better to be the one to exert some control over the property that you worked so hard to accumulate. This isn't so that you can be greedy or hardheaded. Rather, you know your family and your circumstances better than anyone. As a result, you know what you have and who could benefit from it better than anyone. Creating trust is the ultimate way for you to lay out a game plan for end-of-life circumstances and how you think your property can best benefit those around you. This isn't done to prop you up as some great person or anything like that. It is the purest form of nobility- to perform an action that you do not stand to benefit from, but rather, stands to benefit those in your life such as your family.

Another area where trust creation can make a lot of sense for you and your family is that it can help control how property is distributed in the future. Rather than simply releasing property with no plan in place, a trust has certain conditions that you can set up to distribute property upon the passage of certain events or simply after a certain amount of time has passed. For instance, consider a situation where you have a nephew whom you know is studying to be a doctor. If you wanted, you could create a condition in your trust that says your nephew could be distributed a few thousand dollars upon graduating from medical school to help pay for bills, loans or even to buy a new vehicle. Giving this condition precedent establishes the circumstances under which money can be released to him. This is not being a controlling person or an untrusting person. Rather, it allows you to be able to offer a benefit to your family with specific expectations set up in advance.

Finally, consider a situation where you pass away without any estate planning have been completed. You have all the property that you have worked hard to build up over time but no conditions for how the property should be distributed. In that type of situation, a probate court judge would follow the Texas Probate Code and divide property amongst your spouse if you are married and your children if you have any. Assuming that your children are adults the money would be released to them without any kind of structure or instructions on how to utilize it. This may not be a big deal for your children, or it could be harmful to them.

Most people would struggle to develop a plan for how to handle a large distribution of money all at one time. A person must have a lot of self-control to be able to develop a plan for how not to waste those assets. If you know that your children or your immediate family struggle with money in a way that could be harmful to them then this could be your wake-up call to create a trust to prevent them from harming themselves. Unfortunately, if your children have an addiction issue or any other kind of problem in their lives the assets that become yours after your passing could wind up being extremely detrimental to their well-being. Rather than put them in that type of situation you could create a trust that only distributes money to them after they reach certain age milestones or other circumstances come to pass.

For example, you may want to hold off on releasing money to your child until after he or she has been able to live sober for ten years. Or you may set up a condition in the trust that your son could only receive money once he has completed a financial planning course that you have already paid for. These are hypothetical situations, of course. I don’t know your specific circumstances at all, but I wanted to outline what may make some sense for you and your family moving forward. The plan that your family develops will almost certainly look different than what I have outlined for you today. However, having a plan of any sort puts you and your loved ones in a better position than having no plan at all.

What is the profile of a person who should have trust?

Ultimately, there is a diverse group of people who could stand to benefit from trust. We have already seen several circumstances where an average family living in southeast Texas could “win” due to the creation of a trust by you or another family member. However, I think it is important to share with you what kind of characteristics a person may who should be considering a trust. Remember that this is only a sketch or an outline of a person who may stand to benefit from creating trust. Even if these circumstances don't mirror your own you may still be able to benefit your family a great deal by creating trust.

If you own a home or multiple kinds of real estate, then trust creation may be for you. Remember that trust creates conditions for how property is distributed to beneficiaries. Releasing a home worth a million dollars to a person who is ill-prepared to care for it or even able to sell it can be a disaster. It may overwhelm the person and see to it that the home itself loses value or is physically harmed over many years. A trust creates a plan for how property like this is distributed to individuals. Along the way, the trust can also receive instruction from you on how to maintain the property until it is distributed. This protects the property but also the person that you seek to benefit.

If you have assets that are valued at over $250,000 then you may want to consider having a trust. For some of you reading this blog post you may look at that number and think that $250,000 isn’t a large enough estate to fool with trust creation. On the other hand, others of you may look at $250,000 and think that we may as well be talking about $250 million in your circumstances. Wherever you are on your wealth-building timeline we need to consider that the size of your estate matters. If you have no property at all at this moment, then you should not consider creating a trust other than one for your children if they are minors. However, if you do have some assets and concepts like avoiding probate matters to you then trust creation should be a consideration for you and your family.

Creating trust and placing certain property within it can be something that puts your family at ease and provides peace of mind for your family after you pass away. To be sure, when a loved one passes away there is a lot to consider. You have all the logistical concerns of an end-of-life event but also the emotional ones, as well. By creating trust, you enable your family to focus on one another and their memories of you rather than financial concerns and other “practical” considerations like that. Leaving a legacy like that can be one of the most profoundly generous and noble gifts that you can provide to them over and above anything that you do within the trust itself.

The first step towards creating a trust or any life estate plan is to simply learn about the process. Scheduling a consultation with one of our attorneys is a great way to do that with no risks or strings attached.

Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan

If you have any questions about the material contained in today’s blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed estate planning attorneys offer free-of-charge consultations six days a week in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of Texas estate planning law as well as about how your family's circumstances may be impacted by the filing of a probate case.

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