What is a Trust?

In the course of estate planning, clients often have a number of questions about trusts. The following are some of these questions, and the answers.

A trust is an arrangement created when the legal ownership and beneficial ownership of property are separated. The legal owner is called the “trustee” and the beneficial owners are called the “trust beneficiaries.” The trustee has a fiduciary duty (a higher duty of care) to manage and distribute the trust property for the benefit of the trust beneficiaries according to the terms of the trust.

Sometimes the trustee and the beneficial owner are the same. In a living trust, for example, the trustee and the beneficial owner are often the same person, at least until that person’s death.

Do I Need a Trust for Estate Planning?

Maybe. The only way for you to know for sure if a trust is appropriate is to make an informed decision. Helping you make that decision is part of my job.

What Kind of Trusts are There?

Trusts can be created for many different circumstances. Within the context of estate planning, the following are common types of trusts:

  • Living trust.
    An alternative to a will is the creation of a living trust. With a living trust, all or a portion of a person’s assets are placed in a trust that sets out, among other things, how the assets are to be distributed upon the person’s death.
  • Special needs trust.
    A special needs trust is designed to set aside property for a child or other family member that is intellectually challenged. It’s important that a special needs trust be carefully drafted so that the trust does not negatively impact the amount of governmental benefits to which the special needs beneficiary might otherwise be entitled.
  • Irrevocable trust.
    A common trust of this kind is one in which the trust owns a life insurance policy on the life of the person creating the trust. In the past, it has been most often used as an estate planning tool to minimize federal taxes at death. But it also can be an effective planning tool for other reasons, including protecting the inheritance of children from a first marriage.
  • Testamentary trusts.
    This is a trust created by a will. There are a number of reasons to create trusts in wills including minimizing federal taxes, properly providing for minor or incapacitated beneficiaries, directing the distribution of assets after the death of a spouse, and protecting funds from creditors.

Are There Any Disadvantages to Having a Trust?

Before any trust is created, the advantages of having a trust must be weighed against any associated disadvantages.

A trustee must file an annual tax return for the trust and trust assets are used to pay high income taxes for income not distributed to beneficiaries. There is also the administrative expense of transferring property into the trust and managing the trust assets, which can erode the value of the trust.

Also, when a trust is created for more than one beneficiary, disagreement among the beneficiaries over the handling of trust assets or distribution of funds can create bad feelings, often resulting in costly litigation.

Once I meet with you and understand your objectives and the nature of your estate, I can advise you whether a trust may be beneficial.


Client Review

Joe Gagen prepared the wills for my wife and me. He did an excellent job and I highly recommend him. Joe was comprehensive in his approach. He explained the process and what he would need from us to complete the work. He reviewed our documents and walked us through the options for what should be included in the will and related documents, such as whether creation of a trust would be right for us. He was always on time, both for meetings and with drafts of our wills for us to review. We had a particular situation that needed extra attention. Joe recognized it the situation, explained its ramifications to us, and helped us resolve the issue completely. He prepared the will and all the related documents, such as medical powers of attorney. I fully recommend Joe for preparation of wills, trusts and all related legal documents.

5 Star Google Review – D.D.

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Austin, TX 78746

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