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Estate Planning, Probate & Wills

Estate Planning and Types of Trusts

May 23, 2018, Author: nicks_admin

Estate Planning and Types of Trusts


There are many different types of trusts, some of which can be useful for estate planning purposes. The many types of trusts generally fall into two basic categories: living trusts and testamentary trusts.

A living trust (Inter-Vivos trust) is established during the person’s lifetime. A testamentary trust is set up in a person’s will and is crested only after the person’s death.

In exploring the many types of trusts that are either living trusts or testamentary trusts, it is important to understand the uses and benefits of each for estate planning purposes, and for that understanding, you should obtain advice from competent legal counsel, an estate planning attorney in Houston for Houston and surrounding residents.

The following is a general description of some of the different types of trusts:

Testamentary trust: Although many types of trusts can be created in a person’s will, a testamentary trust generally refers to a trust that is created by a person’s will. The trust does not exist until the person’s death. Since a person can change the terms of their will at any time before death, the terms of any trusts contained in a will can be changed at any time prior to death. Once a person passes away, the testamentary trust terms become irrevocable. In addition, a testamentary trust can be contingent, which means that it will be created only if certain conditions are met (for example, if the value of the estate exceeds a particular amount, or if a beneficiary is under a certain age).

Revocable living trusts allow you to retain control of all the assets in the trust, and you are free to revoke or change the terms of the trust at any time. Normally, you can name yourself as the primary trustee [manager of the trust], and you can also name yourself as the beneficiary of the trust. In order for particular property or assets to become a part of the trust, each property or asset must be transferred to the trust so as to show the trust as the legal owner of the property or asset.

With irrevocable trusts, normally you cannot make changes to the terms of the trust, and the assets transferred in to the ownership of the trust normally cannot be transferred back to the original owner.

There are many more complicated types of trusts useful for estate planning, which apply to specific situations. Some include:

Contingent Trusts: As mentioned above, you can create a contingent trust in your will. The contingent trust holds and manages property for your children or other beneficiaries, with the trust property remaining in the trust until the beneficiary reaches an age that you choose.

Bypass trusts: With a bypass trust, you create a testamentary trust that gives an amount to the trust up, to but not exceeding the estate-tax exemption [as of 2018 this amount is slightly over $11M]. You can then give the remainder of your estate to your spouse free of estate tax. Once assets are placed in a bypass trust, upon your spouse’s passing, the assets in the bypass trust will pass to the next named beneficiaries free of estate tax, including increases in value.

Generation-skipping trusts: A generation-skipping trust allows you to transfer a substantial amount of money tax-free to beneficiaries who are at least two generations your junior – typically your grandchildren.

Qualified personal residence trusts: A qualified personal residence trust can remove the value of your home or vacation dwelling from your estate and can be particularly useful if your home is likely to increase in value.

Irrevocable life insurance trusts: An irrevocable life insurance trust can remove your life insurance from your taxable estate, help pay estate costs, and provide your heirs with cash for a number of purposes. To remove the insurance policy from your estate, you surrender the ownership rights. This means you may no longer use the policy to borrow against or change beneficiaries. In exchange, the proceeds from the policy may be used to pay any estate costs upon your death and provide your beneficiaries with tax-free income.


Categories: estate planning attorney, estate planning lawyer, estate planning court, estate planning administration


Nick C. Caridas, Probate Attorney