A trust involves a relationship between the person who creates the trust, commonly referred to as the “grantor”, the person for whose benefit the trust has been created, the “beneficiary”, and the person or entity who will be in charge of administering the trust, referred to as the “trustee”. A trustee is a fiduciary who must act with the utmost care and honesty in carrying out the wishes of the person who appointed the trustee to act. The Texas Trust Code requires a trustee to administer a trust in good faith according to its terms and the duties set out in the Texas Property Code. Provided the trust instrument does not contain language to the contrary, certain specific duties are imposed on trustees pursuant to both the Texas Trust Code and common law. Included among those duties are a duty of loyalty, a duty not to delegate, a duty to keep and render accounts, a duty to furnish information, a duty to exercise reasonable skill and care, a duty to invest prudently, a duty to control and preserve trust property, a duty to defend, a duty to not commingle trust funds, a duty with respect to financial deposits, a duty to diversify investments, a duty to make trust property productive, a duty to deal impartially with beneficiaries, as well as other duties imposed under law.
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Types of Trusts
Trusts are either revocable or irrevocable. Living trusts are typically revocable during the grantor’s lifetime but may then continue and become irrevocable at the death of the grantor. Under Texas law, a trust is revocable unless the trust document specifically provides that it is irrevocable. Testamentary trusts are always irrevocable because they come into existence only at the death of the testator (the person making a will), who is also the grantor
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Why Use a Trust When You Can Simply Make a Gift?
Trusts are used for estate planning purposes because they offer, at a minimum, specific benefits to the grantor of a trust that an outright gift does not allow. Although every trust does not offer all the following benefits, each trust will result in one or more of the following benefits:
- As opposed to making an outright gift at death, if property is left in trust, it allows the grantor to provide management of trust assets through a trustee;
- A trust can limit the beneficiaries current access to the trust property;
- A trust can protect the assets from attachment by a beneficiary’s creditors;
- A trust can control the disposition of the property during or after the beneficiary’s death;
- A trust can shift the income tax burden with respect to income earned by the trust property to the trust, the beneficiary, or the grantor;
- A trust can remove the trust assets from federal estate taxation in the estate of the grantor or the beneficiary.