Due to changes in the federal estate tax laws, there is now roughly a $5 million exemption in place, which for a married couple can be parlayed into an exemption of approximately $10 million. This change looks fairly permanent, and for now makes it unlikely that trusts will be needed in the estate plan for obtaining tax savings. However, estate planning in Texas may include trusts for other more traditional purposes.
Trusts are still good tools to structure the distribution of one's assets both during life and at death. Trusts have always been used to transfer assets to children and others in a controlled manner consistent with the donor's wishes. Thus, a simple testamentary trust in a will, for example, may provide that the trustee holds the corpus of the trust funds until the minor child reaches 21, 25, or any other age for final distribution.
The trustee may be directed to use the trust funds for the health, welfare and education of the beneficiary, in the trustee's discretion, before making the final distributions. Trusts may also be effective vehicles to donate to charities. Trusts can be an integral part of an estate plan, along with the will and the powers of attorney.
Before deciding to create trusts, however, one should think seriously about their use and purpose. Does the donor want to provide for his or her family members and/or for charitable institutions? What are the relationships and ages of the beneficiaries, what kinds of assets are owned, and is the donor in need of protecting those assets from creditors? Is there a need for lifetime trusts or is the need strictly for a trust to take effect at death?
In Texas and elsewhere, these main considerations should be determined first. Then they can be charted out and constructed. Most people will get the most accurate and cost-effective arrangement of estate planning tools by working in conjunction with an experienced estate planning attorney. Some persons will also need the additional input of a financial planner or adviser of some sort, depending on the applicable circumstances.
Source: CNBC, "What's the difference between an inheritance and a trust?", Andrew Osterland, July 6, 2016