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Experienced Texas Trust Attorneys

The members of your Guaranty Wealth Management team at Guaranty Bank & Trust are experienced professionals who act on your behalf in a fiduciary capacity. Every recommendation is made in the context of your overall tax, investment and wealth management or trust related needs and in your sole interest. We work to optimize all of the financial and tax benefits available to you by delivering proactive advice and recommending planning opportunities. 

To learn more, review the Frequently Asked Questions below:

What is a Trust?
A Trust is a legal agreement that has three parties to it: the Grantor, the Trustee, and at least one Beneficiary.

Who is a Grantor?
A Grantor is the person (or married couple or even a legal business entity) creating a trust for their own benefit or for the benefit of at least one Beneficiary.  Additional terms for a Grantor will be Trustor or Trust Creator.

What is a Trustee?
A Trustee serves as a fiduciary for others under the terms of a trust agreement.  The Trustee is charged with administration, accounting and investment management property owned by a trust.  A Trustee can either be an individual or an institution such as a bank (e.g., Guaranty Bank & Trust, N.A.) or a state chartered trust company.

Who or What is a Beneficiary?
A Beneficiary is a person for whom a trust is created.  The beneficiary can be a spouse, adult child, minor child, a grandchild, great-grandchild or (in the case of Dynasty Trusts) for descendants not yet born for multiple generations.

What are the Types of and the Uses of Trusts?
As noted elsewhere, a Trust is established by a trust agreement and is funded with particular assets by a Grantor.  The trust agreement defines the uses of the trust for benefit of the beneficiaries along with how the assets are to be managed, which in turn will define the type of trust created by the trust agreement.  Generally, there are revocable or irrevocable trusts, inter-vivos trusts created during one’s lifetime and testamentary trusts created at one’s death under the terms of their Last Will and Testament.  Generally, trusts can protect beneficiaries from creditors or even themselves; provide for “special needs” beneficiaries who may be physically or mentally challenged; provide for the grantor on their own disability; provide for charitable gifting; educate children or grandchildren; provide life insurance liquidity for families after the death of a loved one; and even provide non-qualified retirement benefits for corporate executives.

What is a Revocable “Living” Trust?
A Revocable Living Trust is a legal agreement created by a Grantor so that a Trustee (often the trust Grantor) may hold and own the Grantor's assets and manage the assets for the benefit of the Grantor.  Technically, the “basic” revocable living trust is a “legal fiction” under the “merger of title” doctrine.  Under this legal doctrine, if the same person is the grantor, trustee and beneficiary then the asset title is merged into a “fee simple” interest in the name of that person.  This is partly why revocable living trusts do not require separate federal income tax returns and do not provide creditor protection to the beneficiary like most other trusts.

Wills vs. Revocable Living Trusts When Creating an Estate Plan- What Do You Need?
A question I am often asked is "How do I know if I need a trust instead of a Will?" Many people assume that any type of trust is for the wealthy, but the benefits that they can offer to the average person are significant.  When deciding whether or not one should create a Revocable Living Trust as part of their estate plan, it is important to objectively look at their individual family situation and recognize that we slowly decline as we age.  Planning for both financial and long term care contingencies is critical.  One last point, if one uses a Revocable Living Trust in their planning, a Last Will and Testament is still needed.  This is called a “Pour Over” Will which simply transfers any assets remaining in one’s individual name on death to the Revocable Living Trust for final disposition to heirs and beneficiaries.

What are the benefits of a Revocable Living Trust?
The benefits of this trust type include: the  potential to avoid probate which gives one’s family privacy in their personal business matters after a death; appointing an independent trustee do deal with beneficiaries on a separate basis and avoid conflicts among spouses and step-children; or even conflicts between siblings; provide for care and asset management for a Grantor in the event of their disability without having to go through a court procedure declaring the disability and naming guardians the person and estate.  Dealing with all of these potential issues ahead of time will save legal costs, time, and can help keep families together after the death of a loved one.

Why should I hire an attorney for my estate planning Will or Trust?
First, laws regarding the various documents involved in estate planning vary from state to state.  Using an estate planning attorney knowledgeable in this area of the law should ensure your documents are valid in your state.  Even a small estate can result in additional costs and problems if there is no Will or disability documents or if the documents are poorly drawn. Second, It is even more important for individuals with complicated estates due to business interests and family issues, along with high net worth individuals to work with a qualified estate planning attorney.  We regularly make recommendations to our clients regarding qualified estate planning attorneys.  Do not hesitate to call us so we can discuss your particular situation. 

What is an Irrevocable Life Insurance Trust (”ILIT”)? 
Life insurance proceeds are normally paid outright to individuals named as beneficiaries to the life policy and the proceeds would be part of the “non-probate” estate of the decedent/owner and subject to federal estate taxes.  An ILIT is an irrevocable trust designed to own a life insurance policy and pay the life insurance proceeds to the beneficiaries of the ILIT under the terms of the trust agreement.  By changing the ownership of the policy to an ILIT, the life insurance proceeds are removed from exposure to federal estate taxes and by paying the proceeds through a trust, one does leave a large sum of insurance money to a person who may be unable to handle budgets, investing, and spending decisions.  For most ILITs, the Grantor of the trust will still pay the annual insurance premiums.  But, instead of paying the insurance company, the Grantor will make annual contributions to the ILIT with beneficiary contribution notices (i.e., “Crummey” notices).

What type of trust do I need if my family has complex interpersonal dynamics (i.e. family members don't get along with one another)?
If your family has complex interpersonal dynamics, based on our experiences, we would recommend that you do not name family members as trustees as this will only increase conflict among the beneficiaries and trustees.  At a minimum an independent corporate co-trustee is called for in this situation.  Additionally, to the extent possible, we would recommend that you create a separate trust (which can be accomplished in one document with proper drafting) so each beneficiary’s needs are determined independently from other beneficiaries.  Again, this will help to avoid conflicts.

What type of trust do I need if I have "special needs" beneficiaries who may qualify for government medical or disability benefits?
There are unique trusts that have developed over the 20 years that are referred to as “special needs trusts”, “Miller trusts”, or “qualified income” trusts”.  Generally, these are all effectively the same type of trust.  The core provisions for these trusts are that; (i) distributions are restricted for the health, care and support of a beneficiary only to the extent that government benefits are not available for the beneficiary’s specific needs, and (ii) on the death of the beneficiary, the assets remaining in the trust do not pass through the beneficiary’s estate but pass directly to others.  It is recommended that one use a specialized drafting attorney in this field as the regulations, interpretations and court rulings are still somewhat in a state of flux.

What type of trust might I need if my children are affluent and do not need the assets I may want to leave them?
There is a type of trust called a “generation skipping trust”.  This trust comes with two basic options: (i) leave your children as discretionary income beneficiaries during their respective life times and the remainder of the trust passes to grandchildren after your children die; or, (ii) completely omit your children as beneficiaries and leave the trust for the benefit of your grandchildren up to certain ages of for their respective lives.  Again, one should use a specialized drafting attorney as these generation skipping trusts, if not properly drawn, could expose one’s estate to a generation skipping tax (a penalty tax over and above potential estate taxes) if one has a taxable estate.

What type of trust should I consider if I have significant illiquid assets such as real estate or a closely held business?
Previously we discussed an irrevocable life insurance trust.  Since estate taxes, if applicable, are due within 9 months from one’s date of death, or liquidity may be needed to continue operations for a closely held business, agriculture operation, or real estate ventures, it is good to have liquidity not subject to the federal estate taxes.  This is where an irrevocable life insurance trust can be effectively used.  Additionally, one may want to consider selling all or a part of these illiquid assets to one’s heirs prior to death by selling the illiquid assets to an “intentionally defective grantor trust” for benefit of one’s heirs by use of a “self-cancelling installment note” signed by the trust.  Again, a qualified drafting attorney should be used.

What type of trust should I use to transfer material assets to charity?
There are two basic charitable trusts that can be custom designed to fit you and your family’s needs.  It is recommended that a qualified drafting attorney be used when creating these types of trusts.

First is the "Charitable Lead Trust". This trust is usually funded during your lifetime, you chosen charity or charities receive at least annual distributions for a term of years, then the remainder of the trust’s assets after this term of years either is returned to you or passes to your beneficiaries.  The charitable lead trust is used either as a way to reduce your taxable income for a period of time (assuming the trust has the assets returned to you after the term of years), or with proper planning it can reduce both your income taxes and federal estate taxes (if the assets pass to your children after the term of years).

Second is the “Charitable Remainder Trust”.  This trust is funded during your lifetime and can make distributions to you and your spouse for your joint lifetimes.  Depending on the distribution terms back to the grantor(s), these are usually structured and referred to as a charitable remainder annuity trust or a charitable remainder unitrust.  There are other variations on these terms that are to extensive to discuss here.  The charitable remainder trust allows for a large income tax deduction in the year of funding, deferral of capital gains taxes if low cost basis assets are used to fund the trust, and avoidance of federal income taxes on the death of the grantor(s).  

What type of trusts should I create in my Will or Revocable Living Trust when I have a taxable estate and/or a likely surviving spouse who is not the parent of my surviving children?   
Normally in estate situations such as this, there will be two trusts created to be funded on the death of the grantor or testator.  One is called a “credit shelter or available exclusion trust” and the other will be called a “marital trust or a QTIP martial trust”.  Each decedent under federal law has an exclusion amount before federal estate taxes would be due, plus any assets left to a surviving spouse who is a U.S. citizen will not be taxed until the surviving spouse dies (i.e., the unlimited marital estate or gift tax deduction).  As an example, for 2013 the federal estate or gift tax exclusion amount is $5,250,000.  So, effectively, one does not have a taxable estate unless it exceeds this amount.  So, assets passing to heirs, up to this $5,250,000 amount in 2013 would go to the “credit shelter or available exclusion trust” and assets passing to heirs in excess of this amount would go to the “marital or QTIP martial trust”.

The credit shelter trust can leave the surviving spouse as the first beneficiary with one’s children as remainder beneficiaries and there will be no estate taxes paid by the estates of the decedent and the surviving spouse.  However, a martial trust is taxed on the death of the surviving spouse and the surviving spouse can distribute the assets of this type of trust as they please by a provision in their Will.  Note that a QTIP marital trust is still taxed on the death of the surviving spouse but the remaining distributions can be “locked” for the benefit of one’s children and the surviving spouse cannot determine where the remainder assets may go on his or her death.  You can see how this planning looks in a flow chart for sample clients elsewhere in this website.  

Is a Will the only thing my family will need to settle my estate?  
Even though the Will is critical to an efficient estate settlement, it will only transfer assets that are listed in your individual name and does not distribute assets controlled by contract such life insurance policies, retirement plans, IRAs, 401(k) plans, annuities, etc. (e.g., assets with a beneficiary designation form) or jointly owned assets with rights of survivorship, transfer on death, or payable on death titles.  All of these beneficiary designation forms and jointly titled assets should be kept current and considered as part of one’s estate planning documents.  Assets controlled by one’s Will we refer to as “probate assets” and assets controlled by contractual terms we refer to as “non-probate assets”.  Both types of assets are considered when determining if one has an estate large enough to be subject to federal estate taxation.  As a final note, a Will is not a valid legal document for disposing of one’s assets until it has been submitted to a court of proper jurisdiction for probate and the court has issued Letters Testamentary to the designated executor.

Why do I even need a Will?  Can’t I just title all of my assets in the name(s) of the person(s) I want to receive the assets after I die?  
In theory, one does not necessarily need a Will since the laws of “descent and distribution” in one’s state of residence takes care it and/or I can simply add a person’s name to the title of certain accounts as joint tenant with rights of survivorship or payable or transfer on death to a certain person.  However, we believe this is the biggest mistake we see people make on a recurring basis.  First, the laws of descent and distribution may not pass your assets to heirs as you would wish; especially if you have had multiple marriages.  Second, often the planned recipients of jointly titled accounts will die before you, or they can access the account before you die.  Related to this situation, often individuals tell us they have left all their bank accounts to one child by titling, and they expect that child to “share” with their siblings.  This seldom happens as planned since there is simply no requirement that a jointly titled recipient “share” with others, and if they do, the recipient could be subject to federal estate taxes when they “share”.

Why should I name a corporate trustee or co-trustee in my estate and gift planning when I can have an individual serve as trustee for free?  
First, you are not doing a favor to someone you name as trustee and they will likely need to hire an attorney, a CPA and an investment manager.  These services combined from different providers are often more expensive than paying the fees of a corporate trustee.  In fact, we often have clients come to us after they have been named as an executor and hire us as their agent to do the time consuming work and save costs. 

It takes a substantial amount of time to serve as trustee and the trustee is personally liable for: (i) any mistakes they might make by not following the terms of a trust; (ii) not abiding by statutes and regulations involving trusts; (iii) for making or retaining imprudent investments; and especially (iv) for not acting in the best interests of the various levels of beneficiaries.  
We find the most difficult duty for an individual trustee is to be able to make the tough calls involving individual beneficiaries when the individual trustee is pressured to say ‘yes’ to a beneficiary request when the answer should be ‘no’.  For example, what if a trust income beneficiary has trouble managing their own money, timely paying their bills and is asking for discretionary principal distributions to cover their bad financial decisions?  Well, if the trustee says ‘yes’ to these requests without working to correct the income beneficiary’s spending problems and the principal of the trust is depleted over time, then the trustee could be sued by remainder beneficiaries who would be later recipients of the trust principal or even be sued by the spendthrift income beneficiary if the trust is depleted before the end of its term!

Second, the benefits of a corporate trustee are: (i) the corporation does not die; (ii) the corporate trustee has experienced individual officers and employees trained and educated in the complex field of trust administration and investing; (iii) the corporate trustee is continuously regulated, has systems, policies and procedures to ensure proper trust administration and legal compliance; and (iv) most importantly for family harmony  the corporate trustee has no biases or reasons to be more responsive to one beneficiary or class of beneficiaries than another.    

IMPORTANT:  This brief summary of planning ideas is for discussion purposes only.  It does not contain legal, tax, investment, or insurance advice and cannot be relied upon for implementation and/or protection from penalties.  Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax, or estate planning strategy. 
Pursuant to IRS Regulations, you are informed that any tax advice contained in this communication (including any enclosures or attachments) is not intended or written to be used and cannot be used by any person or entity for the purposes of (i) avoiding tax related penalties imposed by any government tax authority or agency, or (ii) promoting, marketing or recommending to you or another party any transaction or matter addressed herein,  and (iii) you are advised to consult with an independent tax advisor your particular tax circumstances.

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