Primary objectives for using a
1) Conserve assets for profligate
2) Protect the beneficiaries from
creditors, ex-spouses, and other “vultures,”etc.
3) Multi-generational transfers,
4) Federal income tax planning
5) Coordinated money/investment
6) Choice of law – move a trust to
another jurisdiction (e.g., to avoid the Rule Against Perpetuities)? Trust
established by contract and governed by local law.
Governing Law for Trusts – State and/or
1) Texas Property Code, §112.001 – specifies
the methods for creating a trust.
as defined for federal tax purposes – Reg. §301.7701-4(a);
cf., trust could be alternatively classified as a business entity.
Cf., other special types of trusts:
pension trusts, equipment leasing trusts, special needs trusts, real estate
Created under the decedent’s “last will
& testament.” Often subject to continuing probate court
Only activated for federal income tax
purposes when trust is actually funded with assets.
Also a possible receptacle for non-probate
assets (e.g., insurance proceeds and pension benefits), in addition to assets
received from the distribution of the residuary part of the decedent’s probate
Intervivos Revocable Trusts/Living
Is a revocable trust even essential in
Texas as a probate alternative? Cf., the probate/estate administration process.
Funded or unfunded (only a minimum corpus)?
Trust enables privacy to the extent funded
with assets prior to death. But, must transfer assets!
“Seasoning” of the trust during lifetime?
Also, a receptacle for further assets after
Grantor trust status during life - §676.
Inclusion of assets in the gross estate -
§§2036 & 2038 & Code §645 re income tax status.
Structure of the Trust
Transfer of property into the trust
Designation of the trustee & successor
Dispositive provisions (next slide)
Include a spendthrift clause? What
Impact of “rule against perpetuities”?
Expanded powers clauses (beyond state law)?
Distribution to minors provisions – why?
Performance bond/security waived?
Trustee’s fee – how much?
Trust Dispositive Provisions – Income
Trust structuring for income
- Mandatory distributions
- Ascertainable standard; how defined? HSEM
- Spray & sprinkle power
- Discretionary income distributions – who
makes the decisions? Use a committee to make decision, not including the
-What if a corporate trustee has income
Trust Dispositive Provisions – Corpus
Trust structuring for corpus
- Mandatory distributions – multiple
distributions at various ages
- Pursuant to an “ascertainable standard”?
- “Spray & sprinkle” power
- Discretionary distributions – who decides?
- Generation skipping trust structure?
- Provide a power of appointment – (1)
special P/A, or (2) general P/A?
Trust as a Source of the Estate Tax
Cf., revocable (estate tax inclusion
of assets) vs. irrevocable (i.e., no estate tax inclusion)
Trust as source of liquidity for
probate estate (e.g., to pay debts, expenses, taxes (if any)).
Possible options for funding:
buys illiquid assets from the probate estate, or
loan funds to the probate estate to enable payment of expenses and to pay
of discretion concerning
management of the
3) Record-keeping/tax returns,
- Special trustee – makes
- Advisory committee – multiple input
- “Trust Protector” – 3rd
The “Living Trust” Scam
& Advising Clients
See Texas State Bar materials concerning
“Living Trust Scams and the Senior Consumer”
Who sells/buys “living trust” packages?
Does this really enable “avoiding all
The probable exposure of the estate
planning advisor to this gimmick: helping the client extract himself (and his
assets) from this arrangement. What if an irrevocable trust?
Are the property transfers into the trust
completed for local property law purposes?