If you have life insurance, there is a good chance no benefits will ever be paid. An insurance settlement is contingent on you dying during the term of the policy. If the term expires before you die, the insurance company’s obligation to pay the benefits is not triggered.

Like insurance, some trusts are not created or funded unless certain conditions exist when the testator dies. If the conditions specified in the trust document do not exist when the testator dies, the trust will not be created.

The most common type of contingent trust is one that parents set up to manage assets their children may inherit if their children are orphaned before they reach a certain age. For example, parents may direct that a trust should be created for their children if they both die before their children are 21 years old.

More than likely, their children will be much older than 21 when they die. But in the unlikely event the parents do die while their children are young, they can rest assured that the assets will be managed by a person they choose, and distributed how and when they decide.

Contingent trusts can also be created to oversee management of assets that may pass to someone who is incapacitated when the estate is settled. For example, suppose you and your adult child are involved in a car accident. If you die in the accident, and your child is incapacitated, assets you may leave to that child can be held in trust until the incapacity is removed.

There is almost always is a possibility that part of your estate will be inherited by a child under a specified age or someone who is incapacitated. Therefore it is always a good idea to add a contingent trust to your will.

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A couple of weeks ago, I explained that probate recently got more private in Texas. In the past an estate’s representative was required to file an inventory, appraisement and list of claims with the court. Revocable trust-based plans avoided the public disclosure of information required in the inventory.

But effective September 1, 2011, Section 250 of the Texas Probate Code permits independent executors to file an affidavit in lieu of an inventory, appraisement and list of claim, which keeps the information contained in it private. This should alleviate many of the privacy concerns associated with Will-based plans and make them more appealing.

But depending on your unique circumstances, revocable trusts may be the best way to accomplish your estate planning goals and objectives. Below are a few situations in which revocable trusts are beneficial.

Revocable trusts are a good idea if you own property in another state

If you are a Texas resident and you own a vacation home or investment property in another state, probate may be required in every state in which you own real estate.

However, if you transfer title of the  out-of-state property to a living trust, probate can be avoided in those states.  This helps the estate avoid legal costs associated with multiple probates.

It is possible to create a living trust only for out-of-state property.

Revocable trusts are a good idea if you are concerned about incapacity

If you are concerned you may become incapacitated because of advanced age or a particular medical condition, a living trust can make it easier for the person you choose to step in and manage your assets if and when you become incapacitated.

A Durable Power of Attorney could allow you to accomplish the same goals, but trusts are more readily accepted at some banks and other financial institutions.

Revocable trusts are a good idea if you expect a will contest

If you anticipate a contest to your will, then in some cases and with professional advice, establishing a living trust could prevent a challenge to your estate plan.

A trust becomes effective as soon as the settlor transfers his assets into it.  Since it becomes effective during his lifetime and is typically operating with his full knowledge and control, it is more difficult for challengers to claim, for example, that he lacked capacity, was fraudulently induced, or was unduly influenced to dispose of his property in the manner he has chosen.

You should always consult with an attorney to help you determine which estate planning tools can best accomplish your estate planning goals.

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When people think about trusts and trust funds, images of people like Paris Hilton come to mind. But trusts not just for the wealthy.

What are the benefits of creating a trust?

Trusts can be set up to manage assets for those who are minors, spendthrifts, or have special needs; to ensure that assets in the trust ultimately pass to one’s children in the case of a blended family or if a surviving spouse remarries; or to protect trust assets from creditors and potential lawsuits against the beneficiaries.

They are beneficial because the Settlor (the person who establishes the trust) can direct how the assets should be managed, who will manage the assets, and how and when the assets should be distributed to the Beneficiaries.

What are the requirements of a valid trust in Texas?

The following are the legal requirements for a valid trust in Texas:

1. The Settlor must have a present intent to create a trust. According to the Texas statutes, a trust is created if the Settlor manifests an intention to create a trust. No specific words are required.”

 

2. The Settlor must have capacity to convey assets to the trust. The Settlor has capacity if:
   • he or she is over the age of 18 or has been lawfully married or a member of the armed forces, and

    

   • is of sound mind, which means he knows the nature and extent of his property, the persons who are the natural objects of his bounty, the disposition that he is making, and how these elements relate to form an orderly plan for the disposition of his property.

    

3. The trust must comply with the Statute of Frauds. A trust may be created orally through a declaration of trust; however, if it involves the transfer of real property, it must be in writing.

 

4. The trust must have a legal purpose. The terms of a trust may not require the trustee to commit a criminal or tortious act or an act that is contrary to public policy.

 

5. The Settlor must identify the property covered by the trust and place it in the trust for the benefit of the beneficiary. The Texas statutes specify that a trust cannot be created unless there is trust property.

 

6. The trust must have a Trustee who holds legal title of property for the benefit of the trust’s Beneficiaries. If there is no Trustee named, or if the Trustee that is named does not want to serve or cannot serve for any reason, the court can appoint a Trustee for the trust.

 

7. The trust must have ascertainable Beneficiaries. If the Settlor does not name the Beneficiaries with sufficient certainty, the trust will fail.

 

8. The trust my not violate the Rule Against Perpetuities, which says that an interest is not good unless it must vest, if at all, not later than 21 years after some life in being at the time of the creation of the interest, plus a period of gestation.

 

A trust can be set up and funded during a Settlor’s lifetime, or even at the death of the individual who established it. Even if you aren’t wealthy, trusts can help you ensure that your assets are managed according to your wishes during your lifetime and after you die.

Related posts:

1. What are the Requirements of a Valid Will in Texas?

Every parent worries about whether their children will be well cared for if tragedy strikes. But the worries are compounded for parents of children with special needs who lack the capacity to communicate their needs to caregivers.

As a parent of a special needs child, you know their needs and desires, likes and dislikes and information relating to the care and services they are receiving. But what happens if you are no longer living? How can you ensure that your disabled child will be well cared for by the person who assumes the role of their guardian when you’re gone?

Although a Special Needs Trust can provide for your disabled child’s supplemental financial needs, it will likely not contain information that is vital to ensuring continuity in their care. That’s why all parents of children with special needs should also prepare a Letter of Intent.

What is a Letter of Intent?

A letter of intent is not a legally-binding document. Rather it is letter that provides valuable information about your disabled child’s life to help guardians, trustees and courts understand your hopes and desires for him or her.

What Should Letter of Intent Include?

A letter of intent should include information such as:

• Names, addresses and phone numbers of people who should be contacted in the event of your incapacity or death.
• Your child’s family history, as well as names and contact information for family members who have a good relationship with your child.
• The names, addresses and phone numbers of close friends who have a good relationship with your child.
• Facts relating to your child’s medical condition and names, addresses and phone numbers of those actively involved in your child’s medical care.
• Your child’s interests, personality traits, likes and dislikes, including the types of social activities your child enjoys.
• Your child’s day to day routines such as mealtimes, bedtimes, and extracurricular activities.
• Information about your child’s education and your hopes and aspirations for future education.
• Information about any paid or volunteer positions that your child had held and/or what types of jobs he or she might enjoy.
• The location of medical records or other important documents
• Your child’s religious beliefs, including where he or she attends religious services, the names of ministers who are familiar with your child and your hopes for his or her religious upbringing.
• The environment in which you would want your child to live as an adult, such with relatives or in a group home.
• Any other information you believe is relevant to your child’s care.

Does My Letter of Intent Have to Be In Any Specific Format?

The Letter of Intent does not have to be in any specific format. It can be handwritten or typed, although typing it can make it easier to keep it regularly updated as your child’s needs change.

How Often Should I Update my Letter of Intent?

A letter of intent should be updated on a regular basis throughout your life to ensure that it is current. Make it a habit of revisiting it once a year, perhaps on your child’s birthday, or New Year, and noting any changes. A current copy should be kept with your estate planning documents so that it can be found when needed.

As a constant in your child’s life, you know him or her better than anyone. Providing a Letter of Intent to the person who will assume the responsibility for your child’s care will ensure that he or she is up to speed a lot more quickly and better able to provide for your child’s needs.

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Whether a Settlor, the person who creates a trust, can revoke or modify it depends on if the trust is irrevocable or revocable.

According to Section 112.051 of the Texas Trust Code, a Settlor may revoke a trust unless the express terms of the trust make it irrevocable. If the trust is revocable, the Settlor can modify or amend it, but may not enlarge the duties of the trustee without the trustees express consent.

Any trust that was created in writing must be revoked, modified or amended in writing.

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