In the not so distant past, trusts were considered the purview of the rich and famous only. The average person rarely included a trust in his or her estate plan. Instead, trusts were used to funnel family wealth from one generation to the next while maintaining a certain degree of control over the use of the trust assets. Today, however, including a trust in an estate plan is almost routine for the average person. Questions about how a trust works though are common. For example, people often ask “ Will my trust need to be changed if I buy or sell assets? ” A better understanding of the types of trusts you can create and how assets are handled in each may help answer that question.
While there are numerous “specialty” trusts, all trusts are divided into two basic categories – testamentary and inter vivos (living) trusts. They are then further divided into revocable or irrevocable trusts. A testamentary trust is one that only begins to function after your death whereas a living trust is activated as soon as all elements of creation are met and sufficient funds are transferred into the trust. A revocable trust is a trust that can be changed or revoked by the grantor at any time and for any reason whereas an irrevocable trust can never be changed or revoked by the creator of the trust. The type of trust you create determines how the purchase or sale of assets is handled.
A revocable living trust, or RLT, allows you to modify the trust or make changes to the trust at your leisure. Therefore, you can transfer assets in and out of the trust as often, or as infrequently, as you wish as long as it does not violate the terms of the trust. The terms, however, can also be changed by you should he need arise. Furthermore, you can be the trustee of your own RLT, making it even easier to handle the purchase or sale of trust assets. Because a testamentary trust does not take effect until your death, the same basic rules apply to the purchase or sale of assets. If you need to remove or add assets from a testamentary trust you may do so up to the time of your death.
An irrevocable living trust creates a different set of issues when it comes to the purchase or sale of assets. Although you cannot modify an irrevocable living trust the trust terms may allow for the sale of trust assets. Additional assets can also be added to the trust as long as the trust terms are not violated. The key to managing assets held by an irrevocable living trust is found in the trust terms.
If you have specific questions regarding the creation of a trust or the administration of a trust contact your Texas estate planning attorney.