Many people ask us, “What are trusts and why would I want to have one?” Trusts are simply a method by which one person (the trustee) holds property for the benefit of another person or group of persons (the beneficiary). To establish a trust, someone (the settlor) must transfer title to identified property, with the specific intent to create a trust, to the trustee, who then manages and administers that property for the benefit of the beneficiary. In Texas, unless the instruments creating the trusts set out specific instructions, statutes will govern the trustee’s duties, rights, and liabilities toward the trust property and the beneficiary.
People often create trusts, as part of their estate planning, to manage property for the benefit of a minor, an incapacitated person, or other persons whom the settlor believes are not able to manage their own financial affairs effectively. In addition, trusts can be used to provide financial aid to the beneficiary while protecting the trust property from any claims made by persons that the settlor does not intend to benefit – such as the beneficiary’s spouse or creditors.
Trusts can be created during the settlor’s lifetime, and the settlor can name herself as a beneficiary of the trusts. In addition, the settlor can name herself as a trustee. The only thing a settlor cannot do is be the only settlor, trustee, and beneficiary. As a result, trusts can be very effective mechanisms for planning your financial affairs prior to either death or incapacity. However, there are a number of estate planning and other implications which should be considered and discussed with an attorney prior to creating a trust.