Why Should I Consider Setting Up a Trust in Dallas?

Dallas, Texas ranks among the most affluent cities in the world, at least in terms of personal net worth. Of Forbes magazine's list of the 400 wealthiest Americans, 43 call Texas home and 19 of those are Dallas/Fort Worth residents. Yet North Texans need not top the list of the well-heeled to think about the future of their financial assets. Increasingly, many are opting to set up personal trusts for the purpose of ensuring the sound management and -- eventually -- proper distribution of the financial resources in their possession. These individually oriented accounts serve to save money, invest it or direct it toward a charity, among other purposes.

Asset Protection

One way in which a trust can protect assets is by shielding them from estate taxes collected by the U.S. or Texas government. In fact, the trust takes the assets from the individual's (i.e. the grantor or trustor) estate -- and those estates of any heirs -- thereby reducing the tax burden. Beneficiaries are only taxed on the distributions they elect to receive from the trust while the trust itself is taxed when it sells an asset for a profit, but charitable donations and beneficiary disbursements are exempt. Furthermore, the trust can protect children or grandchildren from raids on wealth by creditors that might result from divorce or other litigation. All in all, there are benefits to delegating funds to the stewardship of an irrevocable trust. Minimizing federal and state levies, as well as immunizing funds against legal claims, are strong advantages of setting up a trust.

Avoiding Probate

In a general sense, probate connotes the validation of a will; payment of the estate's debts; and distribution of the remainder to heirs. When a trust agreement is in place, however, families need not wait on the probate process as it specifies successor trustees and avoids contesting claims among heirs. In addition, any assets owned by the trust outside of Texas are not subject to the other states' probate rules. Another advantage a trust has over a will is that the trust remains in effect if the person who sets it up, the trustor, becomes unable to competently manage its functions. The trustee continues as the responsible party.

Control over Distribution

Directing the particulars of how one's wealth is controlled and dispensed is a major draw for trusts. Whether it is saving for higher education; contributing to a humanitarian fund; or disbursing to a needy loved one, the trust is obliged by the terms of the trust document. For example, a trust can allocate financial resources outright, in lump sums without restriction. Alternatively, the trust can stagger the distributions, i.e. spread them out over time (months, years, decades). This is a common option when minors are among the beneficiaries. Still another avenue is to elect discretionary distribution whereby the trustees in charge will base timing and amount on their own judgment.

Tax Benefits

As noted above, a trust can serve as a barrier between your assets and governmental taxing authorities like the U.S. Internal Revenue Service (IRS) or the Texas Comptroller's Office. If structured correctly, the trust is only liable for revenue that is produced by its constituent assets, e.g. stocks, income property etc. Of course, when funds are disbursed to individual beneficiaries, each one must report that as income and pay accordingly. Nevertheless, the principal wealth that remains within the jurisdiction of the trust is not available to federal or state tax collectors.

Special Needs Planning

Often, when relatives or loved ones are physically or mentally challenged -- and unable to provide a living or care for themselves -- the trustor/grantor will set up a fund to secure, treat and sustain them. In such cases, the trustor will retain a financial advisor and estate attorney to establish a payment schedule and criteria for distribution. Doing so brings peace of mind to the parents of adult children with disabilities, for instance, or anyone who has guardianship over them. Distributions can cover residential care; basic needs like food and clothing; and therapeutic measures not covered by insurance.

Business Succession Planning

Trusts are not just about giving out money. Entrepreneurs have large portions of net worth bound up in their businesses. Should untimely death or disablement come upon the owner, or retirement beckon, a succession plan helps to avoid the conflict or chaos that may follow. The largest questions that arise concern operational control and ownership interest. A trust can make these terms clear. Just as important are the mechanisms as to how transfer occurs. To safeguard family interests and the legacy of the owner, a trust can address the various scenarios that demand succession.

Flexibility and Management

A revocable trust gives flexibility to the grantor to update or amend the trust document as needed. On the other hand, a stricter and more constraining irrevocable trust can yield more tax advantages. Grantors must determine their priorities when creating a trust. Meanwhile, the choice of trustee is crucial for sound management. Integrity, competence and financial savvy are ideal whether the trustee is a family member, business partner, attorney or friend. Only the trustor can determine the responsible steward for wealth.

Seeking the counsel of a seasoned estate attorney will clarify many of these issues.