It all comes down to this: Are you trust-worthy?
That is the crux of the matter, isn’t it? Are you trust-worthy, or should you just go with a simple will for your estate plan?
Let’s play the game and see where you finish. We will look at seven different questions.
Question 1: Do you need a trust to avoid or lessen the tax on your estate when you die? Your friendly federal government taxes your right to transfer your assets, whether by gift or death. (Some states pile on with their own taxes, but we won’t discuss that because you are lucky enough to live in Texas, which does not have an estate tax.) You have a single lifetime account that combines taxable gift and estate transfers. Once combined, the government subtracts your lifetime exemption. In 2024, the exemption was $13.61 million per person. Together, you and your spouse can have up to $27.22 million in transfers and not have to pay the tax.
Congress, however, keeps playing with the numbers. You can look at EGTRAA, TRA 2010, ATRA 2012 and TCJA 2017 – all Congressional acts – if you want the gritty details. The upshot is that at the end of 2025, the exemption will decrease by about 50%.
Unless Congress changes the law, most estates will not have to pay an estate tax. If you are in the tax danger zone, it would behoove you to get some tax planning advice.
Question 2: Do you need to make extended plans for your descendants? If you have minor children, then you absolutely need at least a standby trust written into your will. It is universally acknowledged that it is parental negligence to leave a lot of money outright to an 18-year-old.
But do you need more complicated planning that would justify setting up a stand-alone trust for your descendants? Will your child or grandchild need creditor protection, income shifting or management help? Do you want your trust to last for generations?
Question 3: Do you have a special-needs family member? You usually should not leave money outright to someone with special needs, or dementia, because they often cannot manage money and, more importantly, need to qualify for means-tested government benefits. You may need to set up a trust just for that family member.
Question 4: Do you have a blended family? Treating your spouse and your children fairly can be a challenge. You may want to set up a trust that will benefit your spouse during his or her lifetime, with the final distribution of the assets going to your children outright or in a trust. Or you may want to set up a trust that treats your children and your spouse’s children equally.
Question 5: Do you own real estate in another state? You may need a trust to avoid probate in that state when you die.
Question 6: Are you or your spouse a non-U.S. citizen? No estate marital deduction is permitted for transfers to a spouse who is not a citizen of the U.S.
Question 7: Do you want a trust because all of your friends have one? This, unfortunately, is a serious question. Peer pressure doesn’t stop when you graduate from high school.
If you answered “yes” to any of these questions, then you are trust-worthy. But don’t stop your analysis there. Trusts can be confusing and expensive. They may be taxed at a higher rate. You may lose control of your assets.
The real question is, “Are you trust-necessary?”
Attorney Virginia Hammerle is board certified in civil trial law by the Texas Board of Legal Specialization and an accredited estate planner. To receive her monthly newsletter, contact her at legaltalktexas@hammerle.com or visit hammerle.com. This column does not constitute legal advice.
