Managing Attorney
Trusts offer a number of advantages, including tax savings, and should be considered as part of a comprehensive estate plan. Because there are various types of trusts and different ways in which they may be drafted, it is imperative that you retain skilled legal counsel so that you and your family can enjoy the full benefits of these valuable instruments. Learn more about trust options and how they can reduce taxes by working with the Houston estate planning team of Capstone Legal Strategies.
Irrevocable Life Insurance Trusts (ILITs)
An irrevocable trust is one that cannot be altered once it is established; an irrevocable life insurance trust (ILIT), more specifically, is designed to buy, manage, and hold at least one life insurance policy. All trusts have trustees, and ILITs are no different: the trustee is the beneficiary of the policy.
Death benefits from the policy are paid into the trust rather than to an individual. Effectively, this removes the life insurance policy from the decedent’s estate. This, in turn, lowers the taxable value of the estate and therefore saves money.
Grantor Retained Annuity Trusts (GRATs)
A grantor retained annuity trust, or GRAT, is created by placing certain assets into an irrevocable trust. For a set period of time, the grantor (the person who established the trust) receives fixed annuity payments based on a predetermined amount or a percentage of the fair market value of the assets. Once the time period expires, any assets that are left over are passed along to beneficiaries of the GRAT.
The gift tax that is to be levied is determined at the time of the trust’s creation. However, this tax may be much less than the estate tax rate. If the assets grow at a high enough rate, the excess growth may be conveyed to beneficiaries without incurring additional gift taxes.
Revocable Living Trust (RLT)
A Revocable Living Trust (RLT) wis an estate planning tool that allows a grantor to retain control over their assets, including their primary residence, while ensuring a smooth transition of ownership upon their death. Unlike a will, an RLT helps avoid probate, offering privacy and efficiency in the transfer process. The residence clause within the trust specifically addresses how the primary home is to be managed, occupied, or distributed. This clause can grant a surviving spouse or other beneficiaries the right to live in the home for a specified period or for life, dictate rental terms if applicable, or outline conditions for its eventual sale.
One key advantage of including a residence clause is that it ensures clarity in handling the property while avoiding disputes among heirs. The grantor can specify who is responsible for maintenance, property taxes, and insurance, preventing financial burdens on unintended beneficiaries. If the residence is sold, the trust can dictate how proceeds are distributed among beneficiaries or reinvested into another property. Because the trust remains revocable, the grantor retains the flexibility to amend or revoke its terms as circumstances change, offering both asset protection and estate planning benefits.
A revocable living trust is an excellent estate planning tool, and our estate planning attorney can help you create one.
Spousal Lifetime Access Trusts (SLAT)
A Spousal Lifetime Access Trust (SLAT) is an estate planning strategy designed to transfer wealth to future generations while allowing indirect access to the assets during the grantor’s lifetime. Typically, one spouse (the “grantor”) creates an irrevocable trust for the benefit of the other spouse and, often, their descendants. The trust assets are removed from the grantor’s taxable estate, thus potentially reducing estate taxes upon death. However, because the beneficiary spouse can access the trust’s assets, the couple retains financial flexibility.
One of the main advantages of a SLAT is its ability to leverage the federal gift and estate tax exemption effectively, securing significant tax savings for wealthy individuals or couples. Importantly, if structured properly, a SLAT can protect the assets from creditors, lawsuits, and future marital disputes involving the beneficiaries. While offering considerable benefits, a SLAT should be carefully designed to avoid unintended consequences, such as losing access to assets in the event of divorce or the premature death of the beneficiary spouse.
Intentionally Defective Grantor Trust (IDGT)
Irrevocable trusts in general remove assets from a person’s taxable estate, but they may still cause beneficiaries to incur taxes. Heirs who receive trust assets, or the trust itself, would need to pay those taxes.
An IDGT avoids this issue by continuing to recognize the grantor as the owner of the assets for tax purposes. Phrased another way, the assets are placed in the trust, but the grantor will be responsible for paying the taxes so that beneficiaries later do not have to.
Helping Texas Families Preserve More of Their Wealth
The above are just some of the available trusts that, along with other estate planning tools, can minimize estate taxes. You’ve worked hard for the wealth that you and your family have, and we are dedicated to finding ways to pass on more of your assets to beneficiaries rather than the IRS. To learn more about trusts and the role they play in tax savings, call Capstone Legal Strategies today.