Understanding some basic information about trusts may help you decide if a trust could be a beneficial addition to your estate plan. Learn more about trust basics in this presentation.

1. Estate Planning and Special Needs Trusts
ESTATE PLANNING
– TRUST BASICS
Understanding Some Basic Information About
Trusts May Help You Decide If a Trust Could
Be a Beneficial Addition to Your Estate Plan
STEPHEN A. MENDEL
Houston Texas Estate Planning Attorney

2. Estate Planning – Trust Basics www.mendellawfirm.com 2
An estateplan should be as unique and individualasthe person creating
the plan. Thereare, however, some common featuresinestateplans. A Last
Will and Testament, for example, is the foundationof any estateplan.
Beyond that, manypeople choose to include one or moretrustsin their
estateplan.
Although trustswere once used almost exclusively by the wealthy as a
mechanism bywhich they could transfer and control the familywealth, in
the 21ST centurytrustsare frequentlyused by clients to accomplish a wide
varietyof goals. Understanding somebasic informationabout trustsmay
help you decideif a trust could be a beneficialadditiontoyour estateplan.

3. Estate Planning – Trust Basics www.mendellawfirm.com 3
WHAT IS A TRUST?
A trust is a separateand distinct legalentitywhich allows you to appoint
someone to hold and managefunds transferred intothe trust for the benefit
of others. The person who createsthetrust is known as the grantor, also
referred to as the trustor or settlor. The person who protectsand manages
the trust assetsis the trustee. The person, entity, or even animal, who
benefitsfrom the trust is thebeneficiary.
If you (as trustor) ask your co-worker (as trustee) to hold $20 for you and
then give it to another co-worker (as beneficiary) at theend of the day, you
have created a rudimentarytrust. Infact, many trustsarealmost that
simple; however, a trust canalso be extremelycomplex and multi-faceted.

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CHOOSING A TRUSTEE
Choosing a trusteefor your trust is typicallythe most important part ofthe
trust creationprocess. Although your initialreactionmaybeto appoint a
spouse, adult child, parent, or other family member astrustee, you should
ask yourself if that istruly the wisest choice. Even a relatively small trust
must be managed well to succeed. Your trusteewill have a number of
important dutiesthatrequirea certaindegreeoffinancialand legal
knowledge and skill. In addition, your trusteewill be required to
communicatewith, and distributefundsto, thebeneficiariesofthe trust, a
positionthat could createconflict withinthefamily if the trusteeis a family
member. If your goalis to save money by appointing a familymember as
trustee, remember that saving moneyon trusteefees won’t matter ifthe
trust is not managed well enough to be growing thetrust funds. For all of
these reasons, people often decideto appoint a professional as trustee.

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TRUST TERMS
One of the biggest attractions toa trust is the abilitytocreateyour own
trust terms. In a way, a trust allows you continued control over the assets
you transfer intothe trust through thetermsyou create. For example, the
termsof your trust could requirea beneficiarytocomplete college or finish
a drug treatment program beforereceiving a disbursement.
As long as your termsarenot illegalor unconscionableyou have virtually
unlimited latitudetocreatewhatever termsyou wish for your trust. Gifting
assets to a beneficiaryin a Will, on the other hand, does not provide any
continued controlover the asset. Once a gift has been madein a Will the
beneficiaryisfree to use theasset in any way he or she wishes.

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REVOCABLE OR IRREVOCABLE?
A trust canbe revocable or irrevocable. Anirrevocabletrust, asthe name
implies, cannot usually be changed once it becomes effective. Thismeans
you cannot removeor add a beneficiary, changethefunding source, or
replacethe trustee. Although a court maymodify or even terminatean
irrevocabletrust under very limited circumstances, a grantor should
consider an irrevocabletrust tobe set in stone once created. A revocable
trust, on theother hand,
allows thegrantor to
modifyor even
terminatethetrust at
any timeand for any
reason.
So why would you create
an irrevocabletrust ifit
cannot be changed?
There area number of
reasons why an
irrevocabletrust ispreferableor even necessary. One of the most common
reasons why an irrevocabletrust iscreated is to decreasean estate’s
exposure to gift and estatetaxes. Becausethe grantor does not retainthe
right tomake any changesto an irrevocabletrust oncecreated, theassets
transferred intothe trust areno longer considered to be owned by the
grantor and are, therefore, not part of the grantor’sestateat the timeof his
or her death. Transferring assetsintoan irrevocabletrust canalso
potentiallyprotect thoseassets from creditors. In fact, some trustsare

7. Estate Planning – Trust Basics www.mendellawfirm.com 7
specificallydesigned to shelter assetsand requirethecreationof an
irrevocabletrust toaccomplish theintended goal.
TESTAMENTARY OR LIVING?
A trust must also be either a testamentarytrust or a living (or inter vivos)
trust. A testamentarytrust isa trust that does not actuallytakeeffect until
the death of the grantor, while a living trust becomeseffective assoon as all
of thelegalitiesof creationarecompleteand the trust has been funded.
Testamentarytrustsareoftenused by parentsof minor childrenas a
method of guarding estateassetsfor those childrenuntil they reach a
certainage.

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SPECIAL PURPOSE TRUSTS
As previously mentioned, a trust canincludealmost any term you wish to
include. Likewise, a trust canbe used for almost any conceivablepurpose
and you may appoint almost anyone as a beneficiary. Asa result, the variety
of truststhat canbe created isvirtuallylimitless. Although trustsarehighly
personal and diverse, there aresome specialtypes of truststhat areused to
accomplish specific goals, including:
Charitable Remainder/Lead Trust –one allows you to direct
disbursementstoa charityfirst for a designated number of yearswith
the remainder togo to a non-charitablebeneficiary, whilethe other
disbursesto a non-charitablebeneficiaryfirst with theremainder
going to a charityat theend of a specific period of time.
Pet Trust – yes, even the family pet can benefit from a trust. If you
are concerned what will happento Fido when you die, you can
eliminatethat concernbycreating a pet trust. In your trust you can
appoint someone to carefor the animal, appoint a trusteeto manage
the trust funds, and even provide specific trust termssuch as what vet
will treat the pet after you die.

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Special Needs Trust – this type of trust lets you providefor the
specialneeds of a loved one without theriskthat your gift will
disqualifythebeneficiaryfrom much needed assistanceprograms
such as Medicaidand SSI.
Asset Protection/Spendthrift Trusts – these trusts, when
properly constructed, canprotect assetsfrom creditorsofthe
beneficiaries(including you if you designateyourselfas a beneficiary)
and/or from the financialmismanagement ofa beneficiary.
Now that you have a basic understandingofwhat a trust is and what a trust
canaccomplish you maywish to consult with your estateplanning attorney
about including a trust in your estateplan.
US Trust, Trust Basics
AmericanBar Association, Trusts
Living Trust Network, Typesof Trusts

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About the Author
Stephen A Mendel
Stephen A. Mendel is a member of the American Academy of Estate
Planning Attorneys, a national organization that serves the needs of
legal professionals whose practices focus on estate planning and
asset protection. The Academy fosters excellence among its
members and helps them deliver the highest possible service to
their clients. Stephen A. Mendel provides a broad spectrum of
strategies and planning tools that can accomplish very diverse goals.
Mr. Mendel is an attorney who focuses a substantial part of his
practice on estate planning. Mr. Mendel’s guiding principle is to provide his clients with
quality legal services tailored to each client’s specific needs and goals.
Mr. Mendel has been providing quality estate planning for Houston and surrounding
area clients for many years. His firm helps numerous people who are concerned about
protecting their families from the devastating legal effects of disability and death. The
aim of the firm is to help you accomplish your estate planning goals and to take the
mystery out of the planning process.
Specific services include, but are not necessarily limited to, design and preparation of
wills & trusts, asset protection, use of family limited partnerships as part of the planning
process, buy-sell agreements, business counseling, and succession of closely held, family
owned businesses.
The Mendel Law Firm, LP
1155 Dairy Ashford
Suite 104
Houston, TX 77079
Phone: (281) 759-3213
Fax: (281) 759-3214
www.mendellawfirm.com