trusts, image of grandfatherly man with are around young woman

These Trusts Provide Targeted Solutions

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trusts, image of grandfatherly man with are around young womanThere are many tools in the estate planning toolkit, and targeted solutions can be implemented to address specific circumstances. With this in mind, let’s look at some of the trusts that can be used to respond to common challenges.

Spendthrift Trust

Not everyone is prepared to handle a sudden inheritance. A spendthrift trust gives you a way to provide for a loved one while protecting the assets from mismanagement, creditors, and impulsive behavior.

When you create this type of trust, you place a trustee in charge of distributions. Your beneficiary cannot access the principal directly or use the trust as collateral for a loan.

That means if they are going through a divorce, owe money to creditors, or simply make poor financial decisions, the trust assets are shielded from those outside claims.

This structure is common when beneficiaries are young, have a history of financial problems, or need protection from external influences.

Special Needs Trust

If you have a loved one with a disability who receives government benefits, a special needs trust can help you support them without causing disqualification.

Programs like Medicaid and Supplemental Security Income (SSI) have strict income and asset limits. If you leave money directly to someone with special needs, it may reduce or eliminate their eligibility.

A special needs trust solves this problem by holding funds for their benefit while keeping ownership with the trust.

The trustee can use the assets to pay for medical equipment, transportation, education, and other expenses not covered by public programs. This improves your loved one’s quality of life without putting their benefits at risk.

Irrevocable Income-Only Medicaid Trust

Long-term care can drain your savings quickly since Medicare won’t cover custodial care. In Fort Worth, Texas, where we practice, the median cost of a private room in a nursing home is $7,800 a month, according to Genworth Financial.

Medicaid will cover those expenses, but eligibility depends on your income and the value of your assets.

An irrevocable income-only trust is a common strategy for Medicaid planning. You transfer certain assets, such as your home and investment accounts, into the trust. Once this is done, those assets are no longer considered yours for Medicaid eligibility purposes.

You cannot take portions of the principal out of the trust, but the trust can be set up to pay income to you. After the five-year Medicaid look-back period has passed, the assets in the trust do not count if you apply for coverage.

This approach is often used by individuals or couples who want to preserve wealth for the next generation while still qualifying for Medicaid if the need arises.

Incentive Trust: Motivate Positive Behavior

An incentive trust allows you to leave an inheritance while encouraging your beneficiaries to reach certain goals or follow specific paths. These trusts are popular when parents or grandparents want to promote education, employment, or other values.

You can structure an incentive trust to reward good behavior or milestones. For example, the trust might match your beneficiary’s salary to promote steady employment. It could provide funds for college tuition, first-time homeownership, or the birth of a child.

This type of trust is flexible, and the terms are up to you. The trustee you choose is responsible for interpreting and carrying out your instructions. While incentive trusts do not guarantee outcomes, they give you a voice in how your legacy influences the lives of your loved ones.

QTIP Trust: Remarriage Protections

Blended families and second marriages can create unique estate planning challenges. A qualified terminable interest property (QTIP) trust allows you to provide income for a surviving spouse while protecting the principal for your children.

When you place assets in a QTIP trust, your surviving spouse receives income from the trust for life. However, they do not control the underlying assets.

Once your spouse passes away, the remaining balance is distributed according to your instructions, often to children from a prior relationship.

This structure provides financial security for your spouse while preserving your children’s inheritance. It also avoids potential conflicts that may arise when two families are brought together through remarriage.

Estate Tax Efficiency Trusts

While most families in Texas will not be subject to the federal estate tax, high-net-worth individuals need to plan carefully. The 2025 federal estate tax exemption is $13.99 million per person, but that figure is scheduled to drop in 2026 unless Congress acts.

If your estate may exceed the exemption amount, several advanced trusts can reduce the taxable value of your estate and transfer wealth more efficiently:

  • Generation-Skipping Trust (GST): Skips one generation to reduce taxation and preserve wealth for grandchildren.
  • Grantor Retained Annuity Trust (GRAT): Allows you to transfer appreciation on assets with minimal gift tax exposure while retaining annuity payments for a set term.
  • Qualified Personal Residence Trust (QPRT): Removes your home from your taxable estate while allowing you to live in it for a defined period.
  • Irrevocable Life Insurance Trust (ILIT): Excludes life insurance proceeds from your estate and provides liquidity for tax or settlement costs.

These trusts must be carefully structured to comply with federal tax law. They are best suited for clients who are already close to or above the federal exemption and want to take proactive steps to preserve wealth for future generations.

We Are Here to Help!

These are just a handful of the many tools in the estate planning toolkit. When you are planning your estate, you have options, and your plan should be customized to suit your needs. Personalized attention is key, and this is what you will receive when you work with our firm.

To get started, call our Fort Worth, TX estate planning office at 817-899-3286 to schedule a consultation. You can use the same number to set up an appointment at our Southlake location, and you can use our contact form to send us a message.

 

 

Brandon McGee
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