---
name: trust-basics-explainer
description: |
  Explains the fundamental trust types (revocable, irrevocable, living, testamentary),
  how trusts work, what problems they solve, and when to ask an attorney about them.
  Produces a trust type comparison table and an attorney consultation question list.
  Use when the user asks about trusts, whether they need a trust, revocable vs.
  irrevocable trusts, or how trusts compare to wills.
  Do NOT use for recommending a specific trust type, drafting trust documents, or
  providing tax advice on trust strategies.
license: Apache-2.0
metadata:
  author: foundry-skills
  version: "1.0.0"
  tags: "estate-planning legal-literacy guide research"
  category: "legal-civic"
  subcategory: "estate-planning"
  depends: ""
  disclaimer: "not-legal-advice"
  difficulty: "intermediate"
---
# Trust Basics Explainer

> **Disclaimer:** This skill provides general legal literacy and educational information to help you understand legal concepts and processes. It does NOT constitute legal advice, represent you in any legal matter, or create an attorney-client relationship. Laws vary significantly by jurisdiction and change over time. Always consult a qualified estate planning attorney licensed in your jurisdiction for advice on specific legal matters affecting you.

---

## When to Use

**Use this skill when:**
- A user asks what a trust is, how trusts work, or whether they need one
- A user asks about the difference between revocable and irrevocable trusts and wants to understand what distinguishes them conceptually
- A user is preparing for a first meeting with an estate planning attorney and wants to arrive informed
- A user asks how a revocable living trust avoids probate and whether that matters in their situation
- A user asks whether a trust replaces a will, or whether they need both
- A user has heard terms like "pour-over will," "successor trustee," "spendthrift trust," or "testamentary trust" and wants to understand what they mean
- A user inherited assets through a trust mechanism and wants to understand how the legal structure works
- A user is comparing the cost and complexity of trust-based estate planning versus a simple will
- A user asks specifically about funding a trust or what happens to assets left out of a trust

**Do NOT use when:**
- The user wants you to recommend which specific trust type is right for their situation -- that requires an estate attorney applying facts to jurisdiction-specific law
- The user wants to draft, review, or critique an actual trust document (use legal document review skills or refer to an estate attorney)
- The user asks about tax planning strategies specific to their trust, including gift tax exclusions, estate tax exposure above the federal exemption, or charitable deduction structures (refer to a tax attorney or CPA)
- The user asks specifically about special needs trusts and SSI/Medicaid benefit preservation (use `special-needs-trust-overview`)
- The user asks about administering an existing trust after a grantor has died -- trustee duties, accounting requirements, distributions to beneficiaries (refer to a trust administration attorney)
- The user asks about business trusts, land trusts used in commercial real estate, or statutory business trusts (refer to a business attorney)
- The user asks about asset protection planning specifically from lawsuits, malpractice claims, or creditor judgments as a primary goal (refer to an asset protection attorney)
- The user is asking about a foreign or offshore trust structure (refer to an international tax attorney)

---

## Process

### Step 1: Identify the User's Starting Point and Core Question

Before delivering any information, determine what specifically prompted the user's interest. The answer shapes everything that follows.

- Ask one clarifying question if the prompt is vague: "What's prompting your interest in trusts -- are you doing estate planning from scratch, or did something specific come up?"
- Identify the core concern from their answer. The five most common entry points are:
  - **Probate avoidance:** "I heard trusts skip probate -- is that true and does it matter for me?"
  - **Incapacity planning:** "What happens to my finances if I can't manage them myself?"
  - **Control over inheritance:** "I want to make sure my children don't receive a lump sum all at once"
  - **Privacy:** "I don't want my estate to become a public court record"
  - **Pre-attorney orientation:** "I'm meeting with an estate attorney next week and want to be prepared"
- Match the depth and order of your explanation to their concern. A user worried about incapacity needs to hear about successor trustee mechanics early. A user focused on probate avoidance needs the probate-versus-trust comparison up front.
- Note explicitly what you will NOT do: recommend a specific trust type, give tax advice, or substitute for an attorney consultation.

### Step 2: Explain the Fundamental Trust Concept Using Concrete Language

Establish the three-party legal relationship clearly before introducing any trust types.

- A trust is a legal arrangement in which one party (the **grantor**, also called settlor or trustor) transfers legal title to assets to a second party (the **trustee**) to hold and manage for the benefit of a third party (the **beneficiary**).
- The trust document (called the trust instrument or trust agreement) is the contract that governs everything: what assets are in the trust, who manages them, under what conditions assets are distributed, and what happens when the grantor dies.
- The trustee has a **fiduciary duty** -- the highest legal duty of loyalty and care -- to manage the assets solely in the beneficiaries' interest, not their own. Breach of fiduciary duty can result in personal liability for the trustee.
- In a revocable living trust during the grantor's lifetime, one person commonly fills all three roles simultaneously: the grantor creates the trust, serves as the initial trustee managing the assets, and is the primary beneficiary during their lifetime. This is why it feels like nothing has changed -- legally the structure exists, but practically the person continues to manage and use their own assets.
- Use a concrete analogy for the concept of legal vs. beneficial ownership: the trustee owns the assets on paper (legal title) but must use them only for the beneficiaries (beneficial title). The trustee is legally holding the assets in trust -- they cannot spend trust funds on themselves.
- Establish the concept of the **successor trustee**: the person or institution designated to step in as trustee if the original trustee dies, becomes incapacitated, or resigns. This is one of the most important decisions a grantor makes and deserves its own discussion.

### Step 3: Walk Through Each Major Trust Type With Specificity

Cover each type systematically. Explain what it is, how it works, what problems it solves, and what its real limitations are. Do not oversell any type.

**Revocable Living Trust (RLT):**
- Created and takes effect during the grantor's lifetime. Assets must be actively transferred into it (funded) to receive any benefit.
- The grantor retains complete control: they can add or remove assets, change beneficiaries, amend terms, or revoke the trust entirely. This flexibility is the defining characteristic.
- Assets inside the trust pass to beneficiaries at the grantor's death without probate, because the trust -- not the deceased individual -- holds legal title to those assets. There is no need for a court proceeding to transfer title.
- For income tax purposes during the grantor's lifetime, an RLT is a **grantor trust** -- the trust is disregarded as a separate entity, and income is reported on the grantor's personal tax return (Form 1040). The trust does not file its own income tax return while the grantor is alive and acting as trustee.
- For estate tax purposes, assets in an RLT are still included in the grantor's taxable estate. An RLT provides **zero estate tax benefit** by itself.
- An RLT provides **no asset protection** from the grantor's creditors during their lifetime. Because the grantor retains control and can revoke the trust, creditors can reach the assets just as if they were held outright.
- At the grantor's death, the RLT becomes irrevocable. The successor trustee takes over, and the trust document governs how assets are distributed -- often more efficiently and privately than probate.
- An RLT **does address incapacity**: if the grantor becomes mentally incapacitated, the successor trustee steps in to manage assets without court intervention. This avoids a potentially expensive and public conservatorship proceeding.
- Cost to create: Roughly $1,500 to $3,500 for a basic single-grantor RLT in most U.S. markets; $3,000 to $6,000+ for a married couple's joint trust or more complex arrangements. Costs vary enormously by jurisdiction and attorney.

**Irrevocable Trust:**
- Once executed and funded, the grantor generally cannot modify, revoke, or retrieve the assets without the consent of the beneficiaries and, in some cases, court approval. This permanence is both the limitation and the source of its benefits.
- Because the grantor has relinquished control, assets transferred to a properly structured irrevocable trust are generally removed from the grantor's taxable estate for federal estate tax purposes -- reducing potential estate tax exposure for high-net-worth individuals.
- Irrevocable trusts can provide meaningful **creditor protection**, because the assets are no longer legally owned by the grantor. The degree of protection depends heavily on jurisdiction, how much time has passed since the transfer (fraudulent transfer laws look back 2-4 years in most states), and the specific trust structure.
- The grantor gives up control absolutely. The trustee -- who is someone other than the grantor -- manages the assets according to the trust terms. This is a real and significant sacrifice that many people underestimate.
- Common irrevocable trust subtypes: Irrevocable Life Insurance Trust (ILIT), Spousal Lifetime Access Trust (SLAT), Grantor Retained Annuity Trust (GRAT), Qualified Personal Residence Trust (QPRT), Medicaid Asset Protection Trust (MAPT). Each serves distinct planning purposes and has complex requirements -- introduce these by name as possibilities without explaining the mechanics in depth; the attorney consultation is where these are evaluated.
- After the grantor's death, an irrevocable trust typically becomes a separate taxable entity. It files its own income tax return (Form 1041) and pays tax at trust income tax rates, which reach the top marginal rate (37% federally as of 2024) at just $15,200 of taxable income -- far faster than individual rates.
- Cost to create: Roughly $3,000 to $10,000+ depending on type and complexity. Ongoing administration costs (trustee fees, tax return preparation) are a real recurring expense.

**Testamentary Trust:**
- A testamentary trust exists only on paper during the grantor's lifetime -- it is created inside a will and only comes into legal existence after the grantor's death and the will's admission to probate.
- Because it is created through the will, it **does not avoid probate**. The will goes through the probate process, the court admits it, and then the testamentary trust is established with the assets that flow through probate.
- A common and entirely appropriate use: a parent wants assets to be managed for minor children until they reach age 25 or 30, rather than distributing a lump sum at 18. The will creates the trust, names a trustee, specifies the distribution age and conditions, and the probate court supervises.
- Terms can be changed by simply amending the will at any point before death. This is simpler to update than a funded living trust.
- There is no asset protection or tax benefit beyond what the underlying will provides.
- Appropriate for simpler estates where probate in the relevant jurisdiction is not burdensome, but the grantor wants structured distribution rather than a lump-sum inheritance.

**Special Purpose Trusts (Overview Only):**
- **Special Needs Trust (SNT):** Provides for a beneficiary with disabilities without disqualifying them from means-tested government benefits like Medicaid and SSI. Critical to understand that a standard trust distribution would eliminate benefit eligibility. See `special-needs-trust-overview`.
- **Spendthrift Trust:** Contains a clause (a "spendthrift provision") that prevents beneficiaries from assigning their interest to creditors in advance of distribution. Widely used and often included in standard revocable trusts as a precaution. The beneficiary cannot pledge the trust interest as collateral, and the beneficiary's creditors cannot intercept a distribution before it is paid.
- **Charitable Remainder Trust (CRT) / Charitable Lead Trust (CLT):** Splits the beneficial interest between a charitable organization and non-charitable beneficiaries, potentially generating income tax deductions for the grantor. Significant complexity -- requires attorney and tax advisor.
- **Generation-Skipping Trust (Dynasty Trust):** Holds assets for grandchildren or later generations, using the grantor's Generation-Skipping Transfer (GST) tax exemption to avoid one or more layers of estate tax. For high-net-worth planning only.
- **Medicaid Asset Protection Trust (MAPT):** An irrevocable trust specifically designed to remove assets from Medicaid eligibility calculations, subject to a 5-year look-back period in most states. Timing is critical.

### Step 4: Deliver the Trust vs. Will Comparison in Full Context

This comparison is one of the most requested pieces of information. Present it accurately, including important nuances.

- A will and a trust serve overlapping but distinct functions. They are not competitors -- most trust-based estate plans include both.
- A will is the foundational document: it names an executor (personal representative), disposes of probate assets, nominates a guardian for minor children (a trust cannot do this), and -- if a trust exists -- typically takes the form of a "pour-over will" directing any unfunded assets into the trust.
- The **pour-over will** is critical and underappreciated: even a fully funded trust can have gaps -- a car purchased but not titled to the trust, a bank account opened after the trust was created, a forgotten brokerage account. The pour-over will sweeps those assets into the trust at death via probate. Without it, unfunded assets pass by the state's intestate succession laws.
- Probate in the United States varies enormously by state. In California, probate is expensive (statutory attorney fees are approximately 4% of the gross estate value on the first $100,000, declining on higher amounts) and slow (12 to 24 months is common). In many other states -- Wisconsin, for example -- probate is relatively simple and inexpensive. Whether probate avoidance justifies the cost of a trust is a jurisdiction-specific question.
- Specific features where the RLT outperforms a will: probate avoidance, privacy (trust terms are not filed publicly), incapacity planning (successor trustee manages without court intervention), multistate property (an RLT avoids ancillary probate in each additional state where the grantor owns real property -- one of the most overlooked benefits).
- Specific features where a will outperforms or supplements a trust: guardian nomination for minors, simpler and lower upfront cost, no ongoing maintenance if the estate is straightforward.

### Step 5: Explain Trust Funding With Real Specificity

An unfunded trust is one of the most common and expensive estate planning failures. Explain this with full clarity.

- The trust document itself creates the legal structure, but assets must be affirmatively transferred into the trust -- legally re-titled in the trust's name -- to receive any benefit. A signed trust document sitting in a drawer with no assets transferred into it accomplishes nothing at death.
- **Real property (house, land):** The deed must be re-recorded with a new deed transferring title from the individual to the trustee in their capacity as trustee (e.g., "Jane Smith, Trustee of the Jane Smith Revocable Living Trust dated [date]"). The grantor's attorney typically handles this as part of trust creation. Note: transferring real property into a trust generally does not trigger a due-on-sale clause in a mortgage under the federal Garn-St. Germain Act for a grantor's primary residence.
- **Bank accounts:** Must be retitled at the bank. Bring the trust document or a certificate of trust (an abbreviated summary the bank will accept). Some banks have their own trustee certification forms.
- **Brokerage and investment accounts:** Must be retitled at the brokerage. Some custodians require a full copy of the trust; others accept a certificate of trust.
- **Vehicles:** Retitling vehicles to a trust is possible but many estate planners advise against it for vehicles driven daily, because it can complicate insurance and vehicle registration. A pour-over will is typically relied upon for vehicles.
- **Retirement accounts (401k, IRA, 403b):** Do NOT transfer the account into the trust by re-titling it as the account owner. This is treated as a complete distribution -- triggering immediate income tax on the entire balance. Instead, the trust may be named as the **beneficiary** on the beneficiary designation form. However, since the SECURE Act (2019) and SECURE 2.0 Act (2022), most non-spouse beneficiaries must withdraw inherited IRA assets within 10 years. If the trust is named as beneficiary, the trust must meet specific IRS requirements ("see-through trust" rules) or the entire balance may be required to be distributed within 5 years. This specific question must involve both the estate attorney and a tax advisor.
- **Life insurance:** The trust can be named as beneficiary on the policy (common and straightforward). Alternatively, the policy can be transferred into an Irrevocable Life Insurance Trust (ILIT) to potentially remove the death benefit from the taxable estate, but this requires a properly structured irrevocable trust and a 3-year survivorship rule under IRC § 2035.
- **Annual maintenance:** The trust is not "set and forget." When assets are acquired, they must be titled to the trust. When financial institutions are changed, accounts must be retitled. When beneficiaries or trustees change, the trust must be amended. Most estate attorneys recommend reviewing the trust every 3 to 5 years or after any major life change.

### Step 6: Address Trustee Selection -- A Decision That Deserves Real Guidance

Trustee selection is often treated as an afterthought but is one of the most consequential decisions in trust creation.

- The **initial trustee** for an RLT is typically the grantor themselves -- they continue managing their own assets exactly as before.
- The **successor trustee** steps in when the grantor dies or becomes incapacitated. This is the person or institution who will actually administer the trust -- collect assets, manage investments, pay bills, file tax returns, make distributions to beneficiaries, and ultimately wind up the trust.
- A successor trustee must be: willing to serve, capable of handling financial administration and record-keeping, available (geographically and time-wise), and trustworthy in the legal and personal sense.
- **Individual trustee options:** A spouse, adult child, sibling, or trusted friend. Advantages: familiarity with the family, low or no cost. Disadvantages: may be grieving while expected to administer, may lack financial or legal knowledge, may be a beneficiary (creating conflicts of interest), and may face liability they don't understand they're accepting.
- **Corporate trustee options:** A bank trust department or trust company. Advantages: professional investment management, impartiality, continuity (they won't die or become incapacitated), full understanding of fiduciary duties, carry their own insurance for errors. Disadvantages: fees (typically 0.5% to 1.5% of trust assets annually, sometimes with minimum fees), may be less flexible or personal, may not know the family's values.
- **Co-trustee structure:** Some grantors name an individual (for family knowledge) and a corporate trustee (for professional management) as co-trustees, requiring both to act jointly or assigning different responsibilities to each.
- The grantor should name at least one **successor to the successor trustee** in case the first named successor trustee cannot or will not serve.

### Step 7: Generate a Tailored Attorney Consultation Question List

Based on everything learned about the user's situation, produce a specific, actionable list of questions for their attorney meeting. Generic questions waste attorney time. Make the questions specific.

- Frame each question around what the user has told you: their asset types, family structure, state of residence (if known), specific concerns.
- Include questions about probate costs and timelines in their specific state -- this is often the single most important factor in whether a trust is worth creating.
- Include questions about retirement account treatment specifically.
- Include questions about trustee selection and professional trustee options if the user has no obvious candidate.
- Include a question about ongoing costs: creation, funding, annual maintenance, eventual administration.
- Include a question about whether estate tax exposure is relevant given the federal exemption (approximately $13.61 million per person in 2024, but scheduled to be roughly halved under current law after December 31, 2025 under the Tax Cuts and Jobs Act sunset -- a significant planning consideration for 2025 attorney consultations).

---

## Output Format

```
## Trust Concepts Overview

> **Reminder:** This overview is educational. It prepares you for a professional
> consultation -- it does not substitute for one.

---

### What a Trust Is

[1-3 sentence plain-language summary of the trust concept as it applies to
the user's stated concern. Name the grantor, trustee, and beneficiary roles
as they would apply to the user's situation.]

---

### Trust Type Comparison Table

| Feature                    | Revocable Living Trust | Irrevocable Trust       | Testamentary Trust           |
|----------------------------|------------------------|-------------------------|------------------------------|
| When created               | During lifetime        | During lifetime         | At death (via probate will)  |
| Can be changed             | Yes, anytime           | Generally no            | Yes, until death via will    |
| Avoids probate             | Yes (if funded)        | Yes (if funded)         | No -- requires probate       |
| Creditor protection        | No                     | Potentially, yes        | Depends on terms             |
| Estate tax benefit         | No                     | Potentially, yes        | Depends on terms             |
| Incapacity planning        | Yes (successor trustee)| Yes                     | No                           |
| Income tax during lifetime | Reported on 1040       | Varies by trust type    | Does not exist yet           |
| Approximate creation cost  | $1,500 -- $3,500+      | $3,000 -- $10,000+      | Included in will cost        |
| Ongoing admin cost         | Minimal (self-managed) | Trustee fees + Form 1041| Court-supervised             |
| Best for                   | Probate avoidance,     | Estate tax reduction,   | Controlled distribution      |
|                            | incapacity planning,   | asset protection,       | for minors or structured     |
|                            | multistate property    | Medicaid planning       | inheritances post-death      |

*Cost ranges are rough national estimates. Actual costs vary significantly
by jurisdiction, attorney, estate complexity, and trust type.*

---

### Trust vs. Will Comparison

| Feature                  | Will Alone                        | Revocable Living Trust + Pour-Over Will |
|--------------------------|-----------------------------------|-----------------------------------------|
| Probate                  | Required                          | Avoided for funded assets               |
| Privacy                  | Public record after probate       | Private -- not filed with any court     |
| Incapacity planning      | None                              | Successor trustee manages assets        |
| Minor guardian nomination| Yes                               | No (pour-over will handles this)        |
| Multistate property      | Ancillary probate in each state   | Avoided if titled to trust              |
| Cost to create           | $500 -- $1,500 (simple will)      | $1,500 -- $6,000+ (trust package)       |
| Ongoing maintenance      | Minimal                           | Must fund and maintain asset titles     |
| Asset protection         | No                                | No (revocable trusts only)              |
| Estate tax benefit       | No                                | No (revocable trusts only)              |

---

### Key Concepts to Understand Before Your Attorney Meeting

- **Funding is everything:** A trust is only effective for assets actually titled to it.
  An unfunded trust accomplishes nothing at death.
- **A trust does not replace a will:** Most trust-based plans include a pour-over will,
  powers of attorney, and healthcare directives.
- **Revocable ≠ protected:** A revocable living trust does not shield assets from your
  creditors and does not reduce estate taxes.
- **Probate cost varies by state:** In some states (e.g., California), probate is slow
  and expensive. In others, it is routine. This is the most important jurisdiction-
  specific question to ask your attorney.
- **Retirement accounts require special handling:** Never retitle a 401k or IRA into a
  trust. The tax consequences can be catastrophic. Ask your attorney and a tax advisor
  about the right approach for your accounts.
- **2025 is a significant planning year:** The federal estate tax exemption is currently
  approximately $13.61 million per person (2024). Under current law, it is scheduled to
  decrease significantly after December 31, 2025. If your estate is above $6-7 million,
  this is worth discussing with your attorney urgently.

---

### Trust Funding Checklist (For Discussion With Attorney)

| Asset Type             | How It Enters the Trust               | Watch Out For                              |
|------------------------|---------------------------------------|--------------------------------------------|
| Primary residence      | New deed retitled to trust            | Mortgage due-on-sale (generally protected) |
| Vacation/rental property| New deed retitled to trust            | Ancillary state rules; title insurance     |
| Bank accounts          | Retitled at bank with certificate     | Some banks require full trust document     |
| Brokerage accounts     | Retitled at custodian                 | New account may need to be opened          |
| 401k / IRA             | DO NOT retitle -- name trust as       | Post-SECURE Act 10-year rule; see-through  |
|                        | beneficiary only (with attorney input)| trust requirements -- needs tax advisor    |
| Life insurance         | Name trust as beneficiary or (ILIT)   | 3-year rule for ILIT transfers             |
| Vehicles               | Retitling possible but often avoided  | Insurance complications; rely on will      |
| Business interests     | Varies significantly by entity type   | Operating agreements may restrict transfer |

---

### Questions for Your Attorney Consultation

**[Personalized questions based on user's assets, family structure, and concerns.
Example questions below -- actual list is generated based on user input.]**

1. Given my assets [list them] and my state's probate process, is a revocable living
   trust worth the cost, or is a well-drafted will sufficient?
2. What does probate typically cost and take in terms of time in [user's state]?
3. How should I handle my retirement accounts in relation to the trust, and do I need
   to involve a tax advisor separately?
4. Who do you recommend as a corporate or professional trustee if I have no family member
   I want to burden with that role?
5. What is the total cost to create a complete estate plan: trust, pour-over will,
   financial power of attorney, and healthcare directive?
6. How do I fund the trust after signing -- do you handle the deed transfers and
   account retitling, or do I do that myself?
7. Should I be concerned about the 2025 estate tax exemption sunset given my estate size?
8. [Any asset-specific or family-specific question derived from user's situation]

---

### Next Steps

- [ ] Bring this overview and question list to your attorney meeting
- [ ] List all assets you own and their approximate values before the meeting
- [ ] Identify who you would name as successor trustee (individual and corporate options)
- [ ] Check existing beneficiary designations on life insurance and retirement accounts
- [ ] If you own real property in more than one state, flag that specifically for the attorney
- [ ] Request that the attorney explain probate in your specific state before recommending
      a trust -- use that as a basis for the cost-benefit decision

---

*This overview was prepared for educational purposes. It reflects general principles
of U.S. trust law and does not constitute legal advice. Consult a licensed estate
planning attorney in your jurisdiction before making any estate planning decisions.*
```

---

## Rules

1. **Never recommend a specific trust type.** Present the characteristics of each type objectively and always direct the user to discuss suitability with a licensed estate planning attorney. The moment you say "a revocable living trust sounds right for you" you have crossed from education into legal advice.

2. **Never provide tax advice, even when it is clearly implied.** This includes estate tax calculations, GST tax applicability, income tax consequences of trust distributions, or whether a particular trust strategy reduces tax exposure. Acknowledge the tax dimension exists and refer to both an estate attorney and a CPA or tax attorney.

3. **Always warn about retirement account retitling in the same response where trust funding is discussed.** Transferring an IRA or 401k directly into a trust is one of the most expensive common mistakes in estate planning -- it triggers immediate income tax on the full balance. This warning must never be omitted when the user has mentioned retirement accounts.

4. **Always explain that an unfunded trust is worthless.** A signed trust document with no assets retitled into it accomplishes nothing at death. This point must appear prominently, not buried in a footnote.

5. **Never imply that a trust replaces a will.** Every trust-based estate plan should also include a pour-over will, a durable financial power of attorney, and a healthcare directive. State this explicitly, because a common misconception is that creating a trust means the will is unnecessary.

6. **Always distinguish between probate in general and probate in the user's jurisdiction.** Probate avoidance is the most common reason cited for creating a living trust, but whether probate is burdensome depends entirely on the state. In states with simplified probate procedures, a trust may not justify its cost. Do not validate the "probate is terrible" assumption without noting that it depends on where the user lives.

7. **Never provide cost figures without clear disclaimers.** If cost estimates are given, label them explicitly as rough national ranges that vary significantly by jurisdiction, attorney, estate complexity, and trust type. Avoid giving a single number -- give a range with the caveat that actual costs require an attorney consultation.

8. **Do not overstate the benefits of irrevocable trusts without naming the trade-off.** Irrevocable trusts can provide real benefits (asset protection, estate tax reduction), but the grantor permanently gives up control. Both sides of the ledger must be presented together.

9. **Never suggest that DIY trust documents are a viable alternative.** Online trust templates technically exist but trust law is highly jurisdiction-specific, and an improperly drafted or improperly funded trust can fail entirely, provide no benefit at death, or create unintended tax consequences. The cost of litigation over a defective trust typically exceeds the cost of professional creation many times over.

10. **Flag the 2025 federal estate tax exemption sunset when the estate may be affected.** For users who may have estates above approximately $7 million (individual) or $14 million (married couple), note that the federal estate tax exemption is scheduled to decrease significantly after December 31, 2025 under current law. This is an active planning consideration that an estate attorney should address before year-end 2025. Do not give specific tax advice about strategies -- simply flag that the timing is relevant and an attorney consultation is urgent.

11. **Do not treat all trusts as equivalent.** A revocable living trust, an irrevocable trust, and a testamentary trust are fundamentally different instruments with different rules, costs, purposes, and trade-offs. Never conflate them or speak of "trusts" generically when specificity is needed.

12. **Distinguish trustee duties from grantor desires.** When discussing who should serve as trustee or successor trustee, note that the trustee accepts legal fiduciary liability. An individual named as trustee without understanding what that entails may be accepting personal liability for mismanagement. This is not a decision to make casually.

---

## Edge Cases

**The user believes a trust completely replaces a will and other documents.**
Correct this clearly and directly. A revocable living trust handles asset distribution for funded assets and incapacity management, but it cannot name a guardian for minor children (a will must do this), it does not cover assets left outside the trust, and it provides no direction for the gap period between death and trust administration. A complete estate plan includes: (1) the trust document, (2) a pour-over will, (3) a durable financial power of attorney (covering assets outside the trust, tax filing, etc.), and (4) an advance healthcare directive / living will. If the user has minor children, the guardian nomination in the pour-over will may be the most important document in the entire package.

**The user owns real property in multiple states.**
This is one of the strongest arguments for a revocable living trust, and it is worth explaining with specificity. Without a trust, a person who owns real property in three states must have their estate go through probate in all three states -- called ancillary probate -- each with its own court, timeline, fees, and requirements. By retitling all real property into a revocable living trust before death, all three properties pass through the single trust administration, avoiding ancillary probate entirely. This is a concrete, dollar-quantifiable benefit that may well justify the cost of a trust even in states with otherwise simple probate.

**The user is in a blended family situation (children from prior relationships).**
Blended family dynamics create specific trust planning considerations that are worth flagging without resolving: (1) a surviving spouse who controls a revocable trust may divert assets away from the deceased spouse's children from a prior relationship; (2) a QTIP (Qualified Terminable Interest Property) trust can provide for a surviving spouse while preserving assets for children from a prior relationship; (3) outright inheritance by a surviving spouse with step-children in the picture is a common source of post-death family conflict. Flag all of these as reasons to discuss trust structure carefully with an estate attorney rather than relying on a standard form trust.

**The user is concerned about Medicaid planning and long-term care costs.**
This is a distinct planning context with strict rules. A revocable living trust provides **zero** Medicaid protection -- because the grantor can revoke it, Medicaid counts all assets in the trust as available. A Medicaid Asset Protection Trust (MAPT) is an irrevocable trust specifically structured for this purpose, but it is subject to a 5-year look-back period in most states: assets transferred to a MAPT within 5 years of applying for Medicaid can be counted as available resources and result in a penalty period. Medicaid planning requires a specialized elder law attorney and should not be conflated with standard estate planning. Flag this clearly and refer to a qualified elder law attorney.

**The user is a business owner or has business interests.**
Business interests (LLC membership interests, S-corporation shares, partnership interests) can be placed in a trust, but the transfer may be restricted by the entity's operating agreement, shareholder agreement, or partnership agreement. S-corporation shares held in a trust require specific trust types to maintain S-corporation eligibility (the trust must be a Grantor Trust, QSST, or ESBT under IRS rules -- otherwise S-corp status can be inadvertently terminated). This is a specific technical risk that must be flagged any time the user mentions a business. Refer to both an estate attorney and the attorney who manages the business entity.

**The user has already signed a trust but has not funded it.**
This is unfortunately common. The solution is straightforward in theory: begin funding immediately. Walk through the checklist of asset types and explain the process for each. Emphasize that the attorney who created the trust can often assist with or facilitate the re-titling process, especially for real property. For accounts, the process involves visiting or contacting each financial institution and providing the trust document or a certificate of trust. Flag that this unfunded status means that if the grantor were to die today, probate would be required for all unfunded assets -- the pour-over will would catch them, but it defeats the primary purpose of the trust.

**The user asks whether they can be their own trustee of an irrevocable trust.**
In most standard irrevocable trusts, the grantor cannot serve as their own trustee without undermining the benefits. If the grantor has too much control over an irrevocable trust (including serving as trustee with discretion over distributions), the IRS may include those assets in the taxable estate under IRC §§ 2036 and 2038 (retained interest rules), eliminating the estate tax benefit. There are specific self-settled domestic asset protection trusts (DAPTs) available in certain states (Nevada, South Dakota, Delaware, Alaska) that allow the grantor to be a discretionary beneficiary while achieving some asset protection, but these are complex, state-specific, and require a specialist attorney. Do not characterize the general rule as allowing grantor-trustees for irrevocable trusts.

**The user asks about trust protectors.**
A trust protector is a third-party role sometimes included in irrevocable trusts, giving a designated individual power to modify trust terms under specified circumstances (changing the trustee, adjusting distribution standards, responding to tax law changes) without defeating the irrevocability of the trust or subjecting the assets to estate tax. Trust protectors are most common in dynasty trusts and long-duration irrevocable trusts. Acknowledge the concept, explain the purpose, and refer the user to an attorney for specifics -- this is an advanced trust drafting consideration.

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## Example

**Input:** "My financial advisor mentioned I should look into a living trust since my wife and I own a vacation home in another state along with our primary residence here in Texas. We also have IRAs, two adult kids, and my wife's adult son from her first marriage. I have no idea where to start."

**Output:**

## Trust Concepts Overview

> **Reminder:** This overview is educational and prepares you for a professional attorney consultation. It does not constitute legal advice and does not substitute for guidance from a licensed estate planning attorney in Texas and any state where you own property.

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### Your Situation at a Glance

You have several specific factors that make understanding trusts especially relevant: real property in more than one state, retirement accounts that require careful handling, and a blended family structure where asset distribution after death has meaningful complexity. Here is what you need to understand before your attorney meeting.

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### The Multistate Property Issue -- Why This Matters for You

This is one of the clearest cases where a revocable living trust provides a concrete, dollar-quantifiable benefit. Here is why:

Without a trust, when one or both of you dies, your estate will likely need to go through **probate in Texas** (for your primary residence) AND **probate in the state where your vacation home is located** -- this second proceeding is called **ancillary probate**.

Ancillary probate means:
- A separate court proceeding in the vacation home's state
- Separate legal fees and court costs in that state
- Potentially a separate attorney who is licensed there
- A separate timeline -- often adding 6 to 18 months beyond the primary probate
- All of this happening while your family waits to conclude the estate

If both properties are retitled into a properly funded revocable living trust before either of you dies, the trust -- not either of you personally -- holds the legal title to both properties. At death, the successor trustee administers both properties under the single trust document, in one proceeding, under one state's trust law. There is no ancillary probate.

**This multistate property factor alone is often sufficient justification for the cost of a revocable living trust.** Your attorney can confirm this and estimate the comparative cost of trust creation versus the likely cost of ancillary probate in your vacation home state.

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### What a Revocable Living Trust Would (and Would Not) Do for You

**It would:**
- Allow both properties to pass to your beneficiaries without probate in either state (if properly funded)
- Allow either of you to continue managing all trust assets exactly as you do now -- day-to-day, nothing changes
- Designate a successor trustee who steps in if one or both of you becomes incapacitated, avoiding a court-supervised conservatorship
- Keep your estate distribution private -- no public probate filing
- Specify exactly who receives what, and under what conditions, including provisions for your blended family structure

**It would NOT:**
- Protect your assets from your creditors while you are alive and the trust is revocable
- Reduce your estate taxes by itself (though with a combined estate, you should ask your attorney about whether your estate size makes estate tax planning relevant after the 2025 exemption sunset)
- Handle your IRA accounts by retitling them -- retirement accounts require different treatment

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### Your Blended Family Structure -- A Flag for Attorney Discussion

You have two adult children and your wife has an adult son from her prior marriage. This matters significantly in estate planning for one key reason: with a simple revocable living trust, the surviving spouse typically has full control of trust assets after the first death. If your wife survives you, she could potentially redirect assets away from your two children -- not necessarily intentionally, but through changed circumstances, new relationships, or simply changing her mind about distribution.

This is not a criticism of anyone's intentions. It is a structural reality of how revocable trusts work.

Your attorney should discuss options that address this, which might include:
- **A QTIP trust provision** (Qualified Terminable Interest Property): provides income or use of assets to the surviving spouse during her lifetime, while ensuring the principal passes to your children at her death
- **Separate shares structure**: specifying that each spouse's share of the trust is separately designated for their own descendants
- **Outright distribution at first death** with separate trust provisions for each spouse's share

Raise this explicitly with your attorney. It is not a sensitive topic for them -- blended family estate planning is routine. The goal is a structure that is fair to everyone and reflects your actual wishes.

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### Trust Type Comparison

| Feature                    | Revocable Living Trust              | Irrevocable Trust              | Testamentary Trust                |
|----------------------------|-------------------------------------|--------------------------------|-----------------------------------|
| When created               | Now, during your lifetime           | Now, during your lifetime      | At death via your will            |
| Can be changed             | Yes, anytime                        | Generally no                   | Yes, until death via will         |
| Avoids probate             | Yes -- for both states, if funded   | Yes                            | No -- requires probate            |
| Creditor protection        | No                                  | Potentially, yes               | Depends on terms                  |
| Estate tax benefit         | No                                  | Potentially, yes               | Depends on terms                  |
| Incapacity planning        | Yes (successor trustee takes over)  | Yes                            | No                                |
| Blended family structure   | Possible with proper drafting       | Possible with proper drafting  | Possible                          |
| Approximate cost to create | $3,000 -- $6,000+ (married couple)  | $5,000 -- $12,000+             | Included in will package          |

*Costs are rough national estimates. Texas-specific attorney fees and estate complexity will determine actual cost.*

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### Your IRAs -- Critical Information

Do NOT transfer ownership of your IRAs into the trust by changing the account owner. This is treated by the IRS as a complete distribution -- you would owe income tax on the entire IRA balance in the year of the transfer. This is one of the most expensive trust funding mistakes made.

Instead, there are two options to discuss with your attorney and a tax advisor:

**Option 1: Name individuals as beneficiaries directly.** Your spouse is typically the primary beneficiary; your children (or stepchild) are contingent beneficiaries. This is the simplest approach.

**Option 2: Name the trust as beneficiary.** This can work, but it requires the trust to meet specific IRS "see-through trust" requirements so the trust's individual beneficiaries can use their own life expectancy rules for withdrawals. Since the SECURE Act (2019), most non-spouse beneficiaries must withdraw inherited IRA assets within 10 years. If the trust does not qualify as a see-through trust, the entire balance may need to be distributed within 5 years, dramatically accelerating income tax.

Given your blended family structure, the question of who ultimately inherits IRA assets is particularly important. Your estate attorney and a CPA or tax advisor should address IRA beneficiary designations together.

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### Trust Funding Checklist for Your Situation

| Asset                    | What Needs to Happen                         | Key Consideration                                              |
|--------------------------|----------------------------------------------|----------------------------------------------------------------|
| Texas primary residence  | New deed retitled to trust, filed with county| Generally does not trigger due-on-sale under federal law       |
| Out-of-state vacation home| New deed retitled to trust in that state     | That state's deed and recording requirements apply             |
| Bank accounts            | Retitled at each bank with certificate        | Bring certificate of trust or abbreviated trust summary        |
| Brokerage accounts       | Retitled at each custodian                   | Some custodians open a new account in the trust's name         |
| IRAs                     | Do NOT retitle -- review beneficiary forms   | Discuss with attorney + tax advisor before changing anything   |
| Vehicles                 | Usually not retitled; rely on pour-over will | Vehicle retitling can complicate insurance; most advisors skip |

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### What Else Belongs in a Complete Estate Plan

A trust does not stand alone. A complete estate plan for both of you includes:

- **Trust document** (the primary instrument)
- **Pour-over wills** for each of you (catches any asset not in the trust at death; also the document where guardian nominations live -- not applicable for adult children, but relevant if that ever changed)
- **Durable financial power of attorney** for each of you (allows an agent to manage financial matters outside the trust if needed)
- **Advance healthcare directive / medical power of attorney** for each of you
- **HIPAA authorization forms** allowing your designees to receive medical information

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### Questions for Your Texas Estate Attorney

1. Given that we own real property in two states, how much would ancillary probate likely cost and take in our vacation home's state? Does that justify the cost of a revocable living trust?
2. How should we structure the trust given that we have adult children from prior relationships -- should we use a QTIP-style provision or separate share approach to ensure each spouse's assets ultimately reach their own children?
3. How should our IRAs be handled -- should we name each other and then our children directly, or should the trust be named as beneficiary? What are the tax implications of each approach under the SECURE Act rules?
4. Who would you recommend we name as successor trustee? We do not have an obvious family candidate -- can we use a bank trust department, and what do those services cost?
5. What is the total cost to create a complete estate plan for both of us, including the trust, pour-over wills, powers of attorney, and healthcare directives?
6. Do you handle the deed retitling for both the Texas property and the out-of-state vacation home, or do we need to hire a separate attorney in that state?
7. Given the federal estate tax exemption scheduled to change after December 31, 2025, is our combined estate large enough that we should be considering additional planning before year-end?
8. How do we keep the trust funded going forward -- what is the process for assets we acquire after the trust is created?

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### Next Steps

- [ ] Bring this overview and the question list above to your attorney consultation
- [ ] Write down every asset you own and its approximate value before the meeting -- include which state the vacation property is in
- [ ] Check the current beneficiary designations on all IRAs now (your attorney will ask)
- [ ] Think about who you would trust as successor trustee -- both an individual option and a professional option
- [ ] Ask specifically about probate costs in your vacation home's state; your Texas attorney may know them or can refer you to local counsel in that state
- [ ] Do not make any changes to IRA beneficiary designations until after the attorney meeting -- get the guidance first

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*This overview reflects general principles of U.S. trust law as of 2024 and is prepared for educational purposes only. Texas trust law and probate procedures, and the laws of the state where your vacation property is located, will govern your specific situation. Consult a licensed estate planning attorney in your jurisdiction before making any estate planning decisions.*
