What is a 'Trust'?

A trust is a legal relationship created when a person (the "Trustee") holds legal title to real or personal property for the benefit of another person (the "Beneficiary"). Trusts are created for a variety of reasons, but the most common uses for trusts in Estate Planning are to: (1) defer estate taxes; (2) manage property that would otherwise pass to a minor child or legally incapacitated adult; (3) avoid lengthy probate; and (4) transfer income so that the beneficiary may be able to qualify for long-term nursing home benefits through Medicaid. Extreme caution should be used when deciding whether to create a Trust, however, because the expenses associated with a maintaining a trust may outweigh the benefits. Further, there are many different types of trusts and the existence of overlapping federal regulations may permit one benefit while creating an unforeseen detriment. For example, the potential estate tax benefits of a "Living Trust" may be far outweighed if the beneficiary is unable to qualify for government aid during her lifetime.

What is a 'Living Trust'?

A "Living Trust" is created when a living person creates a Trust (at which time he is called the "Settlor") and transfers property to himself as "Trustee," to be used for his own benefit during his lifetime. Such a trust is only permitted under Texas law if there are other beneficiaries during the Settlor's lifetime or if there are other trustees who help manage the property for the Settlor's benefit. One person cannot be the sole trustee and sole beneficiary of any Trust. Many elderly Texans are solicited by various companies to create Living Trusts as a method of estate planning to avoid probate and reduce estate taxes. However, the risks, costs and detrimental effects of creating a Living Trust often far outweigh any potential benefit for most Texans. For example, a "Living Trust" will often disqualify the beneficiary from receiving long term care benefits under Medicaid. If you have been approached about creating a Living Trust, please consult with an estate planning lawyer for advice on all of the possible implications before making your final decision.

What is a 'Miller Trust' (also called a 'Qualified Income Trust')?

A "Miller Trust" (or "Qualified Income Trust") is often created when the beneficiary earns too much income to qualify for long term nursing home care benefits through Medicaid. This trust permits a person to transfer her income into the trust, managed by another relative or other Trustee; the trust can then pay certain monthly expenses allowed under Medicaid, with the result that the beneficiary's income is reduced to a level that permits her to qualify for long term care benefits. The Miller Trust must provide that, upon the death of the beneficiary, the State of Texas will be reimbursed for all Medicaid expenditures made on the beneficiary's behalf.