If you prefer to not make a detailed public disclosure of assets in the public records, creating trusts during your life may provide the best possible solution. Both probate and guardianship proceedings create a public record. The record may disclose the description of assets, the value of the assets, the income produced by the assets, where assets are located, who receives assets and other information. Sometimes people do not want to make public record of such private information.
How Trusts Avoid Public Disclosure: Trusts split the “title” to assets. A trust is established by written agreement and assets are transferred to the trust. The trustee holds the “legal” title to the assets while the beneficiaries hold the “equitable” title. The beneficiaries are entitled to 100% of the benefits associated with the assets. The trustee is obligated by law to maximize the benefits for the beneficiaries and is forbidden to use the property to derive self-benefits. Assets held and administered by a trustee can be excluded from detailed disclosure in public records.
Grantor Trusts: Assume you establish a trust that will deliver all the income to yourself and your spouse for your lives. These are called “grantor trusts” because all the benefits remain payable to the person who created the trust. Assume that at the survivor’s death all property in the trust is required to be delivered to your children. Assets held in such a trust are not subject to probate. Therefore, such assets shall not be included on the “inventory and appraisement” that is made part of public records. Otherwise, if you hold title to assets at death and those assets are subject to probate, the “inventory and appraisement” will identify the property with great detail. Any person who wishes has the right to review that public record. Trusts avoid making that public record in probate.
Trusts for Family Members: Assume a family member (children, parents, others) is a minor or not competent and requires a guardian to attend to their affairs. If necessary, a “guardian of the person” can be appointed by the court. Such guardians can be appointed to attend to the legal affairs of minors and “incompetent” persons (called a “ward”). Guardians have power and authority to represent the best interests of the ward in all situations. Furthermore, guardians can also have complete control over all assets belonging to the ward. Guardians appointed to manage property are called a “guardian of the estate.” Those assets must be applied to provide for the health, maintenance, care and benefit of the ward. The law imposes some very strict accounting requirements on guardians to enable the courts and all other persons to assure that the assets are being applied properly and exclusively for the benefit of the ward. Thus, at the very beginning of the guardianship, the law demands that the guardian describe every single asset that comes to the guardian’s hands for administration. The description is highly detailed and enables everyone to know exactly where it is and what it is. That record is available to the whole world. As time passes the guardian is obligated to submit an annual accounting to the court. The accounting will describe absolutely every asset and all income that came to the guardian’s hands since the last accounting. The source and amount of all income will be described in detail. Furthermore, the law requires such accountings to describe every expenditure. Everything that came in, everything that went out – absolutely every transaction must be described. It creates a very public disclosure of things that many people would prefer to keep private. HOWEVER, IF ASSETS USED TO CARE FOR THE “WARD” are instead held in a trust, then it will be the TRUSTEE and not the guardian who applies assets for the benefit of the person. In that situation, no assets are handled by the guardian. No public record is made. No annual accountings to the court are required. Since all property is held by the trustee and applied for the beneficiary’s care and needs there is no public record of the trust’s assets or what is done with those assets.
Information describing some kinds of trusts, trustee powers, spendthrift and “sprinkling” provisions and “trust-vocabulary” is at Texas Trusts (revocable & irrevocable). Got questions? You can Ask Me.