No matter how big or small your estate may be, you will most likely want to keep your assets from going through probate. After all, few people want their family to have to go to court while they are still in mourning. Living trusts are among the best and most time-tested tools to keep assets out of probate, ensuring they can be passed down to your intended heirs with ease.
Understanding Trusts and What They Do
Trusts are an estate planning tool that can be used to avoid probate. A trust is, in effect, a legal entity which can hold a variety of different assets such as a house, an investment account, or a vehicle.
The person who founds a trust is known as a trustor, grantor, or settlor. After the trustor establishes a trust, they may begin transferring assets into it. These assets may be managed by the trustor when they are still alive. Anyone who establishes a trust must name a successor trustee who will manage the trust after the original trustor has passed away. After the trustor dies, the successor trustee may begin disbursing assets or dividends to beneficiaries. Because the assets are no longer under the trustor’s name, they can be distributed to heirs without the need for probate proceedings.
A primary benefit of a trust is that the trustor can set conditions for how assets will be used and disbursed. They may, for instance, decide that a child will receive a regular allowance rather than a single lump-sum payment. Similarly, they may specify that funds only be allocated toward a beneficiary’s educational or medical expenses. The conditionality of trusts helps ensure that a legacy will be used wisely and in accordance with the trustor’s expectations.
The successor trustee will be responsible for managing the trust’s assets and payments to beneficiaries. In some cases, the successor trustee can also help manage assets while the trustor is still alive, in the event the trustor becomes incapacitated.
The Different Kinds of Trusts
When someone is deciding to create a trust, they must first decide the type they want to establish. There are two kinds of living trusts in Texas:
- Revocable living trusts. When a trustor establishes a revocable living trust, they retain the right to rescind or amend the trust while they are still alive. The trustor may also name themselves as a trustee, giving them control of whichever assets they put into the trust.
- Irrevocable living trusts. An irrevocable living trust cannot be rescinded after it is established. They are often ideal for people who intend to go into nursing homes or other assisted living facilities, as the assets controlled by an irrevocable trust do not have to be used to pay for treatment, and they make it easier to qualify for benefits like Medicaid.
The Benefits of a Revocable Living Trust
Many people choose to establish revocable living trusts, so they can remain in control of their assets while they are still alive. Furthermore, revocable living trusts may be altered at any time—meaning the trustor can adjust the trust’s terms in the event of any major life event such as getting a divorce or having a child. A Texas resident may want to establish a revocable living trust if they:
- Want to avoid probate. A revocable living trust allows the trustor to retain control of their assets through life while disbursing the same assets to their intended beneficiaries after death. Any assets held by a revocable living trust are not subject to probate.
- Own property in another state. Anyone who owns property in a state other than Texas may wish to establish a revocable living trust, since their loved ones would likely have to initiate probate in the other state unless the property is held by a trust.
- Value their privacy. Probate proceedings are a matter of public record. If someone does not want their estate assets to be made public, they can establish a trust, and their assets will be distributed without court monitoring. This can be an important advantage for people who do not want family members or estranged relatives knowing the terms of their inheritances.
- Easily manage multiple accounts. While there are many different estate planning mechanisms available to pass on homes and bank accounts outside of probate, a revocable living trust can place all of these assets under the control of the trustor, and, eventually, successor trustee. Putting multiple accounts into a trust not only eliminates the need for probate but makes them easier to manage after death.
- Provide asset protection for beneficiaries. Once the trustor of a revocable living trust dies, the trust becomes irrevocable, and the beneficiaries will not be able to change the terms of the trust. Since they do not control those terms, they will be able to receive payments which are not subject to wealth taxes and certain other levies.
- Plan for possible incapacity. Similar to irrevocable living trusts, revocable living trusts also enable trustors to set conditions for what the trust should do in case they become incapacitated. The successor trustee will make asset-use related decisions in accordance with the conditions of the trust.
Contact Us Today
If you want to learn more about how to establish a revocable living trust in Texas, Colin Smith Law is ready to help, and our firm is easily accessible to everyone living in and around Dallas, Collin, and Denton county. No matter where you are in North or Central Texas, we have the experience to make an estate plan that works for you. Contact us online, or call us today to schedule your free consultation.