What is a living trust and should I have one in Texas?

Bedford Divorce Lawyer for Divorce in Tarrant County and Dallas CountyKnown as either a “living trust” or a “revocable living trust”, a trust is a legal creation to simply passing assets from one generation to the next without having to rely on a will and probate courts, which can be more expensive, more complex and financially disadvantageous.

While there are many kinds of trusts that operate differently, at their core all trusts work the same. They are legal fictions in which a GRANTOR puts property (including cash, securities and real property) into the trust by transferring title to the trust, for the benefit of the BENEFICIARIES, with a TRUSTEE who oversees the trust to the benefit of the beneficiaries. Most people obtain living wills because they believe they are more flexible than wills and avoids the expense of probate.

Texas living trusts

In a living trust, the individual(s) who act as the grantor transfer title of some or all of their assets to the trust and upon the passing of the grantors, the beneficiaries either obtain title to the assets (the living trust is dissolved) or obtain use of the assets (the trust is not dissolved). Different states have different rules for how beneficiaries obtain the use and possession of trust assets. The grantor(s) may be able to dictate how trust assets are used for generations.

Living trusts differ from wills in two significant ways. First, while a will requires beneficiaries to take title of assets assigned under the will, a trust may not require or permit beneficiaries to take title and become the owners of the trust assets. This has significant tax implications. If the trust maintains ownership, the beneficiaries likely will not owe gift or estate tax in the transfer because the beneficiaries do not “own” the trust assets. However, if a trust turns over ownership to the beneficiaries then they may be responsible for estate taxes.

Second, living trusts do not go through probate, but wills always have to go through probate. Wills can simplify the probate process but it will not avoid the probate process. Probate is an expensive process; it can consume as much as 5% of the total assets of the estate in court fees and attorney fees. Living trusts do not require any court order to distribute assets to beneficiaries.

Just like a will may be rewritten to change the division of assets, a properly written living trust can change the division of assets or even revert assets back to the grantors. Changes in the family, the development of sour relationships, premature deaths, shifts in the financial well-being of various family members, a change in the financial well-being of the grantors and many other factors can justify changing the breakdown of assets. Either a will or a living trust will permit you to make those changes by amending or rewriting the document.

401k and pension plans in Texas

Whether or not a living trust is right for you depends upon your assets, your needs and your family. A well written will can avoid a great deal of probate costs. You may not be able to put some assets in the trust. That can render the trust pointless since you will still need to go through probate to distribute those assets.

Many retirement accounts, such as 401ks and defined benefit pensions, do not permit a trust to be a beneficiary. The cost of a trust and/or trust maintenance over time may exceed the cost of probate. There is no magic algorithm to determine who should establish a living trust and who should have a will written. It is very fact intensive.

When considering a living trust you must consider the costs, quality of the trustee and quality of the trust document. Many trust companies absorb significant fees to manage trusts, which dwindles the value of the estate. More importantly, many trust documents are poorly written or poorly administered. Often this results in suits against the trustee over administration and these suits are often turned over to probate courts to resolve, creating the same burden and cost as probate would have been in the first place.

Sometimes it can be more costly and time consuming. Many large trust companies work off of forms, using standardized language and filling in the blanks. That creates a major risk that the language is ineffective or insufficient for the grantor’s actual requests. The living trust market is a large financial market and like any market, there are good and bad players.

What is a living will?

A living will, formally called an advanced health care directive, is a document that states what medical treatment you should receive in the event of an injury or illness that renders you unable to make health care decisions for yourself. Often these directives include a medical power of attorney. That power of attorney gives a particular person the power to make decisions consistent with the living will. (A power of attorney can also give the holder of the power decision making authority with no specific directives.)

Texas laws on living wills

Without a living will you may receive health care in opposition of what you would desire. Some people would prefer not kept alive artificially. Others would prefer to be kept alive no matter what. It can be a decision rooted in religion, morals, dignity, care for the family and many other deep-seated values. When you do not have a living will you can have situations where doctors and family disagree on appropriate care.

If there is no directive or medical power of attorney Texas law will determine who makes decisions. Unfortunately, this may mean the person who makes the decision may inadvertently do exactly what you would hope they would not do. It can result in long term hostility between family members. You probably do not want to leave that legacy behind.

For all of these reasons, and many more, it is important that you have a well drafted living will that contains medical directives and establishes a medical power of attorney for somebody you trust will follow your directives no matter what. You need to be confident that this person will act in your best interest, even if your family or the doctors dislike your directives. It is an immense responsibility. You need to make sure your documents protect your decision maker and that the person will protect you.

Any estate planning or health planning should involve a competent attorney in Texas. Contact the Tarrant County Bar Association or Dallas Bar Association for a referral to lawyers near you that can help draft the necessary documents.

Should I hire an attorney for a living trust or will?

If you have enough assets to need a will or living trust then you should hire an attorney to assist you in developing an estate plan and the documents to protect it. There are many form and online form building websites that sell low cost wills and living trust documents.

The problem is that there is no way to know the language added is legally enforceable or does what you intend for it to do. The only way to find out will be when you pass on and your will or living trust executes. By then you will have no way to change the document or testify as to its intended purpose. You may unintentionally create strife or cause financial harm to your family. Fixing the document may be far more expensive than doing it right the first time with an attorney.

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