San Antonio Trusts Planning Attorney

Trusts are one of the most important tools in an estate planner’s toolbox. A trust is simply a relationship between a trustee and a beneficiary. The trustee has the responsibility of managing assets for the benefit of the beneficiary or beneficiaries. Trusts can be set up for many different reasons, including protecting inheritance for a minor, asset preservation, and probate avoidance. We know each person or family has unique needs and desires. We carefully craft the trust document to ensure that those needs and desires are met.

How Are Living Revocable Trusts Used?

A living revocable trust is a great tool to simplify your estate plan while you are living, and then peacefully transfer your estate to your beneficiaries after you pass away. The transfer of the estate is easier because the revocable trust eliminates the need to go through probate of the decedent’s estate. Probate is the legal process used to ensure the estate is handled properly after a person passes away. It involves making court appearances, paying debts, inventorying the estate, and dealing with creditors. The amount of time and money spent for probate varies depending on the specific case; however, it is not uncommon for probate to take several months, even years, and cost several thousand dollars. Many people who choose to have a living revocable trust do so specifically to avoid probate for their family members. They recognize the time and money they can save their family members in the future by setting up a living revocable trust now.

The living revocable trust is created by the grantor, who serves as the trustee (manager), and the beneficiary, the party who benefits from the trust. As the name of the trust implies, it is fully revocable during the lifetime of the grantor. After the trust is initially created, ownership of all of the grantor’s real and personal property are transferred into the name of the trust. Houses, other real estate properties, bank accounts, 401ks, IRAs, and life insurance can all be moved into the trust. All of these accounts and properties continue to operate in the same manner as before without any change in tax status or other issues. As property is sold or purchased, the titles to the properties are transferred into or out of the name of the trust. When the grantor passes away, the trust can simply terminate and distributions can be made to the beneficiaries. There is no need to go through probate because all the assets are still titled in the name of trust.

People who own multiple pieces of real estate, real estate in more than one state, their own business, or even a share in a business should strongly consider a living revocable trust. Additionally, people who simply want to protect their beneficiaries from having to deal with the probate process should consider a revocable trust.

What are the Advantages and Disadvantages of a Living Revocable Trust in Texas?

Pro: The Assets Within the Trust Avoid Probate 

The property and assets within a revocable living trust will avoid the Texas probate process. This is the other main benefit of a revocable living trust as an estate planning tool. Probate can be a complex and sometimes lengthy process. 

Pro: Relatively Low Front-End Costs

There are relatively modest front-end costs with setting up a revocable living trust. It can be an effective estate planning tool for people and families of many different financial backgrounds. 

Con: No Immediate Tax Benefit

A revocable living trust does not offer an immediate tax benefit. It is important to keep this in mind as tax planning is part of your overall estate planning process. For some goals, there are many better options available. 

A trust is a valuable, effective estate planning tool for many different situations. It is a common misconception that trusts are only useful for the very wealthy. Trusts in our state are governed by  Texas Trusts Code. § 112.001 – §. 112.106. A revocable living trust is among the most common and flexible types of trusts. Are you considering setting up a revocable living trust? Here, our San Antonio trust planning attorney highlights the pros and cons of revocable living trusts in Texas.

When Are Irrevocable Trusts Needed?

There are circumstances where it is appropriate to create an irrevocable trust. By design, an irrevocable trust is one that cannot be altered or amended after it is created. Irrevocable trusts should be considered in situations where the grantor has an estate that, because of its value, could be subject to federal estate tax. Creating an irrevocable trust is an effective way of reducing the value of an estate while the grantor is still living because the estate essentially rids itself of its assets with the goal of avoiding or reducing federal estate taxes. The key feature of an irrevocable trust is the relinquishment by the grantor of dominion or control to modify or amend the trust. If there is a suspicion that the grantor has retained control over the trust, the estate is likely going to be unable to obtain the benefits of the trust’s irrevocable nature for estate tax purposes.

A common type of irrevocable trust involves life insurance policies. The Trustee of the Trust can purchase a life insurance policy that names the trust as the beneficiary of the policy. Having the Irrevocable Life Insurance Trust (ILIT) own the life insurance policy, rather than the individual keeping the benefits outside the estate for estate tax purposes. Gifts made to the trust for the purpose of paying the premiums on the life insurance policies further reduce the value of the estate.