A living trust can be an invaluable estate planning tool for anyone, not just the wealthy. It helps distribute your assets according to your wishes without the delays and costs associated with probate.
This is particularly beneficial in Texas, where the state does not use the Uniform Probate Code, which makes the probate process longer and more complicated.
A living trust also provides privacy, keeping your estate out of public records. Additionally, it can protect assets included in the trust if you become incapacitated, allowing a trustee to manage your affairs.
Basics of a living trust
A living trust is a legal arrangement that allows you to transfer ownership of your assets to a trust while you’re still alive. This arrangement can help manage your assets during your lifetime and ensure they are distributed according to your wishes after you pass away. The fundamental components of a living trust include:
- Grantor
- Trustee
- Beneficiaries
- Trust document
- Funding the trust
By setting up a living trust, you can streamline the distribution of your estate, avoid probate and maintain privacy.
Differences between revocable and irrevocable trusts
There are two main types of living trusts: revocable and irrevocable. Here’s a brief description of the differences:
- Revocable trusts: You can modify or revoke them at any time. You maintain control over the assets and pay taxes as usual. Best for those who want flexibility and control.
- Irrevocable trusts: Once set up, you cannot change or revoke them without all parties’ permission. The trust itself pays taxes. Best for those looking to reduce estate taxes and protect assets from creditors.
Texas has no estate or inheritance taxes. The federal estate tax may still apply, but only if you exceed the exemption, which is $13.61 million for individuals and $27.22 million for married couples.
Choosing the right type of trust depends on your financial situation and estate planning goals. Understanding these differences is crucial to making an informed decision.
What else should be in your estate plan?
Even if you have a living trust, you still need a will. A living trust only covers assets placed into it. A will can handle assets not included in the trust, name an executor, establish guardianship for children and provide instructions for paying debts and taxes.
Other essential documents include a durable power of attorney and a healthcare directive. These documents ensure others follow your wishes if you become incapacitated. Working with an experienced estate planning lawyer can help protect your legacy and your family’s future.