by Houston Divorce Attorney Sam M. “Trey” Yates, III An effective estate plan should be…
By Houston Probate Attorney Estelee Garrison
In recent years, the Revocable Living Trust has increased in popularity as an alternative to the traditional Last Will and Testament as an estate planning document, especially among the baby boomer generation. However, a living trust may not be the best solution for your needs, depending on your particular circumstances, and careful comparison and consideration is certainly called for.
How Does a Revocable Living Trust Differ From a Traditional Last Will and Testament?
A Last Will and Testament (will) is a legal document that becomes effective upon a person’s death, and specifies the division and distribution of his or her estate. To be effective, a will must meet certain legal requirements, be submitted to a court of competent jurisdiction, and withstand potential challenge as to its authenticity and validity, a legal process known as Probate. A Revocable Living Trust (living trust) also specifies the division and distribution of an estate, but since it exists before the death of the person who created it, its validity does not need to be acknowledged by a probate proceeding. And, it is referred to as “revocable” because the creator can make changes to or even dissolve the trust at any time and for any reason, as long as he or she remains mentally competent. A Revocable Living Trust becomes irrevocable upon the death of the creator.
In many cases, a living trust can be created more quickly than a will, and becomes effective upon creation or per the instructions of its creator. It is also more private than a will because, among other things, it bypasses the probate system and is not required to be filed among the court’s records. A living trust also tends to centralize the administration of a person’s estate after death, making it easier for that person’s heirs by having much of what would be needed for the estate administration collected all in one place. These are among the qualities that make living trusts increasingly popular.
How Does a Living Trust Work?
The person (or persons, in the case of married couples) who creates and funds a trust is called the Grantor. The person who manages the assets in a trust is called the Trustee. A person who receives income or principal from the trust is called a Beneficiary. The grantor can transfer part or all of what he owns into the trust, and can include real estate, bank accounts, insurance policies, stocks, etc. In most cases, the grantor of the trust names himself as the initial trustee and the initial beneficiary of the trust. The trust, in effect, becomes a “holding bin” for the grantor’s assets for the remainder of his life, or until he dissolves the trust. The trust will also identify who is to take over as trustee upon the passing of the grantor, or if the grantor becomes mentally incompetent and therefore unable to manage the trust. That subsequent trustee will then assume the task of administering the trust according to its terms. The terms of the trust may instruct that beneficiaries will begin receiving from the trust prior to the passing of the grantor, or distributions may not start until the grantor has passed.
Will A Living Trust Help My Heirs Save on Probate Expenses?
In many states—especially those with complicated administration procedures—living trusts are marketed as an ideal way to avoid the high cost of probate. In Texas, however, administering an estate according to the terms of a will can be an expeditious and economical way to distribute an estate. Most wills prepared according to Texas law include specific terms which instruct that the executor named shall be allowed to handle estate business without bond and without ongoing court supervision and approval. One must keep in mind, however, that living trusts are usually more complicated than wills, and therefore typically cost more to be created. In addition, living trusts will require that the grantor formally change ownership of all real and personal property to reflect being owned by the trust. One detail that is often overlooked is the fact that any of the grantor’s assets not held in trust at the time of his death, including assets obtained after the trust was created, will pass under the terms of the grantor’s will or, if the grantor did not have a will, according to the heirship provisions of the Texas Estates Code.
When is a Living Trust a Good Idea?
You may want to consider a living trust if any of the following situations apply to you:
- You Own Real Property in Another State — If you are a Texas resident and own real estate in a state other than Texas, a living trust could prevent the necessity of a probate proceeding in the other state.
- Impending Mental Incapacitation — If your age or medical condition is such that you have a reasonable fear of soon becoming incapacitated, then a well-drafted living trust could make it easier for your designated trustee and heirs.
- Incompatibility or Dissent Among Your Heirs – Heirs often tend to be more likely to fight over the administration of an estate in court. Some theorize this is because their relative has passed, and so cannot see their bad behavior or consider them greedy. If disagreement tends to erupt easily among your heirs, a living trust may be a more effective way of making sure your wishes are followed after you’re gone.
Estelee Garrison is a Houston-based attorney specializing in the areas of probate and trust administration, guardianship, estate planning, and business succession planning with particular attention to high net worth planning. If you have questions about estate planning, please contact the Law Office of Sam M. “Trey” Yates, III, P.C. for a consultation with a Houston family lawyer.