Estate planning is the process of arranging for your assets and property to be distributed after your death. It is vital for protecting your assets and ensuring they are handled according to your wishes. The two main estate planning tools are wills and living trusts. While they have some overlaps, these instruments also have key differences that make each more suitable for certain goals and situations. State laws govern living trusts and wills, so the rules vary depending on where you live. Understanding how Texas inheritance law treats Texas living trusts and wills can help you make the right estate planning decisions for your needs. Consider talking to a financial advisor about estate planning.
Living Trusts and Wills in Estate Planning
A will is a legal document that dictates how your assets should be distributed upon your death. It names an executor to oversee the distribution and allows you to name guardians for any minor children. However, a will must go through probate court after you die, which can be a lengthy and expensive process.
A living trust also designates how to distribute your assets when you pass away. But it does so by transferring asset ownership to the trust while you’re still alive. A trustee then manages the assets on behalf of the eventual beneficiaries. Living trusts avoid probate because their assets are not part of the probate estate. Living trusts can be revocable, meaning you maintain control over the assets and can modify terms. Irrevocable trusts can’t be changed once made but provide tax advantages.
Key Differences Between Living Trusts and Wills in Texas
Texas has unique laws that change how wills and living trusts work when compared with other states. For example, Texas does not follow the Uniform Probate Code, so probate is often more complex and costly. Living trusts provide enhanced probate avoidance.
Community property is also treated differently in Texas. All assets acquired during a marriage are co-owned by both spouses. With a will, legal issues arise about distributing community property to someone other than a surviving spouse. Living trusts avoid this because spouses jointly transfer community property into the trust.
Estate Planning With Texas Living Trusts and Wills
In Texas, compared to other states, living trusts are particularly useful for avoiding probate and dealing with community property. However, Texans still need a will for things like:
- Naming an executor to handle final affairs
- Naming guardians for minor children
- Leaving instructions for things not included in the trust
Take note: A pour-over will is used to put any leftover assets into your living trust after death. This captures everything together, avoiding multiple probates.
Estate planners often advise Texas residents to consider:
- A living trust to avoid probate and handle community property
- A simple will to tie up loose ends and name executors/guardians
- Titling assets such as houses and bank and brokerage accounts in the name of the trust
- Naming the trust as your beneficiary on retirement accounts
Texas Living Trusts and Wills in Action
An example may help illustrate how living trusts and wills are used in Texas estate planning. Consider two married Texas residents with a $2 million joint estate. Here’s how they could use a living trust and will:
- Create a joint revocable living trust and transfer the title of their house or investments to it
- Name each other as the trustee while both are still alive
- After the first spouse dies, the other spouse continues as sole trustee
- After both pass away, name their eldest daughter as the successor trustee
- Craft the trust terms to distribute assets equally to their three children after both parents have died
- Create simple wills naming one spouse as executor, the trust as beneficiary, and guardians for minors
This allows the couple to avoid probate, safely distribute their community property, and plan contingencies through the living trust. The wills handle the remaining basics.
Texas Living Trusts and Wills Alerts
While living trusts and wills are useful estate planning instruments, be aware that:
- Creating a living trust has upfront costs of $1,500 to $5,000 to draft the terms and transfer assets
- Funding the trust requires retitling assets, which can be time-consuming
- Income and estate taxes still apply based on the trust assets
- Tax planning is complicated and calls for state-specific living trusts and requires expertise
- Your circumstances may change, so review your estate plan regularly
In Texas, living trusts can be highly beneficial for avoiding probate and dealing with community property laws. Simple wills can fill in any gaps not addressed by the trust. Be sure to review your plan every few years and after major life events. You can also work with professionals to help you find the right estate plan for you.
Tips for Estate Planning
- Financial advisors specialized in estate planning stay up to date on the latest Texas laws and estate tax changes. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you have a large estate, plan ahead for possible state and federal estate taxes.
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