You have probably already heard of Revocable Living Trusts in The Woodlands before. They are quite popular. Even though they’re a useful, simple and cost effective way to plan your estate, you need to learn more about them, because they are not a silver bullet for all problems.
How To Create a Living Trust in The Woodlands
In Texas, you create your Revocable Living Trust by signing a document. Your estate planning attorney carefully drafts this document on several fronts. First, you need to execute it correctly. Second, it needs to contain the correct legal recitals. Third, it needs to be detailed enough so everybody knows what you intend to happen upon your death or disability. If you or your attorney cut corners on any one of those three items, then the resulting costs can exponentially exceed any potential savings you may have been after.
Most Revocable trusts are created with a Declaration of Trust rather than a trust agreement. In this case, you sign a document declaring that you’re creating a trust to hold property for your and your family’s benefit.
Funding a Revocable Trust
You have to fund the trust after you create it. Funding is the process of transferring your assets into the trust. This step is crucial to avoiding probate administration upon your death or disability. Simply listing the assets on a piece of paper is insufficient. You have to complete the process and fill out the forms to officially change titles on accounts and deeds.
Funding is also reversible. If you decide you want to remove something from the trust later on, you can.
Trust Transactions
Whoever is in charge of the trust will be acting as Trustee. Usually that will be you but it can be other family members as well. If you make yourself trustee, you have to sign “, Trustee” after your name.
Trust Income Taxes
Your trust becomes the legal owner of the property you put into it. However, that does not make it a separate taxpayer when it comes to income taxes. You kept the right to use and enjoy the property, and because you do, federal and local tax authorities treat the property in the trust as belonging to you, the grantor. This is only for tax purposes. Income or capital gains from property owned by the trust still gets reported on your personal income tax return.
Trust Are Private & Save Money
When you sign a Will you are creating a public document. You may not realize it at the time, but once your Will goes to Probate it is public and anyone can see it.
Alternatively, the main advantage of a living trust is it is not a public document. The trust is not open to everyone to look through. This means no one will find out how you distributed your estate.
Your trust also does not go through probate. This saves time and money by not having to jump through judicial hoops to administer the estate.
You Keep Control
You stay in charge with a revocable living trust. While you are alive you keep the right to control your property. Your power to amend the trust at any time protects this right. You can change:
- trustees;
- beneficiaries; or
- how property is distributed to beneficiaries.
You can change anything. However, you can lose this right if you become disabled and of course after you die.
Administration Considerations for Your Estate Planning Attorney
Your revocable living trust does become written in stone once you die. All of the provisions you left for trustees and beneficiaries can no longer be changed. At that time, your alternate trustee steps in and administers the trust according to the terms you wrote. You can’t count on anyone to carry out your undocumented wishes, the written documents prevail.
Living trusts can go on for a long time. You can set it up for young beneficiaries like grandchildren or even great grandchildren you haven’t met yet. You do not have to distribute all of your property immediately. It is not uncommon to stagger distributions over many years to prevent beneficiaries from losing it too soon.
What Living Trusts Don’t Do
A living trust is a tool for you to achieve your goals. It is not a magic solution to every problem, but it does solve many problems.
When you have a Living Trust it does not eliminate the need for a Will.
Why?
This is primarily a precaution. In case any assets turn up which you either completely forgot about or just forgot to put in the trust, the Will is crucial to making sure that property gets to the people you want it to.
If you have minor children, it is a good idea to use a Will to appoint a guardian for them.
The Big Savings
As mentioned above, Living Trusts cut the costs of probate administration and going to court. Please give us a call and we can discuss whether a living trust might be right for you.