Texas Living Revocable Trust – Are Your Assets Protected?

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Trusts are commonly used as estate planning vehicles that can avoid the expense of legal probate proceedings and can, thereby, help protect assets for purposes of intergenerational transfers.

In general, a trust is a legal entity that is created by the preparation and execution of trust documents that conform to statutory requirements. The creator of a trust is called the “Grantor” or the “Settlor.” Trusts created during the life of the grantor are called “living trusts” as distinct from testamentary trusts which are created via Last Wills & Testaments. Revocable trusts are ones that can be modified or dissolved by the grantor allowing the grantor to regain personal ownership over assets placed in the trust. By contrast, as the name implies, irrevocable trusts cannot be revoked and property placed in an irrevocable trust is forever lost to the personal ownership of the grantor (although control and use can be maintained if the grantor is named as the trustee).

As a legal entity, a trust can hold title to real and personal property, obtain a tax identification number, initiate and defend litigation, file tax returns and more. Unlike a corporation, a trust does not have a board of directors or other governing hierarchy or structure. A trust is governed by one or more trustees who are named in the trust documents. Generally, the purpose of a trust is to hold and direct assets that are placed in the trust for the benefit of the trust’s beneficiary or beneficiaries and to provide for distribution of those assets upon the grantor’s death.

Here in Texas, a particularly effective trust for estate planning asset protection is the Texas Revocable Living Trust (“TRLT”). Typically, the documents establishing a TRLT will name the grantor as the trustee and will name a successor trustee in the event of the grantor’s passing, disability or incapacity. As noted, upon the grantor’s death, the TRLT will direct the successor trustee to distribute assets in the TRLT as directed and on the various conditions set forth in the trust documents by the grantor. To be effective, title and ownership of various assets must be legally transferred to the TRLT. For example, the title to a vehicle or the deed to a personal residence or other real property must be officially and legally changed from the individual grantor to the TRLT. Likewise, with something like an insurance policy, a retirement plan or an IRA, the named-beneficiary of those policies or financial vehicles must be changed from the individual to the TRLT.

Compared to a Last Will & Testament, a TRLT has many advantages. Among the most important advantages is that assets placed in a TRLT are distributed without the need for a probate filing or proceeding. A probate proceeding is a court case filed in a Texas state court where a judge oversees the distribution of a decedent’s assets, either based on the Texas laws of intestate or based on a decedent’s will. If a will exists, then the court must verify and enforce the will subject to potential challenges from potential heirs and beneficiaries. The probate process is time-consuming and can be very expensive and heirs/beneficiaries cannot receive their distributions until the court allows and/or until the probate is concluded. By contrast, assets held in a TRLT can be distributed to heirs and beneficiaries almost immediately and with little or no cost. In other words, distributing assets post-death through a TRLT saves a lot of time and money. This is the main way in which a TRLT protects assets for purposes of intergenerational transfers.

Just as importantly, a TRLT is much more difficult to challenge legally than a Last Will & Testament. A legal fight over a will is usually very expensive and can completely exhaust the value of an estate. A TRLT protects estate assets by making a will contest more unlikely. One reason for this is that TRLTs are generally created and established long before there can be any suggestion of mental incapacity and/or undue influence.

Other advantages of a TRLT include:

  • Probate proceedings in other states and jurisdictions are avoided where the TRLT holds title to assets located outside of Texas.
  • Because no probate court filings or proceedings are needed, the existence of assets and their distributions remain private and not a matter of public record.
  • The successor trustee can be instructed to manage assets for beneficiaries who have not reached their majority or who may be financially irresponsible.

In addition to being an effective estate planning vehicle, a TRLT has advantages for the grantor while the grantor is still living. As noted, typically, the trustee of a TRLT is the grantor. In this manner, a TRLT allows the grantor to use any and all assets placed in the trust during the grantor’s lifetime. Whatever a grantor might do with personal and real property as an individual can be done with the property as the trustee of a TRLT. For example, real property can be bought and sold. Since a TRLT is revocable, it gives the grantor the flexibility to modify the TRLT, if needed and as necessary, during the lifetime of the grantor.

However, the trustee does not have to be the grantor. The named trustee can be a trusted and valued member of the family or friend. This can be advantageous depending on the circumstances. The appointed trustee will act on behalf of the trust for the benefit of the grantor and will continue to do so even if the grantor becomes incapacitated. For an aging grantor or one that may be facing disability, creating a TRLT can solve many potential problems and resolve many worries. Among the lifetime advantages of a TRLT are these:

  • Avoiding a fight among family members and an expensive legal proceeding to appoint a personal guardian if there is incapacity or disability.
  • Allowing a smooth and orderly transition if there is a sudden incapacity or disability — this can be particularly important if the grantor owns a family business.
  • Establishing and effectuating the grantor’s wishes about property use and distribution during any extended incapacity or disability.
  • Alleviating personal stress by shifting the responsibilities of managing the TRLT’s property and assets to a trusted friend or family member.

Given the many advantages of a TLRT during the lifetime of a grantor, creating a TLRT is often a good option even for those with modest estates.

For more information on protecting your assets and creating a Texas Living Revocable Trust, please contact the Kazi Law Firm. Remember, no estate is too small to protect!

I built my law practice on the premise of being a life raft in a sea of sharks. I want to be an advocate for those that have been wronged and are too intimidated to seek help. My firm is here to explore your options, guide you through your legal journey, and give you that safe space to ask questions! There’s no such thing as a stupid question…Only the ones you don’t ask. So, my question to my clients is not “do you have any questions?” But rather “what questions do you have?”

As always, the Kazi Law Firm is standing by to help you in your time of need. Don’t hesitate to contact us today. We specialize in real estate law, wills & estate planning, asset protection plans, and trust creation. Family is at the core of our practice. Just as we treat our family with respect and understanding, we treat yours. Come join the Kazi Law Firm family today!

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