Welcome to the Kazi Law Firm! We are a boutique law firm steeped in Texas tradition personifying the warmth and congeniality consistent with southern hospitality. We believe in preserving integrity and professionalism with true Texan charm, staying true to our roots, while providing essential, affordable legal services to all. Located just north of Dallas, Texas in the rapidly growing suburb of Frisco; the Kazi Law Firm concentrates on contracts drafting and review, wills & estate planning, real estate law, landlord, tenant, mediation, and general business law needs.
One of the most commonly asked questions we get asked by estate planning clients is, “what is a revocable trust, and do I need one?” A revocable trust, also known as an inter vivos trust, is a specific estate planning tool useful in certain situations. Let’s talk about the area of trusts in more detail.
Trust vs. Revocable Living Trust
A trust is created when one person (called the Trustor, Settler, or Grantor) transfers to another person or entity (called the Trustee) a property interest to be held for the benefits of a beneficiary. If the trust is created during the Trustor’s lifetime, rather than in his or her Will, it is called an inter vivos or living trust. When the Trustor retains the right to dissolve the trust, it is called a revocable trust. Conversely, if the Trustor does not have the right to change or dissolve the trust, it is irrevocable. As you may have deduced, a revocable trust becomes irrevocable when the Trustor dies.
Advantages of a Revocable Living Trust
Most of the advantages associated with the revocable living trust involve the fact that the assets owned by the revocable living trust pass to the beneficiaries without probate. If the assets are titled in the name of the revocable living trust and the Trustor dies, a successor trustee simply steps in and administers the assets according to the instructions outlined in the trust agreement. In Texas, it is generally not difficult, time-consuming, or expensive to probate a well-drafted Will. However, a revocable trust is often recommended for the person who:
- Has real property or multiple properties outside the State of Texas
- Has a complex estate plan involving business interests, a blended family, children from multiple relationships or marriages, or significant estate tax planning concerns
- Anticipates that the estate plan will be contested by family members
- Desires privacy in the settlement of his or her estate (i.e. celebrities, public figures, etc)
For those that require the utmost privacy in settling their estate, often do not wish for their Will and the assets governed by this Will to be of public record. For example, if a person has an expansive estate, is leaving a bequest to a non-family member, or does not want an ex-spouse to have information regarding the administration of the estate, a revocable living trust may avoid this information becoming public knowledge.
Disadvantages of a Revocable Living Trust
The most crucial disadvantage of a revocable living trust involves the fact that it requires more time and effort from the attorney and the client to create the trust and fund the trust. In other words, after the attorney has drafted the trust and the client has signed it, the client and the attorney must work together to fund the trust. Funding is the process of placing assets in the name of the trust and/or defining beneficiary designations with the trust. The funding of a revocable living trust is often referred to as “pre-settling the estate.”
Other disadvantages include:
- Record-Keeping – After a revocable living trust is created, you must keep written records whenever you transfer property to or from the trust, which isn’t difficult unless you transfer a lot of property in and out of the trust, but it can be tedious.
- Difficulty Refinancing Trust Property – Due to legal title to trust real estate being held in the name of the trustee, a few banks and title companies may balk if you want to refinance it. In the unlikely event, you can’t convince an uncooperative lender to deal with you in your capacity as trustee, you’ll have to find another lender or transfer the property out of the trust and back into your name. Later, after you refinance, you can transfer it back into the living trust.
- No Cutoff of Creditors’ Claims – Most people aren’t concerned that after their death, creditors will try to collect large debts from the property in the estate. But if you are concerned about the possibility of substantial claims, you may want to let your property go through probate instead of a living trust. If your property goes through probate, creditors have only a certain amount of time to file claims against your estate. A creditor who was properly notified of the probate court proceeding cannot file a claim after the period expires.
Complex Estate Planning Tool
In general, blended families, non-traditional families, business owners, and moderately wealthy to wealthy individuals require more complex estate planning. In these situations, it is often advantageous to utilize the revocable living trust to avoid unnecessary delay in the management of a person’s estate. If the management and distribution of the estate is governed by a Will, it could take some time to have the Will admitted to probate, especially if the Will is “contested” (challenged). Further, privacy is a critical concern for many business owners and wealthy clients. If a person anticipates a Will contest, he is likely better off creating and funding a revocable living trust for two main reasons. First, the trust is not of public record and no person has the right to know of its contents besides the trustee, the beneficiary, the IRS, and other interested persons. Second, it is often more difficult to challenge a trust as opposed to a Will, especially if the Trustor was also a trustee of the trust.
Property Outside of Texas
People who own real property outside of Texas may be able to avoid the ancillary probate of that property by placing the property into a revocable living trust. Generally, ancillary probate involves hiring another attorney in the jurisdiction where the real property is located. The procedure differs from state to state but usually involves filing a certified copy of the probate with a congressional certificate in the county, parish, or township where the real property is located. It may also require an oral hearing. The expense and time associated with ancillary probate vary widely from state to state.
Revocable living trusts also known as inter vivos trusts are not the right estate planning tool for everyone. There is no one size fits all approach in estate planning and thus, it’s advisable to consult with your attorney to see if a trust’s benefits would outweigh its drawbacks in your particular situation. Contact your north Texas estate planning attorneys at the Kazi Law Firm to learn more about preparing for the future.
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, landlord-tenant disputes, immigration, and wills & estate planning. 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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