Frequently Asked Questions About
Living Trusts

Is a living trust a good idea? Living trusts have become popular alternatives to traditional wills as estate planning documents. Determining if a living trust is the best solution for you depends on your circumstances.

What is a living trust? A trust is a legal device used for the management of property. In a trust, legal title to the property -- the right to manage the property -- is held by one person, called a trustee, while another person, called the beneficiary, has the beneficial right to the use and enjoyment of the property. A living trust is a trust created while the creator is living (compared to a testamentary trust, which is created at or after the creator's death under the terms of his or her will). A living trust may be revocable -- changeable by the creator prior to his or her death -- or irrevocable -- unchangeable by the creator. When most people speak of a "living trust," they mean a revocable trust created during the creator's lifetime for the management and disposition of all, or substantially all, of the creator's property. Different marketers of these types of trusts call them different things -- some are registered trademarks such as "Loving Trust," while others are more descriptive terms such as "family trust," "revocable management trusts" or simply "living trusts." It is this type of trust that will be discussed below.

How does a basic living trust work? In a typical case, the creator of the trust -- called the settlor or trustor -- names himself or herself as the initial trustee and the initial beneficiary. Thus, the settlor holds legal title to trust property as trustee for his or her own use and benefit as beneficiary. When the settlor dies, becomes incapacitated or resigns as trustee, another person becomes trustee and manages the property for the benefit of the settlor, if living, or for the beneficiaries named by the settlor, if the settlor is dead. For example, the trust may provide that, upon the settlor's death, the settlor's daughter becomes trustee and is instructed to distribute the trust property in equal shares to the settlor's three children.

How does a living trust differ from a will? A will is a legal document that becomes effective at your death and specifies how your property is to be disposed of. To be effective, a will must be acknowledged as valid through a court procedure known as probate. A living trust also specifies how your property is to be disposed of at your death, but since it exists before your death, its validity does not need to be acknowledged by a probate proceeding. It is this quality -- avoidance of probate -- that has brought the living trust most of its recent popularity.

Do I need to “avoid probate?” Revocable living trusts are marketed in many states as a great way to avoid probate—especially in states with complicated administration procedures. In many states, estates are put through court-supervised administrations where the executor must have the court’s approval to do most anything. Over time this can be very expensive. However, in Texas, most well-drafted wills provided for independent administration, which allows an executor to handle estate business without on-going court supervision and approval. Therefore, in Texas, delays or prohibitive costs of probate are not as much of a concern as they are in many states.

How much in probate expenses will a living trust save? It depends. Living trusts are more complicated than wills and typically cost more. (They also require the consumer to do more things, such as change ownership of property into the name of the trust, which definitely adds trouble and inconvenience and may add expense.) Usually some of the settlor's property is left out of the living trust (either by design or neglect), so a pour-over will -- a will which "backs up" the living trust and says, in essence, "if I forgot to put anything into the living trust before I died, I hereby put it there at my death" -- has to be probated to get those assets into the trust. In most cases, where the plan of disposition is straightforward (for example, in trust for your spouse and then to your children in equal shares when the surviving spouse dies), the cost of the probate proceeding is likely to be roughly equal to the additional cost of the living trust-based estate plan, so there is little or no savings. In other cases, the savings and other advantages can be substantial.  

The very best way to answer every question about "Texas Trust Laws" is to consult an attorney who specializes in this particular kind of law.