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Trusts are a critical part of estate planning because they help protect the estate of someone who has died from going through a lengthy probate process, and can give estate holders and their loved ones more control over how assets are distributed.
Whether you’re just starting to plan your estate or already have begun exploring strategies for you and your loved ones, there are specific things you need to know about trusts in Texas. Here are the essential points to remember.
A trust is a legal, independent arrangement that allows a third party to govern the assets from someone's estate and later distribute them according to the estate holder’s—also known as the trustor’s—wishes once they pass. Trusts can be used for various reasons, such as providing for unborn children or minors, setting aside money for charity, and decreasing the size of the estate to minimize or avoid the need for probate.
They can help minimize paperwork, save time, and in other cases avoid or reduce estate or inheritance taxes. Trusts must be completed and registered with the state where the trustor lives.
Texas has three primary trusts: living trusts, revocable living trusts, and testamentary trusts.
A testamentary trust refers to a trust that is established in accordance with the instructions contained in the last will of a person and outlines the terms and conditions of the trust.
Testamentary trust typically includes provisions for the distribution of estate assets in case of an incapacitated or deceased person's death, as well as a clause specifying how assets may be distributed by the trust over the course of a beneficiary’s life. For instance, if a benefactor established a testamentary trust for the beneficiary, they may indicate the beneficiary receives ¾ of the assets at age 25 and the remaining ¼ at age 40.
A revocable trust is a trust that can be changed or revoked at any time. This kind of trust allows for easier management of money because it eliminates potential problems down the road if something happens to either party involved in the trusts – such as an illness. For example, a person with cancer might want to revoke their trust to save as much money as possible while still living in comfort.
A revocable trust is perfect for people who have a lot of money at their disposal and want to ensure that it will go into a safe place after they die.
A living trust is a trust created during the trustor's lifetime, where a designated person who will act as the trustee is responsible for maintaining and administering the trust and the assets held within it. Trustees typically have experience in financial planning and investment, estate planning, real estate management, and other critical family-related responsibilities.
Living trusts are a preferred form of trust because they provide trustors with more flexibility and control over their assets. For example, if you have an inheritance that you want to gift to your loved ones evenly over their lifetimes, creating and setting up a living trust would be one way to do this.
There are also other kinds of trusts which deal with very specific situations, such as pet trusts, which set aside assets for the care of a pet, or charity trusts, where charities can be designated as beneficiaries.
A will is a legal document that lays out how someone’s estate will be distributed after their death, and names and appoints someone as the executor of the estate. In essence, a will deals with someone’s assets when they’re gone. A will also needs to be probated.
A trust is a legal agreement that holds the money or assets from someone's estate. A trust deals with someone’s assets while they’re still alive. Once the trustor passes away, the assets held in the trust can be passed on to a named beneficiary without the need to go through probate.
The Texas Trust Code (TTX) governs trusts in Texas. The code sets out specific rules about how trusts must be created, registered, and performed.
Trusts must have a trustee appointed by the court to manage the trust;
Trusts are a vital part of estate planning, and in Texas there are various types to choose from. Understanding what kind of trust you need will help you make the right choices for your estate planning needs. You can also get help from industry experts that have all the information you may need. Contact, or talk to us for a free 30 minute consultation for any questions you might have!
Chris CambridgeChris Cambridge is a Senior Estate Professional here at ClearEstate. Credited with his Juris Doctor (J.D.), Master of Laws in Taxation (LL.M), and a Masters Degree in Trust and Wealth Management. He brings over 10 years of experience in estate planning and administration - Chris is able to accurately and empathetically guide you along your process of planning your estate.
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