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As an estate planning and probate attorney, I am often asked about the difference between having a will and having a trust. In true lawyer fashion, my response is always “it depends.” A Last Will and Testament includes written instructions to your loved ones on how you want your assets distributed once you pass away. A trust constitutes written instructions for how you want your assets managed and distributed upon your incapacity and death. It is essential to note that one major difference lies in the fact that assets held in trust do not go through probate court for distribution. A will must pass through probate court to receive a Judge’s approval on walking out the distribution instructions left in your will.
Owning a properly funded trust with clear instructions for the trustee and beneficiaries before you become incapacitated or pass away avoids the need to open probate or involve the courts. A trust is invalid unless the following things occur: 1) the legal trust document exists and 2) the trust is funded with some type of asset. If the trust is never funded during your lifetime and there is no will that specifically pours over assets into a trust or gives someone the authority to create a trust on your behalf after you pass away, the trust is invalid. This is why you will often see a trust coupled with a pour-over will—this arrangement catches any assets that have not been transferred into the trust during your lifetime. Additionally, it extends your Executor or Trustee the authority to 1) transfer the assets into your trust already created or 2) create and fund a trust from your Will (Testamentary Trust).
Trusts are private legal documents that allow flexibility in transferring generational wealth to your loved ones. Most trusts provide tax benefits, greater control over your assets, and the ability to safeguard your property in the event you become incapacitated.
You can fund a trust with assets you own such as a house, land, mineral rights, bank accounts, insurance policies, digital assets and rights, and even intellectual property. The type of trust you create and the benefits will vary based upon the type of asset you desire to be transferred into the trust. There are also some assets that are advised not to be held in trust due to liability exposure.
There are two types of trusts commonly known and created in Texas: Revocable Trusts and Irrevocable Trusts. You will often see variations of these two types of trusts with Revocable Living Trusts, Special Needs Trusts, and/or Testamentary Trusts.
A Revocable Living Trust is a legal document that allows you to control what happens to your assets during your life, incapacity, and after death. Forming a revocable living trust means you can make changes or even cancel (revoke) the trust during your lifetime, as you created the trust and also are a trust beneficiary. Anything you own that you place into the trust is controlled and managed by you until your incapacity or death; this trust will become an Irrevocable Trust upon your passing.
An Irrevocable Trust is a trust that allows an individual to minimize estate taxes, gain access to government benefits, and ultimately protect their assets from creditors. Forming an Irrevocable Trust means exchanging your control of the trust and assets of the trust for someone else to manage it. This type of trust cannot be revoked and the terms of the trust cannot be changed without either the consent of all the beneficiaries or by a court order approving the changes. An Irrevocable Trust is normally managed by a third-party trust management company for a nominal fee equivalent to a percentage of the value of the trust assets.
A Testamentary Trust is a trust that is created through your Last Will and Testament. This trust does not take effect until you pass away and your will has gone through probate. A Testamentary Trust is also a form of Irrevocable Trust.
A Special Needs Trust or Supplemental Needs Trust is created when there is a loved one with a disability who will be receiving financial support and wants to avoid jeopardizing their access to receiving any government benefits. This type of trust is specifically designed to supplement those benefits to provide for specific needs and/or long-term care for this individual.
The cost to create and trust and fully fund it will vary. The starting range for creation of the trust legal documents and funding the trust with assets can begin at $2,500 - $5,000 in Texas.
While social media and even Google will tell you that every individual needs a trust, this is not always the case. It is important to sit down with a trusted estate planning attorney and an accountant to discuss what you own or might potentially inherit from someone else; then, you can design an estate plan with your next chapters of life in mind.
It is important to note that estate planning is not a “one size fits all” situation. Estate planning is more along the lines of a toolbox. In a toolbox, you will not use every tool for every situation; you select and use the tool that best fits fixing or adjusting your specific situation.
Dore Rothberg Law recognizes that every person’s estate plan will be different. The estate planning and probate Attorneys at Doré Rothberg Law are available to design a tailor-made estate plan just for you. Please contact us at Doré Rothberg Law to schedule an estate planning consultation: (281) 829-1555. We are ready to help you secure your assets and your future.
Doré Rothberg – Houston & Fort Worth Law Firm
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