Understanding the Differences Between A Will and A Trust In TexasOct 25, 2023
As we grow older, it becomes important that we plan for the future and protect our assets. Estate planning is an essential component of this process, and two of the most common instruments used for this purpose in Texas are wills and trusts. Understanding the differences between the two is essential to determine which is right for your unique situation.
Do you consider trusts to be instruments of the wealthy? Do you think creating a last will and testament will suffice to distribute your assets? While it is true that many Americans of means have trusts to protect and pass their wealth, there are a number of reasons why trusts can also be useful for middle-class families, more than just a will.
In this post, we will examine the differences between wills and trusts so you can make an informed decision regarding your own estate planning documents.
What Is A Will?
A will is a legal document that outlines how your assets and property will be distributed after your death. A will also appoints a person to manage your estate, called an executor. If you have minor children, you can use your will to name a guardian for them in the event of your death. A will only goes into effect after you pass away, which is why it is also called a "last will and testament."
What Is A Trust?
A trust is a legal document that spells out how your assets and property will be managed during your lifetime and how they will be distributed after your death. There are two main types of trusts: revocable and irrevocable.
A revocable trust (also called a living trust) can be changed or revoked by you at any time during your lifetime. An irrevocable trust has aspects of the trust that cannot be changed once it is created.
Trusts are often used to avoid the cost of probate, can help reduce estate taxes, and can help protect assets from nursing home poverty.
Will vs. Trust: Which Is Right For Me?
There are advantages and disadvantages to both wills and trusts. A will is a less expensive option than a trust. However, a will must go through probate, which can be time-consuming and costly. Additionally, a will does not protect against being contested or challenged.
In Texas, a will is a legal document instructing how your property should be distributed after your death. A will gets executed in court through a probate process. Contrarily, a Trust is a legal document that creates a legal entity to hold your assets.
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What Are The Benefits of A Trust In Texas?
A living trust can provide significant benefits for certain individuals. A revocable living trust avoids probate and can provide for managing your assets if you are incapacitated. It can also provide privacy, as trusts are usually private documents not open to the public.
You Can Control the Distribution of Assets
You wouldn’t hand over your car keys to a child who has had no proper preparation for driving, and chances are you would not want to hand over your bank account and all your assets to a minor child or a teenager. But if both parents die simultaneously, the children would inherit all the assets upon their 18th birthday. A trust allows you to specify how and when you want your children to inherit your assets.
You Can Protect Assets from Creditors
Placing an inheritance in a trust ensures that those assets and property are protected from your heir’s — or their spouse’s – creditors. Consider a Lifetime Asset Protection or Wealth Creation Trust for the benefit and the best asset protection from creditors.
You Can Protect Your Inheritance from Spendthrift Heirs
Not everyone is good with money. If your heirs fall into that category, you can use a trust to ensure the assets are not frittered away due to spendthrift behavior. There is, in fact, a type of trust called a spendthrift trust, which includes a spendthrift provision to protect your assets. An attorney can advise you on how to word best this provision for asset protection and compliance within your state.
You Can Protect Inheritance for Children from a Prior Marriage
Even with a will, sometimes estates can become complicated with blended families. You can use a trust to both provide for your current surviving spouse and any children from a previous marriage.
You Can Provide for a Special Needs Heir
Both federal and state programs have specific maximum assets the beneficiary can own to continue receiving benefits. Leaving assets outright to an heir with special needs could disqualify them from receiving these important government benefits. Leaving those assets in a trust bypasses this potential risk.
Your Estate Can Avoid Probate
Most assets can pass to heirs without going through the probate court, by using a trust. This saves beneficiaries the time, expense, and emotional turmoil of the probate process. Probate is an expensive, public, and unnecessary court process from which you can protect your family and estate by creating a trust.
You Can Protect Your Privacy
Once a will is entered into probate, it becomes public record. Anybody can read your will and see who your beneficiaries are. In contrast, a trust is a private document protecting your family’s privacy.
You Can Avoid Expensive And Unnecessary Fights
A critical difference between Wills and Trusts is that Wills can be contested in court by any interested party, whereas Trusts cannot be contested as easily. When a Will is probated, anyone can contest the Will if they have a valid legal reason.
In contrast, it's much more difficult to contest a Trust in court. Trusts are preferred for those who want to ensure their wishes are followed after passing away.
Requirements for a Trust in Texas
The first requirement that is vital in Texas to establish a trust is to create a legally binding written agreement. This agreement should name all trustees and beneficiaries and outline the different expectations for the trust, including how it will distribute assets. The agreement should also lay out any restrictions on access to assets by beneficiaries during their lifetime or after they pass.
Another requirement is to integrate your assets with the trust -- this process is called "funding" the trust. This means that the assets you want to protect with the trust must be transferred to the trust's ownership. This typically means you must retitle your assets, including real estate, bank accounts, and investment accounts, to name the trust as the owner. There are also some accounts that pass by beneficiary designations that you may wish to name the trust as a primary or contingent beneficiary including life insurance and retirement accounts. You should consult with an attorney in your state when determining what assets to fund to your trust and what to name the trust as a beneficiary of.
You should also consider naming a successor trustee to manage the trust in case of your incapacitation or death. The successor trustee will manage to transfer assets from the trust and ensure that the wishes in your trust agreement are followed.
Lastly, while creating a trust in Texas does not require a lawyer, many people consult with one to make legal documents and ensure that the trust documents are clear and legally binding. This can help reduce misunderstandings later and ensure compliance with state law regarding trusts.
Is A Revocable Living Trust Different Than Other Kinds of Trusts?
Yes, a revocable living trust is different from other types of trusts. A revocable trust is created during your lifetime and can be changed or revoked anytime.
It is called a "living" trust because it exists and is in use while you are alive. Revocable trusts are often used to avoid probate and provide for managing your assets if you become incapacitated. Other types of trusts, like irrevocable trusts, cannot be changed once created and are typically used for specific purposes like Medicaid planning or estate tax planning.
Revocable living trusts are different from other Trusts in that they allow the creator or grantor of the Trust to make amendments to the Trust during their lifetime. So, if you have a revocable living trust, you can change it as you deem fit. It may include changing the beneficiaries or trustees, altering the terms of the Trust, or even revoking the Trust altogether. Revocable living trusts can provide flexibility and control while enabling the Trust to avoid probate.
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Contact Our Office Of Trusted Estate Planning Attorneys Today!
Estate planning is a critical process that helps protect your assets and ensure your loved ones are cared for after you leave. Understanding the differences between wills and trusts is crucial to determine which is right for your situation.
Wills and trusts offer unique benefits that must be carefully considered when making an estate plan. In Texas, the main difference between a will and a trust is that a will gets probated, and a trust doesn't. Trusts can also offer more privacy and flexibility than wills.
It's essential to consider your goals and objectives when deciding which estate planning tool is right for you. Working with an experienced estate planning attorney can help you create a customized plan that meets your needs and helps you achieve your goals.
If you would like more information about protecting your loved ones, call our office at (281) 407-9830 or visit our website today to schedule a time for us to sit down and talk so that you discover what may be best for you and your situation.