A living trust is an estate planning tool that can make things easier for your family after you pass away, and ensure that your wishes are fulfilled. This guide will take you through the process of creating a living trust in Texas, giving you all of the information you’ll need to complete this task as painlessly as possible. If you’re setting up a living trust or want help with other aspects of financial planning, consider speaking with a financial advisor.
How to Create a Living Trust in Texas
Creating a living trust is fairly easy to do if you work with a lawyer as they will handle most of the process for you. The process is pretty similar regardless of what state you live in but there are a few important differences to pay attention to based on the laws in your state. To create a living trust in the Lone State State, these are the steps you should consider taking:
- Determine which type of trust you’ll need: If you’re single, you’ll want a single trust. If you’re married, you have a choice. You and your partner can both get a single trust, or you can get a joint trust. If you have a lot of joint properties like homes or vehicles, a joint trust probably makes the most sense.
- Take inventory of your assets and property: To create a trust, it’s important to know what you own and what you want to put into the trust. Assets you can transfer to a living trust include stocks, bonds, real estate, family heirlooms, bank accounts and vehicles. Notably, you can’t transfer a retirement account like a 401(k) into a living trust but you can name the trust as a beneficiary, effectively ensuring your benefits are paid into your trust after you die. You should also take this time to gather any relevant paperwork, such as records of home ownership, car titles and stock certificates.
- Choose a trustee to manage the trust: You can name yourself as a trustee or someone else. If you do name yourself, you’ll also need to name a successor trustee who will take over when you die. Now is also a good time to decide which of your heirs will get what property.
- Write up the trust document: You can do this either by using an online service that creates a template and fills out your personal information, or you can enlist the help of an attorney who completes the entire document for you.
- Get the document signed: Next, you’ll need to sign the trust document and get it notarized for it to be legally binding.
- Transfer the property into the trust: This process is called “funding the trust.” This does require some paperwork, so getting a lawyer may make it easier.
What Is a Living Trust?
Simply put, a living trust is a legal framework established by a document. You can store assets and property inside of a living trust while you’re still alive, and ownership is given to a trustee who is in charge of distributing the trust’s property to beneficiaries according to the trust’s directives. As mentioned above, you can name yourself as the trustee or give that job to someone else.
There are two types of living trusts. An irrevocable living trust is permanent. Once the property goes into an irrevocable living trust, you cannot remove it without express permission from everyone in the trust. The trust pays the appropriate taxes, as the owner of its assets is completely in its name.
A revocable living trust, by contrast, allows the grantor (the person who created the trust) to modify the trust and remove property at his or her discretion. You pay taxes as usual, as you maintain control of the property.
How Much Does It Cost to Create a Living Trust in Texas?
The cost of creating a living trust in Texas largely depends on how you go about setting it up. If you use an online program to create the living trust yourself, fees will likely total no more than a few hundred dollars, possibly even less.
The other option is to use an attorney. If you hire a lawyer, the cost of creating a living trust will depend on the fees the attorney charges. You could end up paying more than $1,000 to create a living trust.
While these costs are a definite downside, you’ll dodge the potential dangers of DIY estate planning by getting an expert’s input. Just make sure you discuss an attorney’s fees before you start working with him or her to ensure you know what you’ll be paying. Also make sure your attorney is an expert in trusts, not just estate planning.
Why Get a Living Trust in Texas?
Perhaps the top reason for creating a living trust is avoiding the probate process. This process has the potential to be very time-consuming and costly, as well as a potential invasion of privacy as probate enters your personal affairs into the public record. A living trust can make things easier for your family when you die. Any property placed inside the trust will not be subject to the probate court.
In Texas, avoiding the probate process can be even more helpful than it is in other states. That’s because the Lone Star State state does not use the Uniform Probate Code. In other states, this code streamlines the probate process, cutting down on the time and costs involved. Since this is not enforced in Texas, a living trust can be especially beneficial to estates in Texas. If your estate is worth $75,000 or less, though, Texas offers a significantly simplified probate process.
A living trust can also help you avoid conservatorship if you were to become incapacitated. It also makes it possible to leave assets or property to a minor child at a specified time. You can leave the property to a trustee, who will hold it until the child reaches legal age.
Who Should Get a Living Trust in Texas?
Many think that living trusts are just for the wealthy. That isn’t the case, especially in a state like Texas that doesn’t use the Uniform Probate Code. Large or complex estates may be best for a living trust, but smaller estates can also benefit.
While everyone needs estate planning, not everyone necessarily needs a living trust. There are a few cons to living trusts. In general, living trusts cost more and are more difficult to set up than wills. Also, they can cause problems after you’ve died as a living trust provides more time for challenges than a will does.
Living Trusts vs. Wills
Even with a living trust, you’ll still likely need a will. A trust can only account for a property that you place in it. If anything you own doesn’t end up in the living trust, a will can provide instructions on how where that property should go.
Moreover, a will does have some capabilities that a living trust does not. For instance, it can:
- Name an executor
- Establish guardianship for children
- Leave instructions for paying taxes and debts
- Name managers for children’s property
None of these things should be confused with a living will, which deals with if you become incapacitated. The table below provides a broader comparison of what living trusts and wills can do.
Living Trusts vs. Wills
| Purpose | Living Trusts | Wills |
|---|---|---|
| Names a property beneficiary | Yes | Yes |
| Allows revisions to be made | Depends on type | Yes |
| Avoids probate court | Yes | No |
| Requires a notary | Yes | No |
| Names guardians for children | No | Yes |
| Names an executor | No | Yes |
| Requires witnesses | No | Yes |
Living Trusts and Taxes in Texas
Forming a living trust won’t have a big impact on your taxes. Still, you should know about the Texas estate tax and the Texas inheritance tax when you start thinking about planning your estate.
You’ll be relieved to know that there is no inheritance or estate tax in Texas. However, the federal estate tax may come into play. The federal estate tax exemption in 2023 is $12.92 million (up from $12.06 million in 2022), or $25.84 million for couples ($24.12 million in 2022). In 2024, those limits will rise to $13.61 million for individuals and $27.22 million for married couples. So if your total estate value is less than that, it won’t apply.
Bottom Line
A living trust could be especially useful in Texas because the state does not use the Uniform Probate Code, which streamlines the potentially time-consuming and costly probate process. Thus, creating a living trust in the Lone Star State could save your family a lot of time after you’ve died. The only exception to this is estates worth less than $75,000, for which Texas offers a simplified probate process. Other states that don’t use the Uniform Probate Code include Illinois, Florida and Oregon.
Tips for Estate Planning
- If you’re thinking about estate planning, or are just looking for some general help with financial planning and investing, you might want to work with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Don’t forget to name a guardian for your children when planning your estate. This is one of the things you’ll need a will for. While it isn’t pleasant to think about, preparing ahead of time is important.
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