If you're thinking about estate planning, you may have come across living trusts. Most people will be familiar with the concept of a will, but perhaps you're not so familiar with trusts. So, what is a living trust, how is it set up, and how does it affect probate issues? Read on to find out.

Table of Contents

What Is A Living Trust

How To Create A Living Trust

Living Trust VS A Will

Pros And Cons Of A Living Trust

A living trust, more formally known as a revocable living trust, is a means of placing your assets into a trust during your lifetime while allowing their ownership to transfer smoothly in the event of your death, thereby avoiding the probate process.

A trust is an independent entity created to hold your assets and is set up by a trustor. The trustor can be an individual, an organization or a married couple. The trust is managed by one or more trustees, who may or may not be the same as the trustor.

Once assets have been added to the trust, the trustee is responsible for managing them and will dictate how they are disposed of and when. During your lifetime, the trust is revocable, and you can change the terms. However, once you die, it becomes an irrevocable contract, and the successor trustee can't change the terms.

The main benefit of the living trust is that the assets no longer form part of your estate, thereby minimizing the need for probate or even being able to skip it altogether.

In Texas, you can set up a living trust as the trustor. After that, you appoint trustees or remain as the trustee yourself. You should then place as many assets into the trust as possible and ensure that you include any new ones as you acquire them, as any items not included will be subject to the standard probate procedures upon your death.

You should then appoint a successor trustee who will take on management after your death. They will then be responsible for protecting your assets and following your instructions for distributing them to your heirs. You can set up a trust with the help of an estate attorney or reach out to professional estate management services such as ClearEstate, who can guide you through the process.

The primary difference between a living trust and a will is the probate process. A correctly set up trust can avoid the probate process, meaning that things run much more smoothly for your successors upon your death.

However, a well-written will can make the probate process simple in any case. Additionally, a trust can manage your affairs in case you are for some reason incapacitated before your death, which a will can't do.

Another significant difference is a living trust deals with your assets while you’re still alive, while a will deals with your assets after you’re gone.

Setting up a living trust is a better option for some than others, and you should think carefully before deciding if it's the right option for you.

Here are some of the main pros and cons:

Pros:

• Complete control over the distribution of your assets.
• You can make changes to the trust while you're alive.
• Protection for you and your assets should you be incapacitated—ownership of your assets has already been transferred.
• Avoids the costs of probate.
• It is private and not a matter of public record, as opposed to a will.

Cons:

• More up-front costs
• No protection from federal tax burdens or creditors
• Admin work required for retitling assets
  

Living Trusts FAQs

What happens to a trust when someone dies?

If a successor trustee is named for your trust and you pass away, management will simply pass to that person. As all of your assets have already been passed into the trust's ownership, there is no issue with probate. Should a beneficiary die before receiving their share of the assets, the property simply becomes part of their estate.

When does it make sense to set up a trust?

There is no one correct answer to this as everyone's assets and needs are different. However, should you wish to have complete control over your assets and maintain privacy over their distribution upon your death, it's probably an excellent option to consider. If you think it's a good fit for you, the best time to do it is now, as you never know what life will throw at you next.

If in doubt, get in touch with our experts at Clear Estate, who can give the best advice on how to proceed with setting up your trust. Contact us today for a free consultation to talk to one of our experienced, qualified team members.