Living Trusts

A Living Trust, also known as an Inter Vivos Trust, is a trust prepared while the Trustor or Settlor (the maker of the trust), is still alive.

The maker usually retains the powers of trustee, is a beneficiary of the trust itself, and the trust is revocable. When the maker dies, either the trust goes to the remaindermen (the party or parties named to receive the trust after all the beneficiaries die), or another trustee is named to administer the trust for a second beneficiary (usually the surviving spouse), and the trust becomes irrevocable.

When there is a Living Trust, there should also be a will with a “pour-over” provision. This is necessary in case not all real and personal property was transferred into the Trust. Living Trusts generally are used, in Texas, to avoid probating complex estates and/or to keep the estate property from becoming public knowledge.

Why did Living Trusts become popular?

Living Trusts became popular in states where the costs of probate were based as a percentage of the estate value. The value of the property put into the trust was removed from the value of the probate estate, leaving only the probating of a will with a “pour-over” provision, if necessary. The “pour-over” provision allows properties that were not put into the trust, and still owned by the Trustor, to be put into the trust. The cost of probate then became minimal, being only the costs of court plus a percentage of the value of any property left over that had not previously been transferred into the Living Trust.

Do Living Trusts Avoid Estate Taxes?

Living Trusts do not, in and of themselves, avoid Federal Estate Tax, but they are often used as a tool in estate planning. Any tax avoidance, that can be done with a Living Trust, can also be done with an estate-planned will.

Are Living Trusts Expensive?

A Living Trust is usually an expensive document. The preparation of the trust document is expensive, and the cost of transferring ownership of property over to the trust is not inconsequential. The trust also has costs of maintenance. The trust has its own taxpayer identification number, and pays income tax on any income-producing property. The trustee is responsible for the accounting and taxes, and seeing that the ownership of the named properties is properly transferred to the trust itself. Also, once a Living Trust is created, and the property is transferred into the trust, it is expensive to undo if you later change your mind. All of the property has to be transferred back out of the trust, and any overlooked property may be lost.

Does a Living Trust save probate costs in Texas?

As a general rule in Texas, the cost to prepare a Living Trust may exceed the costs of probate. Probate, in Texas, is not a complicated or expensive procedure. However, Living Trusts may be beneficial in some circumstances, such as when you are trying to keep information concerning the estate property from the general public in a probate action, or the estate property is scattered among several states. Probate proceedings require the preparation of an inventory and appraisement of the estate in probate, and that inventory then becomes a matter of public record. The placing of such property into a Living Trust shields that property from casual prying eyes.

When does a Living Trust save on probate costs in Texas?

If a Texas estate in probate has real property (real estate) located in several states, probating the estate requires first probating the will in Texas. Then the executor must enter the final orders from the Texas court into each state where the estate property is located. This may become both complicated and expensive. Each entry of the Texas final orders is considered as filing a separate suit in probate, in each county where the property is located, in each state involved. Then the property has to be transferred in accordance with the terms of the will. A Living Trust avoids that problem since the trust itself has already been made the owner of the property, and the property then passes in accordance with the terms of the trust.

Living Trust Scams

The Texas Young Lawyers Association puts out an excellent brochure called “Living Trust Scams And The Senior Consumer”. That is available by mail to TYLA, c/o Public Service, P.O. Box 12487, Austin, TX 78711, or phone 512/463-1388