Estate planning is a critical step in ensuring that your assets and wishes are handled according to your desires after you pass away. While planning for the future might seem daunting, it can offer peace of mind and security for you and your loved ones. Probate laws vary from state to state and so too does advice from estate planning attorneys. You should obtain advice from an attorney who is licensed to practice in the state in which you are living. The primary tool used for Texas in estate planning is a Will. While living trusts are legal and sometimes useful, the cost to establish, fund, and administer a living trust is typically significantly higher than a Will so consumers should exercise caution before choosing that route. If you’re in Austin, TX, understanding the difference between a Will and a trust is essential in creating a solid estate plan tailored to Texas law.
This guide will explain some of the differences and misconceptions between these two instruments, helping you understand when and why you might choose one over the other.
What is a Will?
Definition of a Will
A Will, also known as a “Last Will and Testament,” is a legal document that outlines how you want your assets to be distributed after your death. It allows you to specify who will inherit your property, name guardians for minor children, and appoint an executor to fulfill your wishes. A will is a vital component of any estate plan, regardless of the size of your estate.
Components of a Will
In Texas, a valid will must be written, and signed by the person making it (the “Testator”). A formal (typed instead of handwritten) will must be witnessed by at least two individuals who are above the age of 14 and who are not inheriting anything under the will. Some primary components of a will include:
- Beneficiaries: Individuals or organizations that will receive your assets.
- Executor: The person responsible for managing your estate and ensuring your wishes are fulfilled.
- Guardianship: If you have minor children, a will allows you to designate a guardian who will care for them if you pass away.
- Specific Bequests: You can leave specific items, such as family heirlooms, to particular beneficiaries.
How a Will Works in Texas
After someone passes away, depending on what they own at the time of their death, their will may need to go through a legal process called probate. In Texas, probate is the court-supervised process of authenticating a will and ensuring that debts are paid and assets are distributed according to the will. When there is a properly executed will, probate in Texas is a relatively short and inexpensive process as compared to states with dependent administration. More than 80 percent of Texas probates are completed through independent administration, which involves one short court hearing.
What is a Trust?
Definition of a Trust
A trust is a fiduciary arrangement in which one party, known as the trustee, holds and manages assets on behalf of beneficiaries. The person creating the trust (the “grantor” or “settlor”) places their assets into the trust, and the trustee manages and distributes them according to the terms of the trust. Trusts can be active during a person’s lifetime or after their death.
Types of Trusts
There are two main types of trusts:
- Living Trust: Texans often fall victim to predatory living trust sales. When a living trust is poorly drafted or not fully implemented, families can end up with significant costs after the trustee passes away. Additionally, living trusts often cost more to establish than wills and there are a number of misconceptions about what a living trust can achieve in Texas.
- Testamentary Trust: A testamentary trust is created in a person’s will. If the required conditions occur, such as inheritance by a minor child, the trust is funded with the estate assets and that money is managed and distributed according to the terms of the trust set forth in the will. A trustee, who manages the trust, is also named in the will. The trustee can be the same person as the guardian or executor, but can also be a different person.
Common Misconceptions About Living Trusts in Texas
Does a living trust reduce your taxes? Help you avoid paying debts? Help you qualify for Medicaid? Save you time and money? As explained below, for Texans, a living trust is not the magic solution some late night infomercial or estate planning for dummies guide might lead you to believe.
Taxes. For deaths in 2024 and 2025, if the value of the estate is less than $13.6 million, there are no estate taxes. For deaths in 2026, this amount is expected to return to approximately $7 million. Additionally, Texans do not need a living trust to utilize methods of estate tax reduction, such as portability – this can be done in a will.
Public Assistance Benefits. A revocable living trust does not help you qualify for Medicaid or other public assistance. The assets in a living trust are included in those taken into account for Medicaid eligibility. Be aware of look back periods and become knowledgeable far in advance of this consideration.
Creditors. Assets in a living trust are subject to the claims of creditors during a person’s life. After death, the assets in a living trust are subject to the creditors of the estate.
Attorneys’ Fees. Some people believe that attorneys charge a percentage of the total value of your estate for probate work. Not so. Most attorneys charge an hourly fee for probate work and sometimes a flat fee.
Length of Time for Probate. In Texas, most valid written wills take approximately 3-6 months to probate. It is rare that administering a living trust is completed any more quickly. In other states with different probate systems, the length of probate can be much different. If a Texan owns real estate or property in other states, a different analysis must be done.
Cost Benefit Analysis. In Texas, the cost of creating, funding, and administering a living trust outweighs the benefit for most people. In states with dependent administration, the cost benefit analysis is much different as the probate process usually takes much longer and costs much more. Another determining factor should be whether a person owns real estate outside of Texas as the probate process for those properties must be planned for and considered.
If you’re unsure which option is correct, consulting an experienced estate planning attorney is crucial. At Gottfried Alexander Law Firm, we specialize in helping Austin residents create customized estate plans that protect their assets and ensure their wishes are honored. Contact us today to learn how we can help you with your estate planning needs and provide peace of mind for the future.
