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Roberts & Roberts, LLP

2501 E. Elms Rd., Ste. A, Killeen, TX 76542-3019 • (254) 526-7541 (phone) • (254) 526-5656 (fax) • www.robertslegalfirm.com

Living Trusts

What is a Living Trust?

A "Living Trust" is a special legal arrangement that you put into effect during your life (as opposed to a "testamentary trust," which becomes effective upon your death) for the management of your assets. For the trust to work, you must transfer all your assets out of your own name and into the name of a trustee, who will manage your assets for you during your lifetime, and then deliver those assets to whomever you choose upon your death. You are permitted to act as your own trustee during your lifetime if you wish to do so.

Is a Living Trust similar to a Living Will?

No. A Living Trust is an agreement that specifies how your assets and financial affairs are to be managed. By contrast a "Living Will" (technically called a "Directive to Physicians") is not really a Will at all because it has nothing to do with disposing of your assets. Rather, a Living Will specifies whether to withhold or withdraw life support when your physician determines that your death is imminent and unavoidable.

When is a Living Trust appropriate?

A Living Trust can have advantages over a Will and Power of Attorney. A Texas estate planning attorney may recommend a Living Trust for:

  • Persons anticipating a serious long-term disability, such as Alzheimer's disease. By placing all your assets into the trust and naming someone else to act as your trustee, you can centralize and streamline the management of your affairs. In addition, you avoid the slight risk that a third party might elect not to honor your power of attorney.

  • Persons having a taxable estate. As of the time of this writing, you can pass up to $5,490,000 in assets on your death without having to worry about federal estate taxes. A married couple can transfer twice as much wealth. If you're one of the fortunate few who has an estate larger than this amount, you can reduce the size of your taxable estate by transferring assets into a trust. However, the transfer must be irrevocable, meaning that you must surrender control of the asset.

  • Persons with property in other states. Most estates in Texas are probated using a streamlined system called an "independent administration." If you own property in another state that has not adopted such a progressive probate system, however, you may benefit from establishing a living trust to avoid probate concerns in that state.

  • Persons with special privacy concerns. With certain kinds of probates it is necessary to file an "inventory" of the estate with the court, and the inventory becomes a matter of public record. The asset descriptions tend to be fairly generic, such as "Savings account at MegaBank" or "2016 Ford Ranger," but some people nevertheless do not want any information about their financial affairs to become public, even after they have passed away.

  • Persons with disagreeable family members. True will contests are infrequent, and relatively few of those are successful. However, if you know that a particular family member is likely to challenge your estate plan, there may be a benefit to implementing that plan during your lifetime. By doing so, you can personally supervise the initial transfer of assets, and participate in defending any attack on the plan.

What are the disadvantages of a Living Trust?

The primary problem with Living Trusts is that, for most people, a Will and Power of Attorney will accomplish the client's estate planning objectives with less expense and hassle. Consider the following:

  • Loss of control. The only way for the Living Trust to avoid probate is for you to put all your assets into the trust. This means that you must change the title on all your vehicles, boats, bank accounts, CD's, real estate, and other assets. Also, you must remember as the years go by to purchase any new items in the name of the trust, or immediately transfer them into the trust. You may still exercise control over the assets if you wish, but if you do so you likely lose any tax benefits associated with putting your property in trust, and in any event your assets are no longer in your name.

  • Even if you have a Living Trust, a probate may be necessary. The fact is that many people never bother to make the initial transfers of their assets into the trust, much less go to the time and trouble to add their new purchases to the trust as they acquire them. For this reason, Living Trusts are usually done with a special kind of Will called a "Pour-Over Will." On your death, a Pour-Over Will transfers any remaining assets into the trust so your trustee can deliver them to the rightful beneficiaries, but the Pour-Over Will is not effective until it is probated.

  • In most cases a Will and Power of Attorney will serve the same purpose as a Living Trust. The Power of Attorney will allow someone you designate to manage your financial affairs for you if you are unable to do so, and the Will specifies who receives your assets after your death. Plus, as explained in more detail below, a Will and Power of Attorney usually cost less and require less maintenance than a Living Trust.

  • Living Trusts tend to be more costly and time-consuming. Most of the Living Trust packages we see cost between $1,500 - $2,500. In addition to the initial setup expense, the client must transfer all her assets into the trust, which will require preparing and recording deeds to all her real estate, and a bill of sale to all her personal property. These documents and fees typically add another $250 or so to the cost, or more if the estate is large. A fair amount of time will also be required to ensure that all accounts, insurance, leases, vehicle titles, and the like are changed into the name of the trust, and to review the status of your assets as the years go by to make sure that new assets you acquire are properly titled in the name of the trust. Finally, as discussed above, a probate may still be required for the Pour-Over Will to transfer any other assets into the trust on your death. Figure at least $1,000 for that expense. Total it all up, and a Living Trust for a routine estate may easily cost more than $2500, plus whatever your time is worth in maintaining the trust during your lifetime. By comparison, a basic Will and Power of Attorney may cost about $350 up front, plus another $1,500 or so for a routine probate after your death.

  • For most estates in Texas, probate is sufficiently simple and inexpensive that it is just not worth trying to avoid. Please see our article on Texas probate for more on this topic.

A word about Living Trusts

Unfortunately we find over and over again that Living Trusts are not adequately explained, and that they are frequently sold to people who are not likely to benefit from them. Often the presentation is made as a "package" deal that is ridiculously over-priced, and usually does not include the additional documents necessary to transfer assets into the trust. Our elderly clients seem to be particularly at risk from high-pressure salesmen who visit them in their homes, or who conduct traveling "seminars" on probate avoidance. The problem of Living Trust scams has become so serious that the Texas Attorney General [PDF] and the State Bar of Texas [PDF] have started public education campaigns to help people protect themselves. If you have been the victim of a Living Trust scam, please consider filing a complaint [PDF].

Concluding Remarks

Living Trusts have their place and can be useful in some situations. More often than not, however, the same objectives can be accomplished with less time and expense using other estate planning tools. If you're looking for an estate planning lawyer in Killeen, Texas, call the law firm of Roberts & Roberts to discuss whether a Living Trust is the right option for you.

Roberts & Roberts, LLP