Texas Living Trusts – Creating Legal Texas Living Trusts


Texas living trusts, like other living trusts, are particular land trusts designed to keep property while the trustor (owner) is alive. The purpose is to avoid probate (a legal process that allows someone other than you to distribute your assets after your death), and to also reduce the amount of inheritance and estate taxes your inheritors may need to pay. Texas living trusts are a bit different than other types of land trusts in that they are a guaranteed and tested way of ensuring that probate and taxable events are avoided. Absolute anonymity is another benefit of living trusts; by protecting your identity, your assets are further safeguarded. If you are considering placing your property in trust, there is one method of doing so that guarantees positive results in Texas – living trusts.

Trustees, Texas and Living Trusts

The individual who places property into trust is referred to as the Grantor or Trustor, while the person elected to administer the trust is called the Trustee. Most of the time in Texas, living trusts are created and managed by the same person. Sometimes however, a second individual is given administration privileges (a spouse, attorney, or other person), in which case the individuals are referred to as Co-Trustees. Co-Trustees are often appointed when the primary trustor does not have the time to manage the trust. Living trusts are a life long responsibility, and though they don't require any excessively technical or complicated maintenance, detailed work that many people are not used to performing is., and consequently such administration is designated to a co-trustee. Of course, co-trustees are also a viable way to ensure that the trust remains in good hands should one of them withdraw their services or become somehow incapacitated.

Once the trustors and trustees are established, the Beneficiaries come into the picture. The main purpose in Texas of living trusts is to manage, protect, maintain, and distribute properties held in the trust. Those who will inherit those properties and assets upon the trustor's death are the Beneficiaries. There may be as many beneficiaries as the trustor wants, but in Texas, living trusts usually provide fro multiple beneficiaries. These will consist of a primary Benefactor, and a number of secondary beneficiaries. Usually the trustor (and spouse if applicable) are the primary beneficiaries, their children the secondary. These arrangements can be altered at any time by the trustor however, the final terms of any Texas living trusts only becoming fixed upon the trustor's death.

The benefit then in Texas of living trusts: At the time of the trustor's death there is no deed or probate required, saving a substantial amount of time, energy, court costs, taxes, and attorney fees.

Structure of a Texas Living Trust

In Texas, living trusts are structured or set up in two major ways. The first is in the form of a basic living trust which is specifically designed to avoid probate - suitable for both couples and single persons. The second type is referred to as an "AB Trust," primarily for married people in order that they will avoid death taxes and probate. A significant difference between the two is that; with an AB Trust, when one of the married couple dies, the trust becomes two individual trusts. This has the effect of the trust maintaining ownership of the property, but the remaining spouse having the entitlement to enjoyable use of the property for life. In this way taxes are avoided, however the surviving spouse does have their rights regarding the property diminished, i.e. they are not technically considered the owners, and therefore cannot transfer ownership or sell the property. An important factor to consider in Texas is; living trusts lost a bit of their merit when estate tax became obsolete in 2010, however it may return in 2011, unless the current law is extended by Congress.

Types of Property Held in Texas by Living Trusts

In Texas, living trusts may be used to hold any property, whether it is real or personal, tangible or intangible. Other properties can be added to the trust at anytime in the future, as long as the trust is active. If the ownership of the property is transferred while it is held in trust, it will be recorded in the county property records. In Texas, living trusts are considered confidential agreements, and no public record is held or access granted to them. The contents of a living trust ate absolutely anonymous and confidential.

A unique feature that may be added to a living trust is a "spendthrift clause." This is designed to prevent any of the beneficiaries from signing their holdings in the trust over to creditors. Concerning laws in Texas, living trusts formulated there should also contain a provision which makes it clear that the creation of the living trust does not invalidate statutory or constitutional protection of the homestead available to trustors in Texas. Neither does the transfer of property ownership reduce the assets of any trustor as applicable to Medicaid. It is vital to ensure the agreement contains language that makes it absolutely clear that:

  • As pursuant to Article XVI, Section 50 of the Texas Constitution - Homestead protections are preserved
  • Any current Homestead Tax Exemption held by the Trustor is protected

Federal Income Taxes and Texas Living Trusts

The way that you file your income tax return should not be affected by the way that you form your trust. As Texas living trusts are amendable and revocable instruments, there is no need to secure a tax ID number for them, or file any tax returns separately for the trust. It is wise to consult a tax advisor in your state for exact details.

Due-on-Sale Clauses within Texas Living Trusts

A Due-on-Sale clause allows a lender to speed up the settlement of a note when a property or any interest in it is sold or transferred. A prime example of the wording in a Due-on-Sale clause is that contained in the Fannie Mae/ Freddie Mac Uniform Deed of Trust which states:

If all or any part of the Property or any Interest in the Property is sold or transferred (or if Borrower is not a natural person and a beneficial interest in Borrower is sold or transferred) without Lender=s prior written consent, Lender may require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if such exercise is prohibited by Applicable Law.

Using an Attorney to Create and Administer Texas Living Trusts

There are standard forms for creating Texas living trusts; forms that you simply fill in with basic information about you, your beneficiaries and the property involved. There are many of these available online, however it is recommended that you consult a professional who is familiar with and understands the particular laws regarding homestead protection and its relation to Texas living trusts. The generic forms found on the internet may leave your trust susceptible to legal variances and oversights.

A competent attorney will be able to craft your trust in a manner which satisfies both your needs and those of the laws of the State of Texas. Though it may cost you up to a thousand dollars or more, it is well worth the anguish it will save you if your trust is not legally compliant. Consulting an attorney when making any changes or amendments is also recommended, as laws regarding trusts may change over time.

Title Company and its Role Regarding Texas Living Trusts

If a property is sold out of trust, the trust agreement will have to be presented to the title company. This is another reason for having an attorney draft and facilitate your Texas living trust, as if the agreement is not in order, the title company is not bound to accept it. If this happens, signatures from everyone having either an actual or potential interest in the property must be acquired, or in the worst case scenario – the inheritance will be determined by probate - defeating the entire purpose of the trust in the first place.

You would be surprised at how many companies are unaware of basic laws and practices concerning Texas living trusts. This is an important reason again to have an attorney oversee its formation. Your attorney may have to educate the title company as to the nature of your trust, a service unavailable to you if you purchase any Texas living trusts online.

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