Living Trusts in Texas

This article describes a basic living trust (also called an "intervivos trust"), which is a specific kind of trust designed to hold property (primarily real estate) during the life of the trustor in order to avoid probate and reduce estate/inheritance taxes at the time of the trustor's death. A transfer into a trust also has anonymity benefits that contribute to asset protection, since recorded title to property can be held in the name of the trust.

A living trust of this type should be distinguished from other kinds of land trusts - for example, a pure anonymity trust that has no probate objectives, or an investor trust that contemplates a transfer of ownership by means of an assignment of beneficial interest. These other trusts are discussed at length in a companion article on this site entitled Land Trusts in Texas.

The living trust is a tried and true means of avoiding probate court and, if the trustor is married, skipping a potential taxable event upon the death of his or her spouse. Tax implications change continually, so consult with your tax advisor to determine the actual effects in your case. Not that this office does not give tax advice.

The person creating the trust is called the "trustor" or "grantor." This is the person who conveys property into the trust. A trustee is appointed who directs trust affairs on behalf of the primary beneficiaries (usually the trustor and spouse) and, upon the death of the last primary beneficiary, on behalf of one or more remainder beneficiaries (usually the trustor's children). Since title remains in the trust as these various persons die, the surviving remainder beneficiaries "inherit" the trust property upon the death of the last surviving parent - but without probate or other involvement by courts or lawyers.

The document that creates the trust is called a trust agreement or declaration of trust. It should state the trust's purpose along the following lines: "to hold, preserve, maintain, and distribute the Trust Property for the benefit of the Beneficiaries, including but not limited to payment of expenses for their respective health, education, maintenance, and support as the Trustee, acting in his or her sole discretion, deems reasonable, prudent, and necessary."

Statutory authority for creating trusts is contained in the Texas Trust Code, which is contained in Chapter 101of the Property Code. The trust agreement may expand upon or limit these statutory provisions.

The trustee is charged with management of the trust and has the authority to act on its behalf. Texas law confers wide powers upon the trustee - including selling and purchasing trust property. Usually, the trustee is same person as the trustor. It is possible to name co-trustees (eg., husband and wife) and this is recommended to provide for a smooth succession in the event one spouse dies. Even if co-trustees are named, a successor trustee should also be designated in the event the last trustee becomes unable or unwilling to serve.

The trustor should reserve the right to revoke or amend the trust. The terms of the trust are therefore not finally fixed until the trustor dies, at which time the trust becomes irrevocable and the remainder beneficiaries automatically succeed to the trustor's interest. No deed or probate is required at that time. This results in an enormous saving of time, effort, attorney's fees, and court costs.

Trust property may include any type of property, whether personal or real, tangible or intangible. Additional property may be transferred into the trust at a later date, after the trust is established. The trust need not assume existing liabilities on trust property in order for the transfer to be effective. Property can be taken "subject to" existing indebtedness (ie., without the trustee taking any liability for the debt), or such indebtedness can be "wrapped" (See Wraparound Transactions in Texas).