During the estate planning process, it is important to consider all options and determine which documents are necessary to meet the needs of the estate. A will is recommended for anyone who has a spouse, children, or property. For some individuals, a trust may also be helpful in ensuring that their assets are handled and distributed according to their wishes. If you have questions about wills vs. trusts, the dedicated Texas estate planning team at Jason English Law can help you understand your options and craft an estate plan that meets your needs. Contact us today at (512) 454-7548 to learn more.
Who Needs a Will and Why?
Just about everyone needs a Last Will and Testament. Creating a will allows us to ensure that our assets are distributed according to our wishes and that our children are taken care of if we pass away while they are still minors. The process is affordable for most budgets, and wills are useful for people with varying degrees of estate complexity, from relatively simple estates with basic assets to more complicated estates with a wide range of assets.
Creating a will is typically the first step in estate planning. This document should include specific instructions for the distribution of assets, including who will receive which assets. More complicated estates may also require a trust, but even those who already have a trust should also have a will. Wills are limited in what they cover but typically include certain components that cannot be included in a trust, such as who will be the guardian of your children if you pass away when they are still minors.
What Is a Trust?
A trust is a financial document that dictates how a person's assets should be distributed. While a will only goes into effect once the owner passes away, the terms of a trust can go into effect during the estate owner's lifetime, after death, or when the owner becomes incapacitated. One of the main benefits of a trust is that it does not need to go through the probate process, unlike a will. Trusts can be used to transfer assets, minimize estate taxes, keep assets untouched for minors until they become adults, or set up charitable donations.
Trusts are fiduciary arrangements in which the owner of an estate (trustor) grants another party (trustee) the right to manage property or assets for the beneficiaries specified in the trust. Trusts are legal entities with their own rights, much like an individual or a corporation. Along with minimizing estate taxes, trusts can be used to protect assets from creditors and establish how assets will be inherited by beneficiaries.
What Are the Different Types of Trusts?
There are two main categories of trusts: revocable or irrevocable. The right one for a particular estate owner will depend on the nature of their assets and how the estate owner wants these assets to be managed and distributed. If you have questions about which trust is right for you or other matters related to wills vs. trusts, you can learn more by contacting Jason English Law.
According to the Consumer Financial Protection Bureau (CFPB), revocable trusts may be changed or terminated by the estate owner during their lifetime. The income held within a revocable trust may be distributed to the grantor during the life of the trust, but property held within the trust is only transferred to the beneficiaries of the trust after the estate owner passes away. The trust becomes irrevocable (unchangeable) after the death of the estate owner.
Revocable trusts have several benefits, such as flexibility, avoiding probate, protection if the trustor becomes incapacitated, and privacy for the trustor's assets. Cons of revocable trusts include no immediate tax benefits, no protection from creditors, and high costs for establishing and administering the trust.
Irrevocable trusts are primarily used to protect assets and reduce federal estate taxes. They are set up in a way that allows the owner of an estate to dictate how specific assets will be transferred to beneficiaries. According to the Internal Revenue Service (IRS), an irrevocable trust may not be changed or canceled by the grantor. The grantor no longer owns the assets added to the trust, as the trust itself becomes the owner of these assets. The trustee takes over management and oversight of the irrevocable trust.
The assets held within an irrevocable trust are exempt from the probate process and are not included in the grantor's taxable estate. This reduces the grantor's tax liability. In addition, these assets are kept private, unlike assets that go through probate.
Who Needs a Trust in Texas?
The financial circumstances of an estate can vary widely. Some Texas residents may be fine with a comprehensive will, while others may benefit from either a revocable or irrevocable trust. Which option best suits any particular situation is ultimately up to the individual's personal financial goals and the intentions they have for the estate and its beneficiaries, both immediately and in the more distant future.
Because the decision of whether to form a trust, and if so, which kind of trust to form, relies on multiple complex factors, you may wish to seek legal guidance from an experienced Texas estate planning lawyer. However, here are some of the most common reasons to consider establishing a trust in Texas:
- Controlling how assets are managed for the benefit of beneficiaries
- Preserving assets
- Minimizing estate taxes and probate costs of transferring assets via a will
- Establishing tax-advantaged charitable gifts
- Providing a plan for managing finances if you become incapacitated
- Ensuring that a loved one with a disability is taken care of after your death or incapacitation
- Ensuring that children have sufficient financial resources in the event of your death or incapacitation
- Establishing a succession plan for a family business
Contact Our Texas Estate Planning Lawyers
Creating and maintaining a well-structured estate plan is critical for ensuring that your assets are managed and distributed properly and that your loved ones can inherit these assets after your death. However, there are many different estate planning strategies, and the right strategy varies depending on your unique needs. At Jason English Law, our Texas estate planning lawyers help our clients understand all of their options and which ones best suit them. To learn more about wills vs. trusts or other estate planning questions, contact Jason English Law today at (512) 454-7548.