Two commonly discussed Trusts in Texas include the Living Trust also known as Revocable Living Trust and the Irrevocable Trust. Before discussing the differences between a Living Trust and Irrevocable Trust, let’s first discuss what a Trust is.
What is a trust
A trustee uses a legal arrangement to hold an owner’s assets, eventually allocating them to beneficiaries. The trustee has the obligation to manage the assets responsibly and distribute them as the owner wished. The trustee must follow the guidelines established when forming the trust. Someone structures trusts during their lifetime to ensure they use and distribute assets as desired.
What is a living trust in Texas?
In Texas, a living trust allows you to use your assets during your lifetime. After your death, the trustee transfers a living trust to the beneficiaries. Another name for a living trust is a revocable trust.
Living trust benefits
Some benefits of a living trust are that it helps avoid delays at the bank. A living trust helps ensure accounts are available to the designated people with less interruptions. This trust also helps avoid probate and prevents delays with the court system. A probate is when the courts legally recognize a person’s death and allows control of the estate. Probates transfers the assets out of a deceased person’s name and into the name of a living individual. Lastly, a living trust protects the privacy of the individual. Probate courts are public record so anyone is able to look up and access the information. Many counties in Texas provide free online access to county clerk’s records, storing probate information. You can modify a living trust with or without an attorney, and it does not require court handling. You can change the living trust in one of three ways; using an attorney, an online service, or by using a living trust form from the internet. The owner of a trust can modify the terms at any time; they can appoint new beneficiaries and remove others, and they can adjust how the trust cares for assets.
Living trust disadvantages
One significant drawback of a living trust is that the owner retains so much control over it, leaving the assets vulnerable to creditors. If someone sues the owner, the trust’s assets can be liquidated to satisfy the judgment, allowing the sale of assets to generate money during legal disputes. Another disadvantage of the trust is that upon the owner’s death, both state and federal estate taxes can be imposed on the trust’s assets. Drafting a living trust can be costly, and it can also become expensive if modified frequently.
Living trust example
For example, if an individual is creating a living trust for their assets they are able to name themselves as the trustee or the beneficiary of the trust. Later in life when the individual gets older they are able to add a new beneficiary and trustee. The trustee can alter the trust many times during their lifetime, for example, if a new grandchild is born. When the individual passes away their trust will be kept out of probate and handled discreetly.
What is an irrevocable trust in Texas?
In Texas, an irrevocable trust means that the trust’s assets escape estate taxes upon the grantor’s passing. A grantor is any person or entity that creates a trust. Some common names of a granter can be trustmaker or trustor. An irrevocable trust minimizes the estate taxes, access government benefits, and protects assets. On the other hand, one can change an irrevocable trust in court only when presenting a valid reason. The information stays immutable once someone signs the agreement unless there is a compelling reason to alter the trust. The beneficiary petitions the court for modifications to the terms of an irrevocable trust. These changes require the beneficiary to fully consent and cannot be initiated on the creator’s impulse.
One profession where an irrevocable trust could be useful is a medical profession.Medical professionals face a high risk of lawsuits, and they can use an irrevocable trust to safeguard their assets. When the trust acquires these assets, it will shield them from creditors and legal judgments. An irrevocable trust can be more difficult than a living will to set up simply because this type of trust is harder to modify.
Irrevocable trust example
For example, if an individual creates an irrevocable trust the individual can not name themselves as the trustee. Naming a different individual and the creator feeling comfortable relinquishing control and ownership of their assets, such as real estate, is necessary. Designate beneficiaries, and once you place assets in the trust, they stay unchanged, in contrast to a living trust that permits modifications. Because alterations are not possible, this type of trust may be considered risk.
Main difference between a living trust and an irrevocable trust
The primary distinction between a living trust and an irrevocable trust is that individuals can change one (unless they present a compelling case to the courts), while the other cannot be altered. Another significant difference is the preservation of the grantor’s privacy upon their death. With a living trust, the grantor’s information remains within the family or those involved in the trust. If an irrevocable trust has to go through a court proceeding those records become public and any is able to look up the information. The last key difference between a living trust and an irrevocable trust is the taxes and protection. An irrevocable trust cannot incur taxation upon the grantor’s passing, and the assets within the trust are shielded from lawsuits. However, with a living trust, when the grantor passes away, the assets can be subject to taxation at both the state and federal levels, and if the grantor is sued, the trust’s assets can be liquid.