Making and funding a Living Trust in Texas

A “living” trust, also known as a “inter vivos” trust, is simply a trust that is created while the grantor is still alive. The beneficiaries you designate in your revocable living trust receive the trust’s assets upon your death. You could also use a will, but wills must go through probate, which is a court-supervised process that oversees the transfer of your property to your beneficiaries.

Many individuals include a revocable living trust in their estate plan. This type of trust is modifiable and revocable at any time. Typically, you will be the “trustee” of your own trust. This means that you retain control of the trust and its assets while you are alive. You will also name a “successor trustee” in your trust document to take over and manage the trust after your death; this person will distribute the trust’s assets to your beneficiaries. (If you establish a joint revocable living trust, as is common for married couples, your successor trustee would assume control after the deaths of both spouses.)

Unlike revocable trusts, irrevocable trusts cannot be revoked or altered once they have been signed. It is necessary to relinquish ownership and control of the trust property in order to establish an irrevocable trust, which can be a useful tool for achieving certain objectives, such as tax savings.

Must I Establish a Living Trust in Texas?

When you establish a living trust to transfer your property to your heirs after your death, you can potentially save them a great deal of money, time, and trouble. Property left through a will (as opposed to a living trust) may be held up in probate court for months or even years, incurring court costs and attorneys’ fees. In contrast, property left through a trust can be distributed to your beneficiaries almost immediately and frequently without the assistance of an attorney.

Unfortunately, Texas is not one of the states that have adopted the model law known as the Uniform Probate Code, which streamlines the administration of estates. However, for “small” estates, Texas offers simplified probate procedures:

If the value of your estate (excluding homestead property and any exempt property) is less than $75,000, your heirs may apply to skip the probate process entirely and use a “small estate affidavit” to claim the property.
If the value of your estate does not exceed the value of homestead property, exempt property, the family allowance, and the amount owed to certain creditors, your estate may qualify for “summary proceedings for small estates.”
Your estate can also use a shortcut known as “independent administration,” which is essentially probate but without court supervision, if the following conditions are met:

your will stipulates independent administration, or

Your heirs all consent to independent administration.

If your estate qualifies for one of these probate shortcuts, the probate process will likely be quick, simple, and relatively inexpensive; therefore, you may not need to create a living trust to avoid probate.

Additionally, in Texas, you can transfer real estate using a transfer-on-death deed; this allows you to avoid probate for your home without the use of a living trust. However, if you have other significant assets that you wish to keep out of probate, a living trust may be the best option.

How Do I Make a Living Trust in Texas?

To make a living trust in Texas, you:

Choose between establishing an individual or shared trust.
Determine which assets will be included in the trust.
Select a successor trustee
Determine the trust’s beneficiaries or those who will receive the trust’s assets.
Create the trust document. You can get help from an attorney on wmtxlaw.com
Sign the document in the presence of a public notary.
Change the title of any trust property with a title document, such as your home or vehicle, to reflect that you are now the trustee of the trust.

FUNDING A TRUST IN TEXAS:

Creating a Trust is only the initial step in the process of Estate Planning. The next step after signing your Trust document is funding it. In order to fund a trust, assets must be transferred to it.

In this guide, we will provide an overview of the procedure. We’ll discuss:

How to Title Assets in Living Trusts
Taxpayer Identification Number (TIN) in Living Trusts
How to Fund a Trust: Personal Property
How to Fund a Trust: Bank/Financial Accounts
How to Fund a Trust: Real Estate
How to Fund a Trust: Business Interests
How to Fund a Trust: Life Insurance
How to Fund a Trust: Retirement Account Plans
After Funding a Trust: Next Steps

Tips for Funding a Trust

This guide is intended to serve as a helpful introduction to the fundamentals of funding a Living Trust. It is not intended to cover every conceivable circumstance, and doing so would be impossible.

Your specific assets may have additional requirements not covered in this guide. For instance, some partnerships require that you notify other partners prior to making a transfer. Such a requirement may only apply to your partnership (as opposed to all partnerships), so it may not be included in this guide.

Some funding-related particulars and nuances may evolve over time. For instance, if your Trustee changes, you will likely need to rename the assets in your Trust.

This guide is intended as a useful resource, but it is not legal advice, and there may be issues that are not addressed. If you have specific questions, you should consult an estate planning attorney.

How to Title Assets in Living Trusts

Simply put, funding a Trust involves transferring ownership of specific types of assets to the Trustee. Typically, this is accomplished by transferring assets to:

Trustee Name, as Trustee of the Trust Name If you have multiple trustees, this could look like:

Trustee One Name and Trustee Two Name, as Trustees of the Trust Name

Taxpayer Identification Number (TIN) in Living Trusts

Your Trust is intended to be a “Grantor Trust,” which for tax purposes is essentially disregarded. For tax purposes, assets held in a Grantor Trust are still regarded as belonging to the Trust creator. This generally indicates that income tax reporting is identical. Everything is reported exactly as it was prior to the creation of the Grantor Trust.

A Grantor Trust uses the social security number of the creator of the Trust as its Taxpayer Identification Number (TIN). Either spouse’s social security number may be used for a Joint Trust, though it is preferable to always use the same number.

How to Fund Titled Personal Property

If the personal property has a title (like cars, trucks, motorcycles, RVs, ATVs, boats, or planes), the living trust will need to get a new title that lists it as the owner. In some states, you can name your trust as a beneficiary on the title of a car. This keeps the car in your name but gives it to the trust automatically when you die.

How to Fund a Trust: Personal Property and Assets without Deeds or Titles

The majority of assets lack formal titles or deeds. This may include apparel, furnishings, jewelry, electronics, etc. Even though there is no formal title, it is essential that these assets be transferred to the Trust. Typically, this is accomplished by signing a general transfer document stating that the property is now owned by the Trustee. Simply file this document with the Trust’s other records.

The transfer document must contain a list of the assets being transferred to the Trust. It is preferable to be specific, but you can use broad categories (such as “furniture,” “clothing,” “jewelry,” etc.) without listing every item in each category. If you have specific assets listed in the Trust (such as an item marked as a gift) or particularly valuable assets, you may want to list them individually rather than relying on a general category.

Once the transfer document has been signed, simply file it with the Trust’s documents..

How to Fund a Trust: Bank Accounts and Other Financial Accounts

The majority of financial accounts and bank accounts can be transferred to your Trust. Check with your bank for information on its policies, as each has its own procedure.

Here are the general steps to funding a Trust with bank accounts and other financial accounts:

Contact your bank to see what’s required to transfer your accounts to the Trust. Your bank will provide you with all the required forms.
Complete, sign and return forms to your bank. Some banks require you to fill out a “Certificate of Trust” form with information about the Trust. Some will need a full copy of the Trust..
Have the bank change the title to the Trustee of the Trust as described in the section titled “How to Title Assets” above. Most banks are able to transfer account ownership to a Trust while retaining account numbers, but some may require new account numbers..

How to Fund a Trust: Real Estate

Typically, transferring real estate to your Trust requires you to sign a deed transferring your interest in the property to the Trust and then record this deed with the county.

The procedure varies slightly from state to state, and each county can establish its own requirements for deed format, recording procedures, and whether additional documentation must be filed alongside the deed. Your county recorder should be able to provide you with additional information on these requirements, as well as a deed template. Most states recognize a variety of deed types, but “Quit Claim Deeds” and “Trust Transfer Deeds” are the most frequently used to transfer property to a Trust.

Despite minor variations, here are the general steps for funding a Trust with real estate:

Check with your County Recorder for any specific requirements for deeds. The County Recorder should be able to specify any formatting requirements (or provide a template) and explain any additional documentation that may be required with a deed.
Complete the deed by listing the Trustee of the Trust. As described in the “How to Title Assets” section above, as the Grantee, you must follow the aforementioned guidelines (the person who receives the property). A copy of the prior deed, which can be obtained from the County Recorder, may be useful.
Complete any other paperwork required for your county. Frequently, additional documentation is required to identify Trust Beneficiaries. You are the Trust’s Beneficiary while you are alive.
Record the deed and file any other paperwork with the County Recorder. Deeds may be recorded in person at the office of the County Recorder or by mailing the original deed. Your County Recorder can provide additional information.

Special Note on Mortgages & Deeds

Numerous mortgages and deeds of trust contain a “due-on-sale” clause stating that the entire balance is due upon transfer of the property. According to federal and state law, these due-on-sale clauses are not triggered by the transfer of the vast majority of residential real estate to the vast majority of Trusts.

This may also apply if you’re refinancing your mortgage. Many lenders require you to remove the property from the Trust in order to refinance, but allow you to return it to the Trust once the refinancing is complete. It is an unnecessary complication that many lenders require, however.

As there are always exceptions, it is advisable to contact your lender prior to the transfer. Always request written confirmation that the transfer will not violate the Trust’s mortgage or deed.

Special Note on Insurance Policies

The majority of real estate insurance policies (fire, casualty, and liability) automatically cover property transferred to a Trust. Nonetheless, you should check with your insurers to determine if any additional endorsements or updates are required in connection with the transfer..

How to Fund a Trust: Business Interests

There is no one way to transfer a business interest to a Trust because there are numerous types of business interests. The process can vary, and the business records can specify a particular process or required steps. Checking business records for any stipulations is an excellent starting point.

Partnerships and LLCs

If there are no additional requirements in the business’s records, transferring partnership or LLC interests is relatively simple..

Typically, interests in partnerships and LLCs are transferred by signing an Assignment of Interest stating that the interest is being transferred to the Trust. Be sure to provide a copy to all other partners and members of the LLC.
Examine the partnership agreement or operating agreement of the LLC to determine if there are any additional transfer restrictions or requirements..
As described in the section titled “How to Title Assets,” the partnership or LLC must update its records to reflect the Trust as the new owner of the interest.

Corporations

Transfers of corporate stock are typically uncomplicated so long as there are no additional requirements or restrictions.

Examine the corporate records to determine whether there are transfer restrictions or requirements..
Contact the corporation’s Secretary to have the ownership records updated and new stock certificates issued. The Secretary may require you to complete an Assignment of Stock or other forms of documentation.
Have the Secretary update ownership records and issue new stock certificates, as described in “How to Title Assets” above, to reflect the Trust as the new owner of the interest.

Sole Proprietorships

There is no separate legal entity to transfer from a sole proprietorship to a corporation. A sole proprietorship consists of an individual conducting business without a formal entity. As there is no entity, nothing can be transferred to the Trust. However, you may want to verify that you have transferred any business-related assets or equipment into the Trust..

How to Fund a Trust: Life Insurance

The transfer of ownership of life insurance policies to a Trust is typically unnecessary. Instead, emphasis is frequently placed on where the proceeds go (rather than who owns the policy).

Typically, life insurance policies permit beneficiaries to be designated via a “Beneficiary Designation.” You can direct the proceeds to an individual (such as a spouse or child), or you can direct the proceeds to the Trust. Having the proceeds controlled by the terms of the Trust is an advantage of having the proceeds paid to the Trust rather than directly to the Beneficiaries. This may be the best option if the Beneficiaries are young children.

One common approach is to name your spouse as the Primary Beneficiary and the Trust as the Alternate (or Contingent) Beneficiary.

Each life insurance company has its own forms, so you should contact them directly for more information and to request the necessary paperwork to update your Beneficiary Designations.

How to Fund a Trust: Retirement Account Plans

It is typically unnecessary to transfer retirement plan ownership to a Trust. In fact, transferring ownership can have adverse tax implications. Instead, the focus is frequently on the destination of the proceeds.

Rather than transferring ownership of a retirement plan, you can typically name a beneficiary to receive the proceeds upon your passing. As with life insurance, a common consideration is whether you want the proceeds to be paid directly or to a Trust, where you have greater control over when and how they are distributed.

It is common to name your spouse as the primary Beneficiary and the Trust as the contingent Alternate Beneficiary. Your tax advisor should be able to assist you in determining the optimal course of action given your specific tax circumstances.

Each plan administrator has its own Beneficiary Designation forms, so you should contact your plan administrator for more information and to request any updated forms.

Next Steps after Funding a Trust

Once your Trust has been funded, you will still need to adhere to the aforementioned procedure and guidelines for any major asset changes.

If you purchase a new home, you may be able to take the title directly in the name of the Trust, allowing you to bypass several of the steps outlined in this section.
You may be able to open a new bank account directly in the name of the Trust if you open a new account.

Keeping this in mind ensures that your Trust continues to be funded and that its terms continue to apply to your assets.

It is advisable to revisit your plan after any significant life changes, such as births, deaths, or marital status changes. Even if nothing has changed in your life, it is a good idea to revisit your will every few years to determine if any changes are necessary.

Keep in mind that completing the procedure does not mean you are on your own. Contact wmtxlaw.com at any time to review your plan and determine if any changes are necessary. Have any questions? Contact us today; we’ll be happy to assist you.

Making and Funding a Living Trust in Texas