The older we get (Boomers and GenXers, I’m looking at us), the more we hear about trusts. We get a steady stream of invitations to steak dinners, free seminars, and “informative” articles about estate planning.
If we eat the steaks and read the articles, this is what we hear: Everyone needs his or her own trust. If we don’t have a trust, we are told, we relegate our grieving heirs to a hellscape called “probate,” where they will pay astronomical legal fees and estate taxes that could have been avoided — if only we’d had a trust.
Very seldom is much of that true. The trust pushers fail to mention how much trusts cost and the serious disadvantages trusts pose for many people.
If you have questions about whether a trust is right for you and your family, the attorneys in our will, trusts, estates, and probate practice can help. Feel free to contact us for more information.
What Is a Trust?
The kind of trust used for general estate planning purposes, known as a “revocable trust” or a “living trust,” is simply a written contract. The contract is between you and a trustee. The trustee agrees to become the owner of any assets you legally transfer to the trust and to distribute those assets, during your lifetime and upon your death, to the people you name as “beneficiaries” in the contract. Typically, you’ll name yourself as the beneficiary during your lifetime and as trustee for as long as you are able to manage the job. You will also name successor trustees to finish carrying out the contract when you die or become incapacitated.
How Is a Will Different? What Is This Awful ‘Probate’ I Must Avoid at All Costs?
A will is a document that says who should inherit your assets when you die (again, your “beneficiaries”). You keep your assets instead of transferring them to a trust. The will names an executor to handle the process of gathering your assets, paying your debts, and distributing your assets to the beneficiaries.
“Probate” is the process of having a local court declare your will valid and give the executor the legal power to collect, manage, and distribute your assets. Probate is notoriously difficult and expensive in some states. Texas is not one of them. If the will was done properly and no one contests its validity, the probate process involves just one brief court appearance and can be completed within six months. Your executor may have to advance some legal costs but can be reimbursed out of your assets pretty quickly.
Would a Revocable/Living Trust Lower My Taxes?
Not a bit — at least not in Texas, where we pay no personal income taxes. The income of a revocable trust is reported on your personal tax return and taxed at your personal rate. As for estate taxes, those are separate from income taxes. They are generally determined by the total value of the assets you give to beneficiaries, both during your lifetime and at death, and who your beneficiaries are. Whether your assets pass to beneficiaries by will or by a revocable trust that has the same terms, your estate taxes will be the same.
Very few Americans need to worry about estate taxes anyway. Every American who dies in 2025 is entitled to give away an unlimited amount to a spouse, and $13.99 million to other beneficiaries, before the estate will be subject to estate tax. That maximum amount is subject to the whims of Congress in 2026 and beyond, but even if Congress does not extend the 2017 Trump tax cuts, the limit will be no less than $7 million for the next several years.
Are You Sure I Don’t Need a Trust?
Don’t get us wrong: Trusts really are the best option for some people. Examples include people who own real estate or mineral interests in states other than Texas; who have special concerns about asset management or potential conflict among family members; or who are upset at the prospect of their will becoming public records of the local probate court after their deaths.
On the other hand, trusts have some real drawbacks.
- The formation and setup of a trust costs much more than making a will. First, a trust has to be written that includes all of your wishes for your assets and extensive administrative provisions for the trustee to follow. Second, you have to give the trust legal title to your assets. Remember, a trust only works for the assets it owns. Your attorney must draw up deeds to your real estate and help you transfer all of your other assets to the trust.
- You must learn how to be a trustee and do business, for the rest of your life, in your capacity as trustee rather than just as yourself. You must set up a bank account in the name of the trust and make sure you acquire any new assets in the name of your trust, not in your own name. This is a serious adjustment for most people and takes discipline. Even sophisticated businesspeople often find it challenging to administer revocable/living trusts consistently for a lifetime.
- Even if you choose to form a revocable/living trust, you still need to make a will, i.e., a “pourover” will. Think of a pourover will as a Plan B in case you still own assets in your individual name at the time of your death. A pourover will fixes that problem by saying any such assets are given (“poured over”) to your trust. Still, pourover wills must — you guessed it — go through probate to be effective. The frustrating truth is that few people who create revocable trusts manage them so perfectly that their beneficiaries avoid probate entirely.
The Bottom Line
Trusts are great for some situations, but they are always expensive and complicated. They offer no tax advantages. Wills are a great option for most residents of Texas, where probate is relatively simple and inexpensive.
As you may have guessed if you have read this far, wills tend to be less profitable for attorneys than revocable/living trusts. We at Brousseau Naftis Erick & Massingill recommend them anyway, when they make the most sense for our clients. Talk to us about whether a will or a trust is the best option for you.
