§ 1.2 Estate Planning

Revocable Living Trusts in Texas

A revocable living trust is a container you build during your lifetime, fill with your own property, manage yourself, and can dismantle at any time. It is genuinely useful for some Texas households and oversold to most of them.

The structure is simple once the vocabulary stops getting in the way. You are the grantor: you create the trust and transfer property into it. You are normally also the initial trustee: you manage that property exactly as you did before, with the same bank, the same broker and the same tax return. And you are the initial beneficiary: the trust exists for you while you are alive. The document names a successor trustee to take over on your incapacity or death, and it names the people who inherit afterwards.

What it actually achieves

Probate avoidance. Property titled in the name of the trust when you die does not pass through probate, because the trust — not you — owns it, and the trust does not die. The successor trustee simply continues.

Incapacity management. If you become unable to manage your affairs, the successor trustee steps in without a court proceeding and without needing a bank to accept a power of attorney. For families who have watched a bank refuse a valid power, this is often the more compelling reason of the two.

Privacy. A probated will is a public record. Anyone may read it, including who received what. A trust instrument generally is not filed and stays private.

Out-of-state property. Real property in another state ordinarily requires an ancillary probate there. Titling it in a trust avoids that entirely, and for a Texan with a cabin in Colorado or rental property in Oklahoma this is frequently the single strongest argument for a trust.

What it does not achieve

A revocable trust saves no income tax and no estate tax. Because you kept the power to revoke it, the assets remain yours for every tax purpose; the trust uses your Social Security number and reports on your return.

It provides no asset protection during your lifetime. Property you can take back is property your creditors can reach. Genuine creditor protection requires giving up control — see irrevocable trusts — and Texas already provides substantial statutory protection to homesteads and retirement accounts without any trust at all, as the asset protection page explains.

It does not qualify you for Medicaid. A revocable trust's assets are fully countable in a long-term care eligibility determination, exactly as though you held them outright. This is a persistent and expensive misunderstanding; the eligibility page sets out how resources are actually counted.

And it does not replace a will. Every living trust plan includes a pour-over will, which catches anything you failed to transfer and directs it into the trust — and which still has to be probated to do so.

The Texas discount

Most national writing about living trusts is calibrated to states with slow, supervised, percentage-fee probate. Texas is not such a state. A will that appoints an independent executor produces an administration with, in the ordinary case, a single court hearing and an inventory, after which the executor acts without further supervision. Texas also allows muniment of title, a streamlined procedure for estates with no unpaid debts other than those secured by real property, in which the court admits the will as evidence of title and appoints no personal representative at all.

Against that background, the probate-avoidance argument for a Texas trust is materially weaker than the marketing implies. It remains strong where there is out-of-state real property, a genuine privacy concern, a real likelihood of a will contest, a blended family with competing claims, or an expectation of long incapacity where a corporate or professional successor trustee is wanted.

Funding is where plans fail

An unfunded trust does nothing. This is the most common defect in trust-based plans, and it is entirely avoidable: the trust is signed, the binder goes on a shelf, and the house, the accounts and the brokerage never actually change title. On death the family discovers that everything must be probated anyway, having paid for a trust as well.

Funding means, at a minimum: deeding real property into the trust; retitling non-retirement bank and brokerage accounts; assigning business interests where the governing agreements permit it; and reviewing every beneficiary designation. Retirement accounts are the important exception — they are generally not retitled into a revocable trust, because doing so can trigger immediate taxation. Whether the trust should be named as a beneficiary of a retirement account is a separate question, addressed on the IRA inheritance trust page.

Texas also offers two deed-based tools that achieve some of the same result far more cheaply. A transfer on death deed, authorised by Chapter 114 of the Estates Code, passes real property at death outside probate while remaining fully revocable during life. A lady bird deed, or enhanced life estate deed, is a Texas practice with similar effect that has historically been treated favourably in Medicaid planning. Both have real limitations and both interact with estate recovery; the estate recovery page covers that interaction.

How to decide

The question is not whether a trust is sophisticated. It is whether you have a specific problem a trust solves: property in another state, a privacy or contest concern, a blended family, a disabled beneficiary who needs a special needs trust, or a strong preference for a professional successor trustee. If none of those apply, a well-drafted will with an independent executor, a durable power of attorney and the medical documents described on the core documents page will very often do the whole job for a fraction of the cost and with far less that can go wrong.