Do I Need a Trust If I Have a Will in Texas?

While planning their estates, many high-net-worth individuals and families in Texas grapple with the question: do I need a trust if I have a will? The short answer is maybe. Whether or not you need a trust and a will depends on the complexity of your financial landscape and your legacy objectives. 

While a will is a cornerstone document that specifies your wishes, a trust can offer enhanced control, privacy, and efficiency in managing and distributing your assets. Because those who ask this question are often seeking to avoid probate, minimize tax burdens, and safeguard their wealth for future generations, most will benefit from having a trust in addition to their will.

In this article, we’ll examine the intricacies of and distinctions between trusts versus wills, and the advantages a trust may offer in planning your estate. We’ll also explore the various types of trusts and how they can be tailored to meet your unique needs.

The difference between a trust vs. a will in Texas

While both wills and trusts are essential parts of estate planning, each serves a different purpose. A will is a legal document that outlines how you want your assets to be distributed after you pass away. Wills are triggered at death, distributions are made promptly once settled, and they must go through the probate process — meaning a court will oversee the administration of your estate and ensure that your assets are distributed according to your wishes. 

Some benefits of having a will include:

• Specifying who will inherit certain assets
• Naming guardians for minor children
• Appointing an executor to manage your estate

On the other hand, trusts are legal arrangements in which a trustee holds and manages assets for the benefit of one or more beneficiaries. A trust can more or less do everything a will can do, except it allows for more control over the assets for a longer period of time, because unlike a will, trusts do not go through probate.

Some benefits of having a trust include:

• Can last multiple generations, allowing for greater protection for assets and distributions
• Avoiding probate
• Maintaining privacy as trusts are not public record
• Potentially reducing estate taxes

Based on the information above, which is better a will or a trust? Because trusts and wills do such different things, it isn’t possible to compare the two. Furthermore, most people who have trusts will inevitably also have a will, and having both a will and a trust in place can allow you to reap the benefits of each. However, it is important to note that a trust is more expensive than a will from an operations standpoint, and sometimes naming a Trustee can be challenging — and because the Trustee controls the administration of the trust, it is absolutely essential to get it right.

Continue reading: Who needs a trust instead of a will?

So, do you need a will if you have a trust?

For most high-net-worth families, the answer is typically yes, you need a will even if you have a trust. While a trust may offer more control and privacy for your assets, a will is still necessary to handle any assets that were not transferred into the trust before your passing. This could include assets that were acquired after the creation of the trust or those intentionally omitted from the trust.

Your will can serve as a backup for any assets that were accidentally left out of the trust, ensuring that they are still distributed according to your wishes. Without a will, your assets could end up being distributed according to state laws instead of your specific desires.

A will is also necessary for naming guardians of any minor children and appointing an executor to manage your estate. While trusts can provide guidelines for managing assets on behalf of minors, they cannot make decisions regarding their care and well-being in the same way that a will can.

If you have a will, do you need a trust?

On the flip side, having a trust in addition to a will can provide added protection and flexibility for your assets, but having a will does not necessarily mean you need a trust. Having a will and a trust, however, can be especially beneficial if you have complex assets or want to leave specific instructions for how they should be distributed or used.

In addition to the general benefits of having a trust, there are specific advantages for those living in Texas. These include:

• Avoiding Intestate Succession Laws: If you pass away without a will or trust in Texas, your assets may be distributed according to state laws, which may not align with your wishes. Having a trust can ensure that your assets are distributed as you see fit.
• Protection from Creditors: Assets held in certain types of trusts may be protected from creditors and lawsuits.
• Homestead Protection: By placing your primary residence in a trust, you can potentially protect it from creditors and lawsuits.
• Privacy: As mentioned before, trusts, unlike wills, are not public records, offering greater privacy for your family and beneficiaries.

What type of trust do I need?

If you’re interested in setting up a trust for asset protection, it’s important to understand the different types available and which may best serve your needs. Some common types of trusts include:

Revocable living trust

A revocable living trust in Texas allows grantors to retain the flexibility to modify or dissolve the trust until their death. It bypasses probate, saving time and expenses while facilitating swift asset transfer to beneficiaries. While not directly reducing taxes, it helps minimize capital gains taxes for heirs via step-up in basis provisions. Privacy is maintained as trust details remain confidential and spendthrift clauses can shield beneficiaries’ inheritance from creditors after the grantor’s death.

Tax liabilities on assets within a revocable living trust pass directly through to the grantor, simplifying tax reporting significantly. Since the trust is not considered a separate tax entity while the grantor is alive, it requires no additional tax return filings during their lifetime.

Irrevocable trust

This type of trust cannot be altered or terminated without the consent of all beneficiaries. The main benefits of irrevocable trusts, like legacy trusts, include minimizing estate taxes, preserving assets for qualified Medicaid recipients, and protecting assets from creditors. (Learn more: How does an irrevocable trust protect assets?)

Assets transferred into an irrevocable trust are effectively removed from the grantor’s taxable estate and, thus, sheltered from estate taxes that might otherwise be owed upon the grantor’s death. This strategic movement allows for the assets, especially those with the potential for significant appreciation, to grow unencumbered by the looming threat of estate taxes. 

Additionally, an often-overlooked advantage of this type of trust arrangement is the grantor’s ability to pay any tax obligations owed by the trust. By doing so, the grantor can help preserve more of the trust’s assets for the beneficiaries, as the assets within the trust are not diminished by tax payments. This strategy not only benefits the beneficiaries by maximizing their inheritance but also serves as a tax-efficient wealth transfer tool for the grantor.

Credit shelter trust

Also known as a bypass or family trust, this type of irrevocable trust aims to maximize federal estate tax exemptions for each spouse.

Special needs trust

These trusts are designed to provide financial support and assets while preserving eligibility for government benefits like Medicaid or Supplemental Security Income (SSI) for individuals with disabilities. If using this type of trust, it’s crucial to understand that while a special needs trust is structured to support the beneficiary’s needs, it also interacts with state benefits in a specific way. 

The assets within a special needs trust can be used for the benefit of the child with special needs throughout their lifetime without jeopardizing eligibility for state benefits such as Medicaid or SSI. However, upon the termination of the trust, which typically occurs after the beneficiary’s death, any remaining assets within the trust may be subject to claims by the state. This is to reimburse the state for the benefits provided to the beneficiary during their lifetime. 

This arrangement allows the trust’s assets to support the child’s needs while still enabling the child to receive necessary state benefits. Subsequently, the obligation to repay the state is deferred until after the beneficiary’s lifetime, ensuring that the trust serves its purpose without immediate financial burden.

Charitable remainder trust

A charitable trust allows you to donate assets to a charity, receive tax deductions, and continue receiving income from the assets during your lifetime. After your passing, the charity receives the remaining assets. Charitable trusts can be a great way to incorporate charitable giving into your financial plans.

A key advantage of establishing a charitable trust is its tax-exempt status, which can significantly benefit the grantor’s financial strategy. Since the assets transferred into the trust are removed from the estate, they are not only deductible from estate taxes but also exempt from capital gains taxes when sold within the trust. 

This exemption provides a unique opportunity for portfolio realization without incurring tax implications, allowing for more efficient management and growth of the assets. Consequently, grantors can support their chosen charities while optimizing their financial legacy in a tax-efficient manner.

Continue reading: What assets should be in a trust?

Safeguard your wealth for future generations with the help of Avidian Wealth Solutions

If you’re still asking yourself “Do I need a trust if I have a will?” you should know that each serves a distinct purpose in estate planning. A will assures that any assets outside of a trust are managed according to your wishes, and it is crucial for designating guardians for minor children, while a trust provides a more detailed level of control, safeguards privacy, and avoids the probate process. Ultimately, the combined use of wills and trusts can offer the full spectrum of protections and benefits for you and your heirs.

However, it’s always best to consult with a financial advisor, like the ones at Avidian Wealth Solutions, when making these decisions. Our team can help you evaluate your specific needs and goals to determine whether a trust, will, or a combination of both is the best approach for you. We can also help you create a trust in Texas that is tailored to meet your unique needs and plans so that your assets are handled exactly as you wish, offering peace of mind for you and your loved ones.

To learn more about our estate planning solutions in Houston, Austin, Sugar Land, and The Woodlands, schedule a conversation with us today!

More Helpful Articles by Avidian: 

• What Are The Benefits of Thinking About Retirement Expenses Now?
• How To Keep Property In The Family Forever
• What Are The New FinCEN Requirements?
• What You Need To Know About 529 Accounts for Grandchildren
• How Does an Irrevocable Trust Protect Assets?

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