Two Paths: The Fork in the Road
Yogi Berra once said, “When you come to a fork in the road, take it.” In Texas, individuals making estate planning decisions are much like travelers standing at a trailhead with two clear paths: one marked “Will,” the other “Living Trust.” Both routes ultimately lead to the same destination—their loved ones benefiting from the fruits of their lifetime’s work.
The primary concern is how best to manage assets during one’s lifetime and ensure a smooth transfer upon death. The central question is whether to use a Will or a Living Trust as the document outlining one’s wishes and instructions. Either option allows for the naming of beneficiaries and the establishment of terms regarding how and when those beneficiaries will receive assets after the individual’s death.
Understanding the characteristics of each approach enables individuals to make an informed choice suited to their own and their family’s needs.
The Will Path
Returning to the trailhead analogy, the path marked “Will” includes a notable stop along the journey: the courthouse. This stop, however, is not for the individual themselves, but for the person appointed as Executor under the Will. After the Will is signed and securely stored, the Executor retrieves it following the individual’s death, presents it to the court, and proceeds through the process known as probate.
In Texas, probate is relatively straightforward and manageable, provided that clear instructions are left and assets are organized ahead of time. The Executor’s duty is to gather the assets and distribute them according to the wishes expressed in the Will.
It is important to note that a Will does not govern assets during the individual’s lifetime, nor does it provide asset management in the event of incapacity. However, this issue can be addressed through a financial power of attorney, which allows an appointed agent to manage assets if needed. A Will remains an attractive and flexible choice in Texas, as it can be updated as desired without affecting asset ownership during the individual’s life.
The Living Trust Path
The Living Trust path involves three parties: the Grantor (who transfers assets), the Trustee (who manages the assets), and the Beneficiary (who enjoys the assets). In a Living Trust—also called a Revocable Living Trust—the individual can serve as Grantor, Trustee, and Beneficiary at the same time.
The Living Trust document contains all relevant instructions for managing assets during the individual’s lifetime and for transferring the assets following death. A successor Trustee is named to step in if the individual becomes incapacitated, ensuring seamless asset management, while the individual remains Beneficiary during life.
The Trustee becomes the legal owner of all assets titled in the name of the Living Trust, which means that assets must be retitled to the name of the Trustee. If any assets remain outside of the Trust, a “pour-over” Will transfers those assets to the Trust at death. If all assets are transferred to the Trust during the individual’s life, the Executor need not probate the Will, which is why the Living Trust is often promoted as a way to avoid probate. Ultimately, the Trustee transfers the remaining trust assets according to the individual’s instructions set forth in the trust document.
In addition, a Living Trust is not filed with the court, keeping its terms private. For some, this confidentiality is an advantage, while others may prefer the transparency of the public probate process.
Factors to Consider
Several factors can influence the decision, such as ownership of real estate outside Texas, family dynamics, or a willingness to retitle assets during lifetime. Each situation is unique and requires thoughtful consideration.
Farner & Perrin can help clarify goals and objectives, guiding individuals toward the path that best aligns with their needs.