Avoiding Probate? Do You Need a Living Trust?

Often when I speak about estate planning or probate, I get asked about "avoiding probate." Usually the proposed method for doing so is through the use of a revocable living trust. Many people are convinced that they need to place their assets in trust to avoid probate, though they know little or nothing about the probate process in Texas. Many people also think that a revocable living trust provides tax benefits or protection from creditors. As we'll see, these beliefs are largely mistaken. But, first, where did this idea about revocable living trust come from? Well, it's a matter of geography.

Goin' to California

Avoiding probate is a very good idea in many, if not, most states. This is particularly true in the birthplace of the living trust -- California. Probate is extremely expensive and time-consuming in California. California probate statutes provide for a mandatory cost to probate a will based on the value of the estate. Worse, in a California probate, the court supervises and approves virtually every transaction involving the estate, so the executor is always in the courtroom asking for approval to handle the estate's business. An estate of even a modest size can cost tens of thousand dollars and take several months of court supervision. Given that situation, it's no wonder that Californians are eager to avoid probate or that Californians developed the revocable living trust to do so.

Everything's Bigger in Texas . . . Except Probate Proceedings.

Texas tends to do things a little differently from California, and probate proceedings are no exception. Texas has developed what's called independent administration, a process that greatly reduces both the cost of probate and the time spent in the probate court. With independent administration, most probates are relatively inexpensive and only require the executor to appear in court a single time for a very short hearing. Most states don't have an independent administration option, but, for Texans, a revocable living trust will usually involve more time and expense than a simple probate does.

I Do Not Think This Word Means What You Think It Means.

As for those tax benefits . . . there are certain trusts that can provide estate or income tax benefits, but a revocable living trust is usually not one of them. That's because a revocable living trust is usually controlled by the settlor -- the person who created the trust -- and therefore remains in the settlor's taxable estate. For the same reason, a revocable living trust does not provide protection from creditors. If you have free access to the assets inside the trust, then your creditors can probably get to those assets as well.

It Still Has Its Uses.

That doesn't mean that you should never have a revocable living trust. What are some situations where you might want one?

  • You own out of state property. Placing property from a different state or states into a trust could help you avoid multiple probates or probate in a state that doesn't offer independent administration.
  • Avoid the publicity of probate. While probate in Texas is streamlined, it still involves publishing your will as a public record. A living trust is usually not filed with the court and therefore avoids that publicity.
  • Prevent an anticipated will contest. A will contest will shut down the probate of your will immediately -- usually for several months and usually at great expense to the estate. If you are pretty certain that someone will contest your will, you might place your estate into a revocable living trust, which is usually harder to contest in court.
  • Plan for disability or incapacity. While powers of attorney can do a great deal to help out an incapacitated person, if someone suffers from complete incapacity, they may need to have a guardian appointed for their person or estate. Guardianship proceedings can become expensive, particularly if they are contested, and a living trust may be one way to avoid a guardianship proceeding.

Revocable living trusts are not necessarily a bad idea, but, in Texas, they usually are a bad idea if your goal in setting one up is to "avoid probate." If you are considering setting up a revocable living trust, or think you may need another kind of trust or estate-planning document, I would love to discuss that with you!