When it comes to estate planning in Texas, trusts are a powerful tool for managing assets, protecting wealth, and ensuring that your wishes are honored after death. However, not all trusts are created equal. One of the most important decisions to make when setting up a trust is whether it should be revocable or irrevocable. If you have questions or would like legal guidance on doing this, our Dallas, TX probate lawyer is here to help.
While both serve important roles in estate planning, they differ significantly in terms of flexibility, control, asset protection, and tax implications. Understanding the difference is essential for choosing the right trust to meet your goals.
What Is A Trust?
A trust is a legal arrangement where one party (the grantor or settlor) transfers assets to a trustee, who manages them on behalf of beneficiaries. Trusts can help avoid probate, reduce estate taxes, protect assets, and control how and when assets are distributed.
In Texas, trusts are governed by the Texas Trust Code, which provides flexibility to tailor trusts to individual needs. But before getting into the details, it’s important to understand the foundational difference between revocable and irrevocable trusts.
What Is A Revocable Trust?
A revocable trust (often called a living trust) is a trust that the grantor can change, modify, or revoke at any time during their lifetime. The grantor typically serves as the initial trustee and maintains full control over the assets in the trust.
Key Features Of Revocable Trusts In Texas:
✅ Flexible: You can amend or dissolve the trust at any time.
✅ Avoids Probate: Assets in a revocable trust are not subject to probate upon death.
✅ Privacy: Unlike a will, a revocable trust does not become a public record.
✅ Control: You maintain control of the assets while alive and mentally competent.
Limitations:
❌ No Asset Protection: Assets in a revocable trust are not shielded from creditors, lawsuits, or divorce settlements.
❌ No Estate Tax Benefit: Because the assets remain under your control, they are still included in your taxable estate.
❌ Limited Medicaid Planning Use: Revocable trusts do not protect assets from Medicaid eligibility calculations.
What Is An Irrevocable Trust?
An irrevocable trust, as the name implies, cannot be changed, amended, or revoked once it is established—except in very limited circumstances and often only with court approval. Once assets are transferred into an irrevocable trust, the grantor relinquishes ownership and control.
Key Features Of Irrevocable Trusts In Texas:
✅ Asset Protection: Assets in an irrevocable trust are generally protected from creditors and legal judgments.
✅ Estate Tax Reduction: Since the assets are no longer part of your estate, they may not be subject to federal estate tax.
✅ Medicaid Planning: Properly structured irrevocable trusts can help individuals qualify for Medicaid long-term care benefits by removing assets from their countable estate.
Limitations:
❌ Inflexible: Once created, it is very difficult to modify.
❌ Loss of Control: You give up control and access to the assets.
❌ Complex to Set Up and Administer: Irrevocable trusts often require detailed planning and legal expertise.
Which Type Of Trust Is Right For You?
The choice between a revocable and irrevocable trust depends largely on your goals, life stage, and financial situation.
Choose a Revocable Trust if You:
- Want to avoid probate while maintaining control over your assets
- Desire flexibility to make changes as your circumstances evolve
- Have no significant concerns about creditors, lawsuits, or estate taxes
- Choose an Irrevocable Trust if You:
- Want to protect assets from creditors or lawsuits
- Are concerned about federal estate taxes or gift taxes
- Are planning for Medicaid eligibility and long-term care
- Are comfortable relinquishing control in exchange for asset protection
Important Considerations In Texas
Texas law offers strong protections for properly drafted trusts, but it also emphasizes the importance of clear intent and proper funding. No matter which type of trust you choose, the trust must be properly funded—meaning the assets must be formally transferred into the trust to be effective.
Additionally, while revocable trusts are often used to avoid probate in Texas, it’s worth noting that Texas already has a relatively efficient probate process compared to many other states. As such, Texans often choose trusts for privacy or incapacity planning more than probate avoidance alone.
Choosing The Right Trust
Revocable and irrevocable trusts both serve important roles in Texas estate planning, but they serve very different purposes. A revocable trust offers flexibility and control, making it ideal for individuals who want to retain access to their assets. An irrevocable trust, while more rigid, offers robust asset protection and tax benefits.
Choosing the right type of trust requires careful consideration of your goals, assets, and family dynamics. Our experienced Texas estate planning attorney can help you weigh the options and create a plan tailored to your specific needs. Contact Brandy Austin Law Firm today.