If you wish to prevent your estate from going into probate when you die, you may consider forming a trust to protect your assets. Most states, including Texas, allow citizens to create several different types of trusts. To protect your assets from tax liability or lawsuits, you may create an irrevocable trust.
A trust is an entity that holds assets for the creator, or grantor, until his death. A trustee, who can also be the grantor, will manage the trust. The grantor also names beneficiaries to inherit his property and, if he is the primary trustee, a successor trustee to manage the trust after his death. Most trusts are revocable, which means that the grantor can change the details of the trust at any time. However, the grantor cannot easily change an irrevocable trust.
Many people use irrevocable trusts to protect their assets from incurring estate tax when they die. In addition, if a creditor sues an estate or individual, the court can't garnish the assets in an irrevocable trust, so people with credit debt may also choose this type of trust. Though creditors can't access the assets, beneficiaries typically can. In many cases, the trust's grantor can also be a beneficiary.
Creating a Trust
To create an irrevocable trust in Texas, you must draft a document naming a trustee and beneficiaries. If you choose to name yourself as trustee, you must also name a successor trustee. Once you and any other grantors have signed to trust, you can transfer your assets. To transfer bank accounts to your trust in Texas, you must list your trust as the owner of the account. To transfer property with titles or deeds, such as real estate and motor vehicles, you must change the name on the deed or title to the name of your trust. To transfer a life insurance policy, you must list your trust as the beneficiary.
At the time of publication, Texas doesn't impose state income tax on residents, so trusts don't need to file state tax returns. However, you may need to file a Form 1041 federal tax return with the Internal Revenue Service on behalf of an irrevocable trust if the trustee is someone other than the grantor and the trust has an annual income greater than $600. If the grantor of the trust is also the trustee, then the grantor must claim the trust's income on his individual income taxes.