Living Trust question

[Nice Guy Eddie 13736]

background. I’m considering a living trust for a myriad of reasons and just trying to wrap my head around the implications. I fully realize that I could also revoke the trust but I’m going into this that I never will do so.

A couple of questions.

1. If I create a living trust where I’m the trustee, and I fund it with assets, is it still my asset? Say I move my house under the trust, can I still claim that I’m the owner of the house?  I’m thinking in terms that I apply for a loan and claim the house as an asset, am I lying if I say the home is my personal asset? Or is the trust my asset?
2. What’s are the pros and cons of selecting a professional trustee? Do you pay them now just to be named a future trustee or do they only get paid once they need to act as trustee? I’m cool with them being paid when they’re actually performing work.
3. any unexpected downsides to creating a living trust, other than the upfront costs? I know there are some asset transfer work but seems to be part of the upfront costs.

 

 

[TwiceHorn 32083]

2 hours ago, Nice Guy Eddie said:

background. I’m considering a living trust for a myriad of reasons and just trying to wrap my head around the implications. I fully realize that I could also revoke the trust but I’m going into this that I never will do so.

A couple of questions.

1. If I create a living trust where I’m the trustee, and I fund it with assets, is it still my asset? Say I move my house under the trust, can I still claim that I’m the owner of the house?  I’m thinking in terms that I apply for a loan and claim the house as an asset, am I lying if I say the home is my personal asset? Or is the trust my asset?
2. What’s are the pros and cons of selecting a professional trustee? Do you pay them now just to be named a future trustee or do they only get paid once they need to act as trustee? I’m cool with them being paid when they’re actually performing work.
3. any unexpected downsides to creating a living trust, other than the upfront costs? I know there are some asset transfer work but seems to be part of the upfront costs.

 

 

The classic living trust is you as the settlor, beneficiary and trustee.  It only works for assets that you put in it, which means those assets are no longer legally yours, they belong to the trust, but you are what's known as the beneficial owner.  By designating your heirs as successor beneficiaries on your death or incapacity, they become the beneficial owners without probate.  And that  is the main advantage of a living trust, and it is overrated in Texas as probate is fairly straightforward and relatively inexpensive (comparable or less cost than establishing a living trust).

You can still get a homestead exemption for property in a living trust as long as it meets the requirements of Section 41.0021 of the Texas Property Code, so that's one relatively obvious problem that no longer personally owning the real estate could cause.

There could be other disadvantages to not owning the assets in the trust outright.  

About the only benefit to having a "professional" or third-party trustee is that the trust would potentially offer more creditor protection.  When you are all three parties to the trust, the trust tends to get ignored if you are sued and a judgment gets entered against you.  All of those assets are then regarded as yours, despite the title.  A third-party trustee may alter that scenario a bit and offer more creditor protection.  Professional trustees tend to be bank trust departments and they tend to charge a fee for assets under management, no matter how much management they actually do.  An old-fashioned rule for trustee compensation is 5% in and out, or that fee for transactions moving assets in and out of the trust or distributing dividends, etc.

By having a third-party trustee, you lose absolute control over the assets, which may or may not be a real problem.  Notionally, the assets in a living trust don't do much but sit there.  You can avoid putting most investment accounts in the living trust and also avoid probate by POD provisions or account beneficiaries, which might mean than your real property is the only asset in the trust.  It would seem to be a lot of work just for avoiding probate on real estate.

YMMV, but in Texas and most states with fairly streamlined probate processes, the living trust isn't a particularly appealing option.

Edited December 31, 2022 by TwiceHorn