Living Trusts for Asset Protection and Tax Strategies in Texas

 Posted on November 03, 2023 in Estate Planning and Probate

For individuals and families in Texas with substantial assets to protect and transfer, proper estate planning is crucial to preserve wealth and efficiently pass it on to heirs. Living trust strategies can provide opportunities for tax minimization as well as asset protection when thoughtfully integrated into a comprehensive estate plan. A Texas lawyer can help make sure you are filing out all the documentation properly to protect your family.

Asset Protection Benefits

One of the key benefits of living trusts is that they allow assigning ownership of assets to the trust instead of personally holding them. Assets placed in a properly structured trust are legally protected from creditors and civil lawsuits filed against the grantor individually. 

Irrevocable trusts, where the grantor permanently gives up control over the assets, can provide even stronger protections from creditors and judgments. Living trusts also avoid the cumbersome probate process upon death, ensuring privacy and quick distribution of assets to the trust beneficiaries.

Advanced Tax Planning Strategies

Certain specialized types of living trusts can also offer creative tax reduction and wealth transfer opportunities for estates with substantial assets. Some examples include irrevocable life insurance trusts, which can own life insurance policies that are removed from the taxable estate. 

Grantor trusts allow the trust creator to continue paying income taxes on trust assets without that paid tax, adding value back to their estate. Intentionally defective grantor trusts (IDGTs) permit shifting high-growth assets that appreciate significantly out of the estate without triggering gift taxes.

Customizing Trusts in Texas

Texas allows self-settled asset protection trusts, which permits trust grantors to be beneficiaries of the trusts they create. This provides added flexibility. The state also does not tax income from irrevocable trusts, which makes grantor trusts and other types of living trusts that generate income more appealing for Texas residents.

Trusts for Real Estate and Business Ownership

Owning real estate, such as investment properties, through thoughtfully structured living trusts can provide liability protection and creditor exemption under Texas law. Trusts can also hold ownership of family businesses, oil and gas interests, and other appreciating assets to limit legal exposure.

Wealth Transfer and Estate Tax Planning

For individuals and married couples with estates exceeding several million in net worth, sophisticated living trust strategies can help reduce estate taxes when transferring substantial wealth to the next generation. Credit shelter trusts, QTIP trusts, generation-skipping dynasty trusts, and other specialized trust planning techniques should be explored. Trust-owned life insurance can provide liquidity to pay any estate taxes owed upon death.

Contact a Comal County, TX Estate Planning Lawyer

It is essential to have legal representation during important decisions like your estate. A Wilson County, TX estate planning attorney can help make sure you are going through the process correctly. Call Geoff Mayfield, Attorney at Law at 210-535-0870 for a free consultation.