Transferring your assets into a trust can be a smart move when planning for the future. However, many individuals don’t take this step until it’s too late. When this happens, the assets accumulated during a lifetime may be subject to probate rather than personal wishes. So, if you’re considering moving some of your assets into a trust for the benefit of your loved ones, there are several ways to go about it.
But keep in mind that the trust you set up must be valid and enforceable, no matter what type you choose.
Creating an official trust
Under Texas law, creating a trust isn’t always straightforward. It’s not enough to simply establish one. To create a valid trust, the following elements generally must be present:
- Clear intention from the settlor: The settlor—the person wishing to establish the trust—must show their clear and straightforward intention to create it through the wording used in the trust document.
- Defined trust property: The settlor must clearly define the trust property. This refers to the asset or group of assets inside the trust, which could include real estate, money, an art collection or any other type of property.
- Designated trustee: The trustee is the person or entity who holds and administers the trust property for the beneficiaries. The trustee has a fiduciary duty or obligation to act in the best interest of the beneficiaries.
- Identified beneficiaries: Under Texas law, a trust does not need to name a beneficiary. However, when the settlor chooses to designate beneficiaries, the trust document should specify who these individuals or entities are.
- Lawful purpose: The settlor must create a trust for a lawful purpose. The court would consider a trust invalid if created for an unlawful purpose.
- Proper trust document: While it’s not always legally required, a trust is typically outlined in a written document that states the terms of the trust. This includes the responsibilities of the trustee and the rights of the beneficiaries.
The difference between an invalid and a valid trust often lies in careful attention to these requirements. When you properly establish one, a valid trust can be a valuable tool to help manage your assets, provide for loved ones after your death and protect your assets from certain legal situations.