Understanding Revocable Trusts in Texas

Introduction 

In Texas, a trust is deemed to be revocable unless the trust instrument explicitly states that it is irrevocable. However, the trust should expressly reserve the settlor's right to amend or revoke the trust instrument during the settlor's lifetime. 

Creating a revocable trust in Texas requires careful consideration of various legal requirements. These requirements ensure that the trust is valid and legally enforceable. From age and capacity requirements to trustee and beneficiary specifications and to trust property funding, each element plays a crucial role in establishing a valid revocable trust.

Basic requirements for a valid revocable trust in Texas

Age and capacity requirements 

To create a valid revocable trust in Texas, an individual should be at least 18, be married or have been married, or be a member of the US armed forces, an auxiliary of the US armed forces, of the US Maritime Service.

At the time of signing a revocable trust, an individual, as signing a will, must have the mental ability to simultaneously:

• Understand the business in which they are engaged.
• Understand the effect of making a trust.
• Understand the general nature and extent of their property.
• Know their next of kin, the natural objects of their bounty, and their claims on the testator.
• Have sufficient memory to collect in their mind the elements of the business to be transacted (creating the trust) and hold them long enough to form a reasonable judgment about them.

Other requirements 

• Trustee Requirements

For a trust to be valid in Texas:

• • The trust must identify a beneficiary.
  • The same person must not be the sole trustee and the sole beneficiary.

A trust does not fail because it has no trustee.

A vacancy in the office of trustee is filled, in order, by:

• • The method prescribed in the trust instrument.
  • The court.

There is generally no need to fill a vacancy in the trusteeship if one or more co-trustees remain in office. However, if the trust instrument requires that there be a minimum number of trustees acting at any given time, a vacancy should be filled if it causes the number of acting trustees to drop below that minimum.

• Beneficiary Requirements

For a trust to be valid in Texas, the trust must identify a beneficiary. The same person cannot be the sole trustee and the sole beneficiary. This does not mean the same person cannot be the sole trustee and the only current beneficiary. If the same person is the sole trustee and the current beneficiary, there must be one or more remainder beneficiaries of the trust that are not the same person as the trustee and the current beneficiary.

• Trust Property Requirements

After a settlor establishes a revocable trust, the settlor must properly fund the trust. The trust is not created unless there is property in the trust. Funding can be accomplished primarily on a settlor's death by the settlor's will or by beneficiary designations. However, funding primarily or exclusively at death likely defeats the primary purposes of a revocable trust-based plan if the settlor's intention is to avoid or minimize probate or to avoid the need for a guardianship on the settlor's incapacity.

• Format requirements - written or orally

Not all trusts need to be in writing in Texas to be valid. A trust involving only personal property can be created orally if both:

• There is a transfer of property to a trustee who is neither the settlor nor a beneficiary.
• At the time of the transfer or before the transfer the transferor expresses an intent to create a trust.

Otherwise, unless the trust meets the limited exceptions for a valid oral trust provided above, a trust is only enforceable if its terms are evidenced by a written instrument signed by the settlor or the settlor's authorized agent.

It is always a best practice to put a trust in writing because even if a settlor does not initially intend to transfer real property to the revocable trust, the settlor may want to do so later.

• Execution requirements 

• • Signature and Witness Requirements

In Texas, a trust can be created orally or in writing. However, if the trust involves real property, the statute of frauds requires a writing signed by the settlor or the settlor's authorized agent. Financial institutions often require that trust instruments are written and notarized to avoid fraud. There is no requirement for witness signatures.

There is no statutory requirement in Texas that a trustee sign a revocable trust instrument for it to be valid. Since the settlor is often the initial trustee, the settlor typically signs in the capacity as both settlor and trustee. When the initial trustee or an initial co-trustee is not the settlor, counsel typically have that trustee sign the revocable trust instrument to indicate the trustee's acceptance of the trust. The trust is an agreement between the settlor and the trustee, and by signing, each party indicates delivery of initial trust property.

• • Notary Requirements

Texas law does not require a revocable trust instrument to be notarized to be valid. However, if it is possible the trust will hold real property and need to be recorded in the real property records, the trust instrument should be acknowledged and notarized for the purposes of recording. 

Conclusion 

Revocable trusts are commonly used as a will substitutes in Texas. They allow a settlor to (1) manage their assets during life, including during any time when the settlor is incapacitated at which point the revocable trust may become irrevocable by its terms or may be functionally irrevocable by the settlor if the settlor does not have capacity to revoke it; and (2) dispose of their assets at death, because a revocable trust is generally also used as a will substitute.

By understanding the requirements for creating a valid revocable trust in Texas as discussed above, you can make informed decisions and create an estate plan that provides security and peace of mind for you and your loved ones. 

DISCLAIMER:

This blog does not, and is not intended to, constitute legal advice; instead, it is for general informational purposes only.  The information presented in this blog may not reflect the most up-to-date legal developments and is subject to change at any point in time.   The information presented in this blog does not create an attorney-client relationship.  Readers of this blog should contact their attorney to obtain advice regarding any particular legal matter.  No readers should act or refrain from acting based on the information presented in this blog without first seeking legal advice from counsel in the relevant jurisdiction.  No representations are made that this blog is error-free.  Altaffer & Chen PLLC expressly disclaims all liabilities arising from any actions taken or refrained from based on the information presented in this blog.

7/6/2023

Contact Information: 

4054 McKinney Ave

Suite 310

Dallas, TX 75204

Tel: (972) 234 3633

Fax: (972) 947 3663

Email: lunbing@altafferlaw.com

http://www.altafferlaw.com

WeChat ID: Altafferlaw; altafferchen