Benefits of Texas Trusts

A frequently overlooked component to a sophisticated estate plan is careful consideration of the jurisdiction in which a family’s trusts should be established. Each state has a separate legal framework governing how trusts should be administered that have a unique set of rules, benefits, and quirks that can have a significant impact on trusts and their beneficiaries.

In Texas, the trust laws are considered generally very advantageous for many reasons, and we find our clients rarely seek to establish trusts in other jurisdictions because of it.

When deciding where a trust should be formed, it is important to consider what the person creating the trust prioritizes. Knowing whether a trust creator is motivated by asset protection, tax advantages, or dynastic planning will go a long way in helping to determine which trust jurisdiction is most appropriate.

For example, one of the most frequently cited reasons for forming a trust is to seek asset protection from potential creditors of the trust creator and beneficiaries (including potential divorcing spouses). Texas is considered an incredibly strong state for asset protection laws. The establishment of Texas trusts can be an effective strategy to protect a financial legacy for future generations.

Trust creators also frequently value the privacy and safety of their younger beneficiaries and would prefer they not learn too much about family finances at too young an age. In Texas, the laws allow for a trust creator to delay the age at which a beneficiary has a right to receive information about the trust to age 25.

Perhaps the most common reason we see clients moving existing trusts from other jurisdictions to Texas is due to our favorable tax climate. Texas has no state inheritance, estate, or income tax. As such, while many other states have extensive rules regarding the taxation of trusts, Texas is considered a trust-friendly state and has no such requirements. From time to time, a trust creator is motivated by wanting a trust that can last for generations into the future without interruption. Given recent legislative updates, Texas now allows for trusts to last up to 300 years. For the vast majority of trust creators, this timeline is sufficient to meet the needs of their family.

Additionally, Texas statutes allow for liberal judicial and nonjudicial paths to update trust terms that are no longer appropriate, which allows for significant flexibility that is not always available in jurisdictions without such statutes. Texas is at the forefront of allowing more modern and flexible trust structures, with the ability to utilize trust protectors and delegate authority to maintain administrative function.

While each state has their own unique legal framework governing trusts, our clients find that creating trusts in Texas provides them the flexibility and protection they desire to carry out their wishes for the benefit of their loved ones.