Setting up a revocable trust in Texas involves more than deciding who gets what. For married couples, the state’s community property system shapes what actually belongs to each spouse in the first place, and that distinction carries directly into how a trust should be structured and funded.
Community Versus Separate Property In Texas
Texas treats most income and property acquired during marriage as community property, owned equally by both spouses regardless of whose name appears on the title. Property owned before marriage, along with gifts and inheritances received during marriage, generally remains separate property belonging to only one spouse under Texas Family Code Chapter 3. This distinction matters enormously for a revocable trust, since a person can only place their own property, whether community or separate, into the trust they control.
Why This Matters When Funding A Joint Trust
Many married couples in Dallas set up a single joint revocable trust rather than two separate ones. When community property gets transferred into a joint trust, both spouses typically retain their community property interest in those assets, even though the trust document itself may not spell that out clearly. Failing to address this can create confusion later, particularly if the couple divorces or if one spouse wants to leave their share to someone other than the surviving spouse.
Separate Property Needs Careful Handling Too
If one spouse contributes separate property into a joint trust, that property can potentially convert into community property depending on how it is titled and commingled with other trust assets. Ellen Williamson Law, PC walks new clients through exactly this risk before any trust is drafted. This is a common and often unintentional way that separate property protections get lost. A trust document that clearly identifies which contributions are separate property, and keeps a paper trail showing the source of those funds, helps preserve that character rather than losing it by default.
The Step Up In Basis Advantage For Married Couples
Texas community property carries a tax advantage that many separate property states do not offer. When one spouse dies, both halves of community property typically receive a stepped up basis to fair market value, not just the deceased spouse’s half. A revocable trust that properly identifies community property can help preserve documentation of this treatment for the surviving spouse and their tax preparer.
What A Couple Should Bring To A Trust Planning Meeting
Sorting out community versus separate property early makes the rest of the planning process go more smoothly:
- A list of assets owned before the marriage, including any documentation of value at that time
- Records of any inheritances or gifts received individually during the marriage
- Any prior agreements addressing property characterization, such as a premarital agreement
- Current account statements showing how assets are currently titled
Getting The Community Property Details Right
Because community property questions affect both estate tax planning and how a trust actually distributes assets, getting this right at the drafting stage saves complications later. A Dallas revocable trust lawyer can review a couple’s specific assets and structure the trust to reflect the character of each one accurately.
Reviewing An Existing Trust For This Same Issue
Couples who set up a trust years ago, before a significant inheritance or before selling separate property and reinvesting the proceeds, may find their trust no longer reflects an accurate picture of what is community versus separate. A Dallas revocable trust lawyer can help identify where an update is needed.
Community property questions rarely resolve themselves cleanly once a marriage ends or a spouse passes away, which is exactly why addressing them while drafting the trust matters. If you are setting up or reviewing a trust in Dallas, reach out to our office to talk through how your specific assets should be characterized and titled.