Living Trust

Do I need a living trust?

Yes, unless your estate is worth less than $150,000 and you do not feel the need to protect yourself in the event you become incompetent.

A properly prepared Living Trust Estate Plan with accompanying documents avoids a court conservatorship case if you become incapacitated and avoids a court Probate proceeding upon your death. You designate your own agent (eg. spouse first, selected child in the alternative etc.) to handle your personal and financial affairs in the event you become incapacitated. Unless you prepare and transfer into a Living Trust your assets, a Probate Case is required upon your death if your assets are worth $150,000 or more.

What kind?

Short Answer: There are essentially two basic types of Trusts.

A single person or married couple’s Outright Disbursement Trust will satisfy the needs of most persons by providing them with a Trust that avoids Probate. They are inexpensive to prepare and inexpensive to administer. You (and your spouse if you are married) have complete control over your assets, a Probate Case is avoided upon your death, and a Conservatorship Case is avoided in the event you are incapacitated is avoided as well.

More complicated alternative Trusts are available if your estate is sizable enough to incur an estate tax liability and/or you wish to prevent your surviving spouse from having the ability to change your estate planning wishes should you die first. Those trust options include Trusts which split into two or three Trusts upon the death of the first spouse in order to minimize estate taxes and/or to prevent the surviving spouse from altering your estate planning wishes. Options also include: Charitable Remainder Trusts, QTIP (Qualified Terminable Interest Trusts), Irrevocable Trusts, and Insurance Trusts.

Make sure you have the right Trust prepared for you but do not overpay for a Trust more complicated than necessary for your estate.

How does a revocable living trust work?

California law requires a Probate Case in court if you have $150,000 or more worth of assets held in your name alone at the time of your death. The transfer of your residence and any other real property you own, along with all of your personal property and any substantial savings or investments directly into your Trust name, leaves you estate with assets under $150,000 left in your own name and the need for a Probate proceeding upon your death is avoided. The most crucial work involved in drafting a Living Trust Estate Plan is to properly fund the Trust and for the attorney to make sure the client knows how to use the Trust to avoid Probate B simple rules, but they must be understood and followed.

What about estate taxes?

Fewer and fewer people need to worry about the government taxing their estates. Changes to Estate Taxes, subject to a few exceptions, do not start unless your at-death net worth is $11.58 million or more for a person who dies in the year 2020. That figure is adjusted annually (for a cost of living determined by the government. The law establishing that figure “sunsets”/reverts to $5 million in 2026 in the absence of action by Congress and the President. That sum will be gradually increased by a small amount each year thereafter (cost of living adjustment). Estate taxes, if due, are more than 40% of all assets in excess of that starting point. Please note that there are limitations on the amount of assets you get a stepped-up basis on. You should consult with a CPA to review that issue.

What should I know about funding a Living Trust?

A large part of the work involved in preparing a Living Trust Estate Plan is properly funding the trust. There are generally three categories of assets:

Assets directly owned in the trust name
Assets which can be placed into the trust based on the trust being designated as a beneficiary of the asset
Assets held outside of your trust

Assets placed into your trust include your home, rental property, business, savings and investment accounts, stock brokerage accounts and the like.

Assets in the second category are those with beneficiary designations such as 401k, IRA accounts and life insurance policies. Every case must be reviewed and a determination made as to whether it is advantageous to designate the trust as a primary or contingent death beneficiary. For example, a desire to leave a share to grandchildren in the event a child predeceased you or a desire to meter out trust benefits to children or grandchildren that may not be mature enough to spend or invest the funds wisely, may weigh in favor of designation of the Trust as a primary or contingent death beneficiary – usually the contingent death beneficiary after your spouse. You must however, be aware that doing so jeopardizes a child=s right to rollover any tax-deferred accounts and continue deferring taxes owed on such assets.

The final category are assets typically held outside of your trust – day-to-day checking accounts, small savings accounts, vehicles and the like, keeping in mind that you never want to keep such assets if they accumulate a total value of $150,000 or more as a probate is then required upon your death.

I cannot tell you how many times I have been required to petition a Probate Court asking for a post death funding of assets into a trust because a trust was executed without the assistance of an attorney and the trust was not properly funded – don’t count on the Court letting you avoid a formal Probate proceeding in that regard.

What does a Living Trust cost and what documents are included in a Living Trust Estate Plan?

Remember always the lessons you learned at a very young age B you get what you pay for! Not surprisingly, that rule also applies in estate planning. You essentially have three choices in regards to preparing a Living Trust Estate Plan:

Do-it-yourself / paralegal assistance / internet forms
An estate planning firm
Working one-on-one with an experienced estate planning attorney at reasonable rates

Choice 1:

The first category seldom results in a Living Trust that avoids Probate B most inexpensive Trusts prepared from a joint conference with an attorney at a seminar or those prepared by a non-attorney are not properly funded B you are left to do most of the work and they do not include all of the documents necessary to complete your Living Trust Estate Plan. Be sure to compare and ask questions:

Does your Living Trust Estate Plan include the preparation and recording of a Grant Deed(s) transferring all property I own into my Trust?
Does the Living Trust Estate Plan you offer include:
- A Durable Power of Attorney for financial affairs;
- An Advance Healthcare Directive for emergency medical decisions;
- An Assignment of all my personal property into my Trust;
- A Certification of Trust which I will need to provide any banks or investment advisors to transfer those accounts into my Trust;
- A Pourover Will that accompanies the Trust;
- Is an attorney, that has my documents on file, available for follow-up questions or problems I may have?

Choice 2:

The second choice, an estate planning firm, may have all the expertise you need but is also likely to be overpriced for all but the very largest of estates. Multi-million dollar estates may well be able to take advantage of carefully drawn and very expensive tax planning trusts, but the average person is well advised to be careful about spending the kind of money it will take to have such a firm prepare your Estate Plan.

Choice 3:
The third alternative or middle ground is what we offer B meeting one-on-one with an experienced estate planning attorney that will prepare for you a comprehensive Living Trust Estate Plan for a reasonable fee B not as cheap as the Internet forms or the quick paralegal services and, not surprisingly, not nearly as expensive as a large estate planning firm with expertise beyond what you will need.

Why should a senior citizen consider a living trust?

A properly prepared Living Trust Estate Plan anticipates such “real life” complications and provides for the designation of an agent (such as your spouse, child or other person) to take on the authority of handling your personal and financial affairs in that instance. You are able to completely avoid court conservatorship proceedings B a public Court case with a mental competency examination, thousands of dollars in attorney=s fees and court supervision of your affairs.

Does a Will alone avoid Probate?

No, a will alone actually guarantees it, unless your total estate is worth less than $150,000.

California law requires a Probate proceeding if you=re worth more than $150,000 at the time of your death. A Will merely allows you to designate who the court appointed representative (Executor) for your estate will be and how your estate will be divided B there is still a long, public, expensive Court case in the Probate Court required to settle your affairs.

What are the costs of Probate I can avoid with a Living Trust Estate Plan?

Attorney’s fees and Executor’s fees are fixed by law on a sliding scale basis under the California Probate Code. Those fees are, for example, $26,000 for an estate worth $500,000, $36,000 for an estate worth $750,000, and $46,000 for an estate worth $1 million!

Keep in mind those are fees based upon the gross value of assets in your estate (without deducting outstanding mortgages on your home, outstanding debt, etc.) and additional fees are due if extraordinary services are performed by the attorney such as selling a home etc. In addition to all of that, an estate typically incurs out of pocket court costs of at least $3,000-$4,000; the total costs depend on the size of your estate. A Probate proceeding now averages 20-26 months in Southern California.

Doesn’t a Living Trust only benefit my children/heirs in that it simply avoids Probate after I have died?

While it is true that the primary economic/cost saving benefit of a Living Trust is avoiding the expenses and delay of a Court Probate process (see above), most people are unaware of the significant lifetime benefit that a Living Trust provides B provisions to avoid a Court conservatorship in the event you are incapacitated.
If you suffer you a stroke or are incapacitated by Alzheimer=s, dementia, etc., in the absence of a Living Trust, Court proceedings separate and apart from a Probate proceeding are required.

That process, known as a Conservatorship, is time consuming and very expensive. A Living Trust Estate plan with the proper accompanying documents provides you with the opportunity to designate a spouse, child or other third party to act as your “Successor Trustee” and handle all of your affairs without the necessity of the legal process known as Conservatorship. Examinations to apprise the Court as to whether you are incompetent or not, Court hearings to determine who should be appointed your representative, and continuing obligations to account to the Court for the handling of your financial affairs can all be avoided by a properly prepared Living Trust Estate Plan.

How do I amend/update my Living Trust/Estate Planning Documents?

Amending your Living Trust is essentially the same as revising a Will. A follow up appointment can be made to address any changes you desire. Typically the time and cost of the amendment process is significantly less than the cost of preparing the original trust.

In the absence of an unexpected death of a beneficiary, a change of heart as to who should handle your financial, personal or medical affairs, or a change in the law, amending your trust is not necessary. Our office will advise you in writing if any changes in the law impact your particular estate plan and we can confer without charge to determine if an amendment is necessary. Those changes are infrequent and few, if any, amendments to a Living Trust are usually required after it is signed.

What are the most important things I need to know about a Living Trust?

A properly prepared Living Trust will avoid Probate, a long, expensive, public case to settle my affairs / distribute your assets. A substantial percentage of Living Trusts prepared do not accomplish that goal, usually because assets are not properly funded into the Trust and the client does not have a working knowledge of how to use their Trust.

Never have an important legal document such as a Living Trust prepared by a non-attorney, especially through a seminar when the non-attorney is marketing insurance or annuities -their primary motivation is to sell you an investment plan through their office.

What documents do I need to gather in order to start preparation of a Living Trust Estate Plan?

No documents are required in order to discuss how a Living Trust Estate Plan can work for you. If you wish to be prepared, you can gather / decide the following

Deed to any property/land you own
Property Tax Bill for any property/land you own
The name, address and phone number for your first, second, and third choice for Executor / Successor Trustee / financial care agent
The name, address and phone number for a first, second, and third choice Healthcare Agent to handle any medical decisions you are unable to handle yourself
Copy of Mortgage Loan Statement for your residence (a formal notice is required to be given to your mortgage lender when you transfer your home into your Trust)
A general outline of where you wish to have your estate distributed upon your death

What is involved in administering a Living Trust after death?

A Living Trust Estate Plan is a private (not a public court case), out of court and fairly inexpensive process to follow. Depending upon the nature of your estate, the complexity of assets in your Trust and whether you have outstanding creditors (bills due at your death), the costs vary. You typically pay for such services on an hourly basis. Beware of law firms that over-complicate the trust administration process and charge substantial fees for doing so.

The information contained herein is general information about the law only. The law is subject to change. If you have a specific legal question and want your question(s) answered, consult with an attorney.

What does a Living Trust cost and what documents are included in a Living Trust Estate Plan?

Remember always the lessons you learned at a very young age – you get what you pay for! Not surprisingly, that rule also applies in estate planning. You essentially have three choices in regards to preparing a Living Trust Estate Plan:

• Do-it-yourself/paralegal only assistance/Internet Forms
• An estate planning firm
• Working one-on-one with an experienced estate planning attorney at reasonable rates

CATEGORY 1:

The first category seldom results in a Living Trust that avoids Probate – most inexpensive Trusts prepared from a joint conference with an attorney at a seminar and those prepared by a non-attorney are not properly funded – you are left to do most of the work and they do not include all of the documents necessary to complete your Living Trust Estate Plan. Be sure to compare and asks questions:

• Does your Living Trust Estate Plan include the preparation and recording of a Grant Deed(s) transferring all property I own into my Trust?
• Does the Living Trust Estate Plan you offer include:
• A Durable Power of Attorney for financial affairs,
• An Advance Healthcare Directive for emergency medical decisions,
• An Assignment of all my personal property into my Trust,
• A Certification of Trust which I will need to provide any banks or investment advisors to transfer those accounts into my Trust,
• A Pourover Will that accompanies the Trust?
• Is an attorney available for follow-up question or problems I may have?

CATEGORY 2:

CATEGORY 3:

The third alternative or middle ground is what we offer – meeting one-on-one with an experienced estate planning attorney that will prepare for you a comprehensive Living Trust Estate Plan for a reasonable fee – not as cheap as the Internet forms or the quick paralegal services and, not surprisingly, not nearly as expensive as a large estate planning firm with expertise for estates much larger than anything you will need.

Why should a senior citizen consider a living trust?

As we live longer and longer, the probability of dealing with incompetency issues increases. What if I suffer a stroke or medical set back that prevents me from being able to attend to my financial affairs and/or living arrangements? A properly prepared Living Trust Estate Plan anticipates such “real life” complications and provides for the designation of an agent to take on the authority of handling your personal and financial affairs in that instance. You are able to completely avoid court conservatorship proceedings – a public Court case with a mental competency examination, thousands of dollars in attorney’s fees and court supervision of your affairs. A properly prepared Living Trust Estate Plan completely avoids such a process and provides a seamless transition with control by a person you have selected in advance.

Does a Will avoid Probate?

No, unless your estate is worth less than $150,000.

Details: California law requires a Probate proceeding if you’re worth more than $150,000 at the time of your death. A Will merely allows you to designate who the court appointed representative (Executor) for your estate will be and how your estate will be divided – there is still a long, public, expensive Court case in the Probate Court required to settle your affairs.

What are the costs of Probate I can avoid with a Living Trust Estate Plan?

Attorney’s fees in a California Probate Proceeding are currently $4,000 of the first $100,000 in assets, $3,000 of the next $100,000 in assets, and 2% of the next $900,000 in your estate. Accordingly, you will incur $13,000 in attorney’s fees for a $500,000 estate and $23,000 in attorney’s fees for a $1,000,000 estate. You can double those fees if your Executor chooses to charge for their services, so we are talking about $25,000 for a $500,000 estate and $50,000 for a $1,000,000 estate, in addition to court costs/fees (typically $1,000 – $3,000 depending on the size of your estate) and an average of 12 to 18 months in a court proceeding.

Doesn’t a Living Trust only benefit my children/heirs in that it simply avoids Probate after I have died?

While it is true that the primary economic/cost saving benefit of a Living Trust is avoiding the expenses (approximately 8 to 10% of everything you own), and delay of a Court Probate process, most people are unaware of the significant lifetime benefit that a Living Trust provides – provisions to avoid a Court conservatorship in the event you are incapacitated. If you suffer you a stroke or are incapacitated by Alzheimer’s, dementia, etc., in the absence of a Living Trust, Court proceedings separate and apart from a Probate proceeding are required. That process, known as a conservatorship, is also time consuming and very expensive. A Living Trust provides you with the opportunity to designate a spouse, child or other third party to act as your “Successor Trustee” and handle all of your affairs without the necessity of the legal process known as conservatorship. Examinations to apprise the Court as to whether you are incompetent or not, Court hearings to determine who should be appointed your representative, and continuing obligations to account to the Court for the handling of your financial affairs can all be avoided by a properly prepared Living Trust.

How do I amend/update my Living Trust/Estate Planning Documents?

An unexpected death of a beneficiary, a change of heart as to who should handle your financial, personal or medical affairs, or a change in the law should trigger a re-evaluation of your Estate Plan. Changes in the law that may impact your particular Estate Plan vary – those changes are, however, infrequent and few if any amendments to a Living Trust are usually required after it is signed. Recent changes in the law which should be discussed with an estate planning attorney of your choosing include: Replacement of the old “Durable Power of Attorney for Healthcare” with an Advance Healthcare Directive. A Healthcare Power of Attorney executed after 1982 may still be effective, but the new, more comprehensive Advance Healthcare Directive has many more provisions permitting you to control when, for example, life support is used, or not used if you become seriously ill.

A more recent in the law occurred in 2009 when the California Legislature passed a new set of rules controlling No Contest clauses in Estate Planning Documents. Formerly, a simple one to two paragraph clause which simply left nothing to anyone who contested your wishes, would suffice. Now one needs to be replace that with a much more comprehensive provision taking into account a new law which allows the Court to determine that a challenge to your Trust was made in “good faith” and therefore does not result in a loss of a challenging party’s inheritance or gift in your Will or Trust.

What are the most important things I need to know about a Living Trust?

A properly prepared Living Trust will avoid Probate, a long, expensive, public case to settle my affairs/distribute my assets. A heavy percentage of Living Trusts prepared do not accomplish that goal, usually because assets are not properly funded into the Trust and the client does not have a working knowledge of how to use their Trust,

Never have an important legal document such as a Living Trust prepared by a non-attorney, and certainly not by a non-attorney (usually through a seminar) who is a life insurance or annuity salesman -their primary motivation is to sell you an investment plan through their office.

What documents do I need to gather in order to start preparation of a Living Trust Estate Plan?

• A Deed to any property/land you own
• A Property Tax Bill for any real property/land you own
• The name, address and phone number for a first, second, and third choice Executor/Successor Trustee/financial care agent
• The name, address and phone number for a first, second, and third choice Healthcare Agent to handle any medical decisions you are unable to handle yourself
• A copy of your Mortgage Loan Statement for your residence (as formal notice is required to be given to your mortgage lender when you transfer your home into your Trust)
• Have a general outline of where you wish to have your estate distributed upon your death

What is involved in administering a Living Trust after death?

A Living Trust Estate Plan is private (not a public court case), out of court and fairly inexpensive process to follow. Depending upon the nature of your estate, the complexity of assets in your Trust, whether you have outstanding creditors (bills due at your death), and whether anyone has legal grounds for challenging your Living Trust Estate Plan, the costs vary. You typically pay for such services on an hourly basis.