Living Trusts and Estate Planning​

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What is Probate?

Probate is the legal process where the Court takes control of the assets of a decedent, and appoints the representative of an estate to distribute property of the decedent under Court supervision and control. The probate process can be expensive and time consuming, and, if contested, can take years and a substantial amount of money to complete. The main expenses include the probate attorney, executor, accountant, appraisal, and court filing fees.  Probate may take 9 months to 2 years to complete, or longer, and may become a tremendous emotional and financial burden for your loved ones. 

What to Expect in Probate

Since Probate is a legal, judicial process, it will be public and take place in a courtroom.  There the judge who is assigned to the case will set the various hearings during the Probate of the estate.  Some probate cases have taken much longer than 2 years to be completed.  Meanwhile, your beneficiaries must wait until the process is complete before they are entitled to receive their share from your estate.  If you owe money on property, they may also have to maintain payments to assure that the assets are not lost.  

Does Adding My Child on Title with Me Avoid Probate?

Yes. However, adding your children on title as joint tenants means that they are then co-owners of your property.  This means that you need their permission to sell or mortgage your property.  It also means that your property could be exposed to the claims of their creditors.  Additionally, you may create unneeded liability and tax consequences for your children.  Finally, when you add your child on title as a joint tenant, you may be liable for a gift tax, and if your child dies before you, your family may have to prove that your house should not be probated as part of their estate.  As a general rule, we discourage this being done by our clients. 

Wouldn't joint tenancy be just as good a way to avoid probate?

NO!  Joint tenancy with a child or children could avoid probate, but what if your child was involved in a nasty divorce and the spouse is awarded a portion of your home? What if the joint tenant is sued or gets involved in an auto accident without sufficient insurance coverage? What if there are taxes due that apply to the other joint tenant and the IRS liens your home to satisfy the judgment? Most attorneys do not recommend holding your property in JOINT TENANCY merely to avoid probate. 

How Does a Living Trust Avoid Probate?

You create, own, and control the Living Trust during your lifetime and transfer the title of your assets to your Trust.  Since you manage the Trust and no longer personally own your assets, and since your Living Trust survives your death, your property in your Living Trust does not have to go through Probate when you die. The Trust continues to own the assets and your Successor Trustee takes over management of the Trust and carries out your directives precisely to distribute your property exactly as you direct in your Living Trust.  

Is a Trust Right for Me?

Many people answer this question with an emphatic YES!  If you want to avoid probate, reduce the possibility of Conservatorship or Guardianship, secure privacy for your family and save money on taxes, maybe you should answer yes, too.  

Who Controls My Trust Assets?

You do, or if you so choose, you can name someone else to manage it; or for a fee, you can have an attorney or a professional Trust Administrator manage it for you.  If you choose to manage your Trust as the Trustee, you manage your Trust assets for your own benefit during your lifetime.  You continue to use your assets just as you were doing before setting up your Trust.  

Can I Change My Living Trust?

Yes, you can, and you should if your family situation changes. As the Trustor, you retain the right to change any of the terms of your Trust or even revoke your Trust, as long as you are competent.  No one else can change any part of your Trust. In order to change your Trust, do not write directly on the Trust document itself.  Rather, ask your attorney to draft an amendment which you will sign and have notarized just like the Living Trust Declaration itself.  Amendments are usually simple, and it should not take your attorney long to write up a simple amendment. 

What If I Buy or Sell Assets?

If your assets change, you can easily keep track of them in your Trust.  Most of the time, there is no need for a lawyer to accomplish these changes.  After your Trust is completed, all future purchases can simply be made in the Trust name. You can sell assets and add new assets yourself without requiring a change of the Trust.  Basically, you can do almost anything you want with your property while it is in the Trust.  You retain complete control over your assets as long as you are competent. 

Can a Living Trust buy and sell assets in the Trust?

Yes, you actually do business in the name of your Trust. You can buy, sell, trade, or give away your assets the very same way you do now.  It all depends on you, the Trustee. You have complete control of your assets and can do anything with them after the Trust is formed that you could do before the Trust was formed. 

If I have a Living Trust do I also need a Will?

Yes, you will need a "Pour-Over Will", which "pours over" into your Living Trust at your death, any assets you forgot to put into the Living Trust.  Those forgotten assets do not have to go through Probate (unless they are over your allowable State probate guidelines), but will go directly into your Living Trust. This Will also names your nominated Guardians for any of your minor children and disinherits anyone you wish to keep from having an interest in your Estate.  All of our Family Living Trusts contain a "Pour-Over Will" as one of the supporting documents. 

Will My Trust Reduce Inheritance Taxes?

A Living Trust can definitely reduce Inheritance Taxes. If the net value of your estate, when you pass away, is more than the exempt amount (Unified Tax Credit), federal inheritance taxes must be paid.  If you are married, an "A/B" Trust (Marital Deduction Trust) will allow you and your spouse to pass double the exempt amount to your heirs without any inheritance tax, saving an enormous amount of money in potential inheritance taxes. 

What is meant by an A-B Living Trust?

An A/B Living Trust is a Trust for married couples with substantial assets.  Under appropriate circumstances, it provides for a method that allows you to double your Estate Tax Exemption (Unified Tax Credit) at the surviving spouse's death. This can be an important mechanism for every Estate that would benefit from it. However, there are some downsides to using this kind of Living Trust, so be sure to discuss this with your Trust Attorney. 

What are estate taxes?

The federal estate tax is a tax on the net value of your estate (your assets less your debts) at the time of your death.  This is also known as the death tax. Some states have their own death taxes in addition to the federal tax. This tax is expensive.  In 2018, the Federal Unified Tax Credit was established at $11,200,000.00 Net, and it is indexed so that it rises a little each year.  A federal estate tax can be assessed on estates with a net value of more than $11,200,000 and will have a top tax rate of 40%.  Everyone should plan ahead.  

How can I save on estate taxes?

You may use many methods to save estate taxes.  You can give away some of your assets now to people or organizations who will eventually inherit them after you die.  You may get an Irrevocable Life Insurance Trust, a Charitable Remainder Trust, a Charitable Lead Trust or you could set up your own Private Charitable Foundation. You can set up a Personal Residence Trust. You can create a Grantor Retained Annuity Trust (GRAT), or a Grantor Retained UniTrust (GRUT).  You can establish a Family Limited Partnership. You can set up an Asset Protection Trust. You can establish a Land Trust. These methods are not appropriate for everyone, and many of them can be expensive to implement. For a vast majority of people, a standard Revocable Living Trust will provide people with the greatest benefit for the least expense.  

Does a Living Trust provide any protection from Income Taxes or Litigation?

No, it does not.  A Living Trust is a Revocable Trust and may be dissolved by you at any time.  It does not provide any protection for your assets against lawsuit or tax attachment. It can protect against attachment, seizure, levy or garnishment by the creditors of your contingent beneficiaries.  You usually do not have to file a separate tax return for your Trust while you are alive. If liability protection is a concern, you should contact your attorney and talk about other effective alternatives which may be used to protect your assets from attachment, seizure, levy or garnishment. 

Who can I name as my beneficiary?

You can name any person or organization as your beneficiary. That means you can name your children, relatives, friends or other individuals, a charity or foundation, or other organizations as your beneficiary. If you have pets, you can even set something up for them. 

Can I appoint one of my children as the Trustee for my Living Trust?

Yes, you can. In fact, this is what most families do.  Usually, you (and your spouse) remain the Trustee(s) during your life and your children take over at your death or incapacity (if you have named your children as Successor Trustees and in your Power(s) of Attorney).  You cannot name a minor child as a Trustee and there are special requirements for non-citizens. 

Should I use a corporate Trustee?

A corporate Trustee could be a bank Trust department or a Trust company that specializes in managing Trusts.  If you have no family or friends, or if they do not get along, or if they live in distant areas, or if you generally have no one you can trust, you might consider using a corporate Trustee. 

Is there anything bad about a Living Trust?

Though you may hear differently, the most direct answer is NO!  There is nothing bad about a Living Trust.  It is a traditional and well-proven planning tool that has been used in one form or another for well over 300 years.  Any problems that people have with a properly prepared Living Trust have nothing to do with the Trust itself.  The problems usually occur when property or assets are left out of the Trust because of a failure to change title(s) and ownership to the Trust (funding the Trust).  Other problems may occur with "boiler plate" type Trusts or poorly prepared Trusts.  Once the Trust is funded completely, your Living Trust should be easy to maintain. The only reason for not having a Living Trust is if your total estate value falls below the minimum limits of Probate which are: (a) Real Estate worth more than $50,000.00, or (b) other assets with an aggregate value of more than $150,000.00.  Even at the lower estate values, if there are minor children or other particular circumstances, a Trust can be used to control distribution to minors and other needy beneficiaries.  

My spouse is incapacitated. What should I do?

First of all, take care of your spouse. Then, notify the insurance company, your spouse's employer, find the Trust document(s), notify your attorney, find out what your insurance covers, have the doctors document your spouse's condition, apply for benefits, become familiar with your finances, put together a team of advisors (which may have been mentioned in the Trust), keep records, take care of taxes and accounting, and keep the successor Trustee informed.  There are many other things to be done and you can call your attorney for advice.  

How do I fund my Trust?

You place your assets into your Trust by changing the name on all of your titled assets (i.e. savings accounts, money markets, stocks, mutual funds, CDs, bonds), and your fixed assets such as real estate, into the name of your Living Trust. “Titled” assets, such as real estate, and other recorded assets like stock certificates, require preparation and filing of appropriate paperwork.  This is a very important step that must be done for your assets to truly avoid the Probate process.  It is usually simple to accomplish and very, very important.  Did I say it was important?  Usually, qualified tax-deferred plans such as IRAs, 401Ks, TSAs and annuities, are not changed to ownership by the Trust as this could impact the tax deferment. You will just name the Trust as the final contingent beneficiary. This is something you want to review with your attorney or professional tax advisor. 

My spouse has passed away. What do I do?

First, take care of funeral arrangements.  Then, find the Trust document, contact your attorney to review the Trust document, order death certificates, take care of ongoing bills and final expenses, put together a team of advisors (may be mentioned in the Trust), take an inventory of assets, and determine their current value, do tax planning, apply for benefits, pay the bills, make special gifts, and keep things organized for your Successor Trustee.  In the back of all of our Trusts we have partial Final Instructions and guidance for those who will be taking over and settling the Trust. 

Does transferring property into a Living Trust cause a reappraisal of the property so that property taxes are raised?

Absolutely Not!  California law specifically provides that a transfer into a Revocable Living Trust does not cause a reappraisal or revaluation of the property for tax purposes. It is an “exempt” transaction. 

What if I am incapacitated?

Your Surviving Trustee or Successor Trustee will take control of your Living Trust, and your Power of Attorney will take control of your personal affairs. This person will be responsible for overseeing your care, for notifying your attorney, have your doctor document your incapacity, look after minors, become familiar with your finances, apply for benefits, put together a team of advisors, notify your bank, and take care of record-keeping and accounting. 

Are Living Trusts legal in every state?

Actually, Living Trusts are legal in any country based on English Common Law.  Every state in the United States recognizes the Living Trust, and you may usually move from state to state with very little modification to your Trust.  Some states prefer certain wording of specific documents, but they do not invalidate the documents you have in your Trust.  If your residence state should change, simply call and we will do our best to assist you in getting your Trust in compliance. 

Do I have to file a special federal income tax return for a Living Trust?

No, you continue to file a 1040 as you always have, using your social security number to identify the Trust.  A Living Trust, being revocable, does not need a tax identification number and does not file a tax return of its own until after the death of the Trustor(s), or upon the death of the first Trustor in an A/B Trust under appropriate circumstances.  

Can a Living Trust be contested like a Will?

Usually not, but like anything, and especially in our litigious society, anyone can sue anybody at any time.  Our Living Trusts contain language that makes it difficult to successfully contest the Trust, even by an heir. In layman's terms, it states that to the full extent of the law, if a beneficiary wishes to contest the Trust, unless they can prove exceptional circumstances supporting their position, they will receive nothing.  Although the law has recently changed with regard to “no contest clauses,” the cost to contest a Trust as well as the forfeiture provisions (where enforceable) can provide a substantial barrier to non-meritorious contests. 

When will I need to update my Living Trust?

It is a good idea to review your Living Trust at least once every three to five years with the attorney who set it up for you.  As a general rule, you should change your Trust anytime it is no longer what you want.  Any major changes in your family, such as marriage, divorce, death, birth, etc., could justify a change in your Trust.  If your Successor Trustee(s) or Guardian(s) can no longer fulfill their responsibilities, you should make changes accordingly.  As long as you are competent you retain the power to make changes at any time to the heirs or successors of your Living Trust by simply entering an amendment to your Trust. 

How do we end our Living Trust?

When you die and all the assets in the Trust are distributed, the Trust will end.  If you retain assets in the Trust after your death for distribution to your heirs over a number of years, the Trust will remain active until such time as your instructions dictate the end of the Trust or all assets are finally distributed.   This could take a few years, or decades.  It depends on how you express your wishes in the Trust.