Law Offices of Susan Marchant Angel Marin logo

 

 

 

 

Law Offices of
Susan Marchant Angel
810 E Street
San Rafael, CA 94901

415.453.5000

 

Advantages of a Living Trust

A Revocable Living Trust is a written document that is a substitute for a will but with certain advantages over a will.  A Trust is considered in the eyes of the law to be a legal person, just as you are, with the power to buy and sell its assets.  You choose three persons to fill the three positions in the trust:

(a)        THE TRUSTOR: the one(s) setting up the Trust, which would be you or you and your spouse;

(b)        THE TRUSTEE: the one who will manage the Trust, which can be yourself or you and your spouse while either of you are alive, with a successor you name to take over at the time of your death; and

(c)        THE BENEFICIARY: those who will enjoy the benefits of the assets that you have placed in the trust, both during your life and after your death, which can be you and anyone you choose, and can be structured however you choose.

You alone, or you and your spouse, may hold all of the three (3) above positions, providing that a successor Trustee is named.  This Trust may be revoked by you at any time during your lifetime.  You can still retain complete control over the investment of the Trust's assets during your lifetime.  (Note:  The trust does not automatically convert separately owned property to community property, or vice-versa.  Whatever began as yours is still yours after putting it into the trust, unless you decide otherwise.)  

A "Pour-Over" Will is an integral part of the Revocable Living Trust.  It supersedes all previous wills, and transfers to your Trust any assets left out of the Trust, either for convenience or due to inadvertence, during your lifetime. 

A Revocable Living Trust should be utilized whenever any of the following benefits are desired by you.  Most of these benefits are unattainable through a simple will, and many are unattainable even with a complex will, as described below.  The size of one's estate is not a factor concerning most of the benefits of a trust, although the benefits are even greater with a larger estate. 

1. The Living Trust gives you complete control over the distribution of your assets during your lifetime and after your death, allowing you to give whatever you wish to whomever you desire at exactly the time you designate, without Court interference.  A will also allows you to give your property to whomever you wish, but the timing after your death is controlled by the Court, and delays of nine months to two years in distributing estate assets are not uncommon. 

2.         Executor's commissions, both statutory and extraordinary, are eliminated.  A chart can be found on the last page of this document listing the amount of these fees.  The Trustee, if not you or your spouse, will get a fee, but the amount is not set by statute, and is usually far less. 

3.         The Attorney's statutory fees, necessary with a will, also included in the chart on the last page, are eliminated.  If the trustee consults an attorney, the fees would be far less than the statutory fee in nearly all cases. 

4.         The Court costs of going through probate are eliminated.  A Living Trust does not normally go to Court at all. 

5.         If you become mentally or physically unable to act for yourself, either temporarily or permanently, conservatorship proceedings become unnecessary to handle your financial affairs, as your prenominated Trustee will step in on your behalf. 

6.         Your Trust's assets (which is normally everything you own) may be distributed immediately to your heirs upon your death, for their immediate benefit and welfare.  As mentioned above, it may be nine months to two years or longer to fully distribute your assets under a will.  

7.         However, should you wish, you may also delay the distribution of the Trust's assets to, for example, your minor children, until they are older.  Such assets will be invested, with the income, and if necessary and desired the principal being spent on your children's education and general welfare until whatever age or event (i.e., finishing college) you choose.  A will can also provide for these delayed distribution benefits, although such a will would not be considered a simple one. 

8.         Should you die leaving minor children, a guardian appointed by the Court to care for your children's inherited property is eliminated.  Again, the successor Trustee you have chosen, usually a trusted family member, will act in your shoes.  This benefit is also available with a will, although not a simple one. 

9.         A Living Trust prevents any information about your assets, liabilities, and beneficiaries from becoming public information.  The probate of a will, including the will itself and a detailed list of all your assets, is public knowledge. (For example, because she had no Living Trust, the world knows that Natalie Wood died with 6 million dollars and 39 fur coats.) 

10.      Additional probate in other states, where you may own property, is eliminated.  A will would require that all such out-of-state property go through the other state's probate proceedings. 

11.      A Living Trust reduces vulnerability to a contest by disgruntled heirs. 

12.       A Living Trust can assist in creating a new cost basis for all of your property at the time of your death, thus lowering taxes.  If the property is held in Joint Tenancy, only one-half (2) of the jointly owned property receives a higher cost basis upon the death of the first spouse.  This problem can be eliminated with a trust or will (or even with neither) by holding any appreciating property as Community Property with your spouse if you are married.  (If you so choose remember the trust does not in itself convert separately owned property to community property.)  

13.       If you own a family-run business, with a Living Trust, the income from your business will continue without interruption to your family, and the turn-over in management can be accomplished more smoothly.  Under a will, the income could be restricted until the probate proceedings are completed, and the executor may have to temporarily (for up to several years) run the business until the probate is completed. 

14.       As mentioned before, the Trustee of your estate may buy and sell assets or securities at any time, taking advantage of the market or money exchange of the day.  Under a will, new investments are strictly limited while going through the probate process, with the exception of government bonds. 

15.       A Living Trust gives the Trustor a feeling of satisfaction that he or she has set their financial house in the best possible order for their children or heirs.  Additionally, real savings are created by dramatically lowering expenses, funds that would not be available to your family under a will. 

16.       A Living Trust has no periodic trust reports or accountings to the Court, with their accompanying public record and legal expense, unless you choose to require such accountings. 

17.      A properly prepared Living Trust may reduce or eliminate estate taxes. Without proper planning, any amount over one million dollars (including life insurance) in your estate is subject to estate taxes of approximately 35% to 50%. (The one million dollar exemption from estate taxes will gradually increase from 2004 to 2010, but then reverts back to one million dollars in 2011.) We can also achieve this tax planning with a will, but again, such a will would be far from a "simple will."
 

18.       Revocable Living Trusts are easy to establish, and once established, you maintain them yourselves, without needing an attorney.  Additionally, they involve a minimum amount of paperwork.  If set up correctly, the paperwork should be no more difficult than what your assets require without a Trust. 

19.       A Revocable Living Trust may be amended inexpensively or revoked at any time.  A will is more difficult to amend. 

20.       There are no income tax consequences involved during your lifetime in setting up a Revocable Living Trust.  In fact, the Trust is not even required to file a separate tax return.  All income and losses of your Trust are reported on your individual federal and state tax returns. 

21.       Revocable Living Trusts are legal in every state.  Your Trust goes with you from state to state as easily as you do, and need not be modified if you move to another state.  This is true with most wills in most states also. 

22.       Assets can easily be placed in your trust once it is established, by changing the title on your stocks, real estate, bank accounts, etc., from "MARY DOE and JOHN DOE" to "MARY DOE and JOHN DOE, TRUSTEES, U.D.T. dated [the date of your trust]."  (Or "STEVEN ROE" to "STEVEN ROE, TRUSTEE, U.D.T. dated [date of trust]".  ("U.D.T." stands for "Under Declaration of Trust.")  Although the property is titled in the name of the Trust you retain the right to the use, possession and enjoyment of the property during your lifetime, the same as if it were not in trust. 

23.       Assets are removed from your Trust by either selling them or changing the title back to your individual name or names, e.g., from "MARY DOE and JOHN DOE, TRUSTEES, U.D.T. dated [date of trust]" to "MARY DOE and JOHN DOE."

 

 DISADVANTAGES OF A SIMPLE WILL 

1.         A simple will is a written document drawn under legal formalities that directs how a person's property will be disposed of on death.  It is ineffective until your death, and thus has no effect on your property during your lifetime, unlike a living trust.

2.         Probate is a procedure that all wills are subject to, whereby the validity, genuineness, and interpretation of the will is determined by the Court.  It is a procedure that is, in most states, including California, expensive, time-consuming and publicized in the newspapers.  Living Trusts are not subject to probate.

3.         A Conservatorship could be forced upon you should you be found mentally or physically unable to act for yourself.  An attorney would need to appear in Court to establish a formal conservatorship for you, and although your preferences are given weight, the Court will decide who the Conservator will be.  This is an expensive, time-consuming, often publicized, and embarrassing procedure.  All of your assets would normally then be subject to the conservatorship. 

4.     If you own property as Joint Tenants: 

(a)    At the death of your spouse, only one-half (1/2) of the appreciation of your estate's assets is exempt from a federal income tax, when you (the surviving spouse) sell these assets; 

(b)    All of your assets are subject to a potential conservatorship, unlike with a Trust where they are protected 

(c)     Probate is necessary on the death of the last Joint Tenant 

(d)    Your federal estate taxes may be increased if you are married, although a complex will can solve this problem also. 

5.         Although certain unusual estates may benefit by probate; for example, an estate with many large or complex debts, the costs and delays inherent in probate usually outweigh the advantages even in those few estates.  Certainly in most estates, the probate procedures offer no advantages and significant disadvantages.

 

CALIFORNIA PROBATE COSTS 

Below is a table of the basic fees, as set by statute, for probate administration in California.  The figures below include both the fees for the attorney who handles the estate administration and the fees for the Executor. 

Value of Probate Estate      Basic Fees     
 $200,000  $14,000
$300,000  $18,000
$400,000  $22,000
$500,000 $26,000
$1,000,000  $46,000
$2,000,000  $66,000
$3,000,000  $86,000
$4,000,000  $106,000
$5,000,000  $126,000
$10,000,000  $246,000
$15,000,000  $296,000
$25,000,000  $396,000 

                             

If the spouse of the person who died serves as executor, and if all the property is left to that spouse, the basic fees may be less (1/5 to 1/2 as much) for the estate of the first spouse to die. 

If the Executor or attorney performs any so-called "extraordinary" services on behalf of the estate, the Court awards them additional fees.  These "extraordinary services" include filing any of the tax returns required by federal or state officials, selling estate assets, conducting the decedent's business, selling real estate owned by the decedent, or defending the estate against claims.

Are you ready to find out more about securing your family's financial future?  Please Contact Us (415.453.5000) so we so we can help you find the best solution for your needs.

 

   
 
Copyright 2010 ~ Susan Marchant Angel, Attorney at Law