to Avoid Probate, Save Taxes, Protect your Children, and
have a Will. Why would I want a Living Trust?
Contrary to what most people believe, a Will may not
be the best plan for you and your family - primarily
because a Will guarantees probate. A Will must be verified
by the probate court before it can be enforced. Additionally,
a Will can only go into effect after you die, providing
no protection if you become physically or mentally incapacitated.
there is a simple and legal alternative to a Will
The Revocable Living Trust. It avoids all probate, and
lets you keep full control of your assets while living
- even if you become incapacitated - and after you die.
Probate is the court process required when you die
to assure debts are paid and assets are distributed
according to your Will. If you do not have a Will, your
assets are distributed according to state law.
is so bad about Probate?
is expensive! Probate fees paid to your attorney
and/or executor are set by law at approximately 5%
of the gross value of your estate. If you own property
in more than one state, there may be a probate in
takes time. In California, typical probates last
9 months to 2 years. Assets are frozen during this
period - if your family needs money to live on, they
must request a living allowance from the court which
may be denied.
lose privacy. Probate files are open to the public,
so anyone can see what you owned and who owed you.
This invites unscrupulous solicitors to prey on your
loved ones at a vulnerable time.
would the court get involved at incapacity?
If you lose your mental or physical capacity (due
to Alzheimer's, stroke, heart attack, etc.), only a
court appointee can sign documents for you - even if
you have a Will. (Remember, a Will only goes into effect
when you die.) Once the court gets involved, it stays,
involved until you recover or die. The court, not your
family, controls how your assets are used to care for
you. This can be expensive, embarrassing, time consuming,
and difficult to end if you recover. And it does not
replace probate at death - your family would have to
go through the court system twice!
a Power of Attorney Prevent this?
All Powers of Attorney end at death, so they cannot
be used to avoid probate. Many also end at incapacity.
Proper Durable Powers of Attorney may work, but they
can be risky . . . you are giving someone else the power
to do whatever they want with your assets. It is very
effective when used with a Living Trust, but risky as
a primary estate plan.
is a Living Trust?
A Living Trust is a legal document that is similar
to a Will in that it includes your instructions for
what you want to happen with your assets when you die.
But unlike a Will a Living Trust avoids probate at death,
and prevents the court from controlling assets at incapacity.
It also provides tax planning to avoid paying unnecessary
Does a Living Trust Work?
When you set up a Living Trust, you transfer assets
from your name to the name of your trust, which you
control. Legally, your Trust (ie: the Smith Family Trust)
now owns your assets and you designate a back up trustee
to handle your trust (according to your instructions)
upon your incapacity or death. From the legal viewpoint,
having a Living Trust means that you do not hold title
to anything; since your assets are inside the Trust,
the Trust holds title to everything. However, even though
you have relinquished ownership of your assets, you
still retain control of those same assets.
your death, since you have nothing titled in your own
name (because your assets are in the Trust), there is
nothing to probate. If you are married, the surviving
spouse typically becomes the surviving trustee and continues
to have control over the assets.
of a Living Trust
probate at death
multiple probates if you own property in more than
court control of assets at incapacity
quick distribution of assets to your beneficiaries
can remain in Trust until beneficiaries reach the
age(s) you want them to inherit
reduce or eliminate estate taxes
easy to set up and maintain
be changed or cancelled at any time
court from controlling finances when minor children
protect dependents with special needs
unintentional disinheriting and other problems of
should have a Living Trust?
It does not really matter how old or wealthy you
are, or if you are married or single. If you own any
titled assets (home, IRA, mutual funds, etc.) and/or
have minor children, and you want to make sure your
loved ones avoid the problems and cost of court interference
at your death or incapacity, you should consider a Living
Trust. And if your parents are living, you may want
them to consider one so you won't have to deal with
the courts at their incapacity or death.
an additional benefit a Living Trust can provide for
the care, support and education of your minor children
or other young beneficiaries by providing management
of the assets by the Trustee. The assets can be distributed
to the children at an age or ages chosen by you. By
implementing a Living Trust for this purpose your estate
will also avoid the costs and burdens of court supervised
guardianship for your minor children.
Special Needs Trust can also be implemented for beneficiaries
that are disabled and/or receiving government benefits.
trusts can also be used to ensure that both the surviving
spouse and any children from a prior marriage receive
fair treatment and protection.
I see an attorney to plan my estate?
Yes, preferable one who specializes in Living Trusts.
An experienced attorney can provide valuable guidance
and assistance, and assure your Trust is properly prepared.
are Death Taxes?
Separate from the expense and delay of probate,
your estate may also be liable for death taxes, federal
estate tax and California's estate tax, known as a "pick-up"
tax. The pick-up tax is equal to a credit given by the
federal government for the payment of state death taxes
attributable to assets located in California. In essence,
the gross estate tax due is fixed and California merely
takes a share of the federal tax. But, if you own assets,
such as real property, in another state, that state
will take a percentage of the "pick-up" tax
and California will take the balance. Please note that
some states assess a separate inheritance tax, over
and above and "pick-up" tax.
of Your Estate
Every person in the United States has a credit which
may be applied to either federal gift tax or federal
estate tax. That Unified Transfer Credit (UTC, also
known as the "applicable credit amount") will
pay the transfer tax on both lifetime gifts and assets
passing at death.
the value of your estate is less than $1,000,000 at
your death, and you die after 2006, and you made no
taxable gifts during your lifetime, no federal estate
tax will be due.
the other changes to the tax laws, some important ones
from estate tax of a significant value of a family farm
or business, subject to certain conditions.
from estate tax, starting at $100,000 (increasing to
$500,000 in five years), for certain real properties
permanently subjected to qualified environmental easements.
A cost of living adjustment ("COLA") for the
$10,000 gift tax exclusion and certain other limits.
Estate Tax Rules
Estate taxes begin at 37% for property value which
exceeds the unified credit. The tax rates increase on
a graduated scale up to 55% on taxable estates over
$3,000,000. Estates between $10,000,000 and $21,040,000
are taxed up to 60%. Additionally, some assets, such
as highly funded pension plans, may incur taxes as high
Married couples are granted the additional advantage
of the unlimited marital deduction, which exempts assets
passing from a surviving spouse from taxation. The marital
deduction can provide a significant amount of benefits
to the surviving spouse if used properly. This deduction
does not reduce your taxes, it merely postpones payment
of tax on assets passing to the surviving spouse until
their death. (Please note that, if the surviving spouse
is not a U.S. citizen, the marital deduction will not
be available unless the property passes into a "Qualified
Domestic Trust". This is a critical planning issue
for non-citizen spouses. )