Understanding Revocable Living Trusts
DO I NEED AN ESTATE PLAN?
You do — whether your estate is small or large. Either way, you should designate someone to manage your assets and make health care and personal care decisions for you if you ever become unable to do so for yourself.
If your estate is small, your plan may simply focus on who will receive your assets after your death, and who should manage your estate, pay your last debts and handle the distribution of your assets.
If your estate is large, your lawyer will discuss various ways of preserving your assets for your beneficiaries and of reducing or postponing the amount of taxes which otherwise might be payable after your death.
If you fail to plan ahead, a judge will appoint someone to handle your assets and personal care. And your assets will be distributed to your heirs according to a set of rules known as "intestate succession." Contrary to popular myth, everything does not automatically go to the state if you die without a will. Your relatives, no matter how remote, and, in some cases, the relatives of your spouse, have priority in inheritance ahead of the state. Still, they may not be your choice of heirs; an estate plan gives you much greater control over who will inherit your assets after your death. —http://www.calbar.ca.gov
WHAT IS A WILL?
A will is a traditional legal document that:
- Names individuals (or charitable organizations) who will receive your assets after your death, either by outright gift or in a trust.
- Nominates an executor who will be appointed and supervised by the probate court to manage your estate; pay your debts, expenses and taxes; and distribute your estate according to the instructions in your will.
- May include nominations of guardians for your minor children. —http://www.calbar.ca.gov
WHAT IS A REVOCABLE LIVING TRUST?
It is a legal document that can, in some cases, partially substitute for a will. With a revocable living trust (also known as a revocable inter vivos trust or grantor trust), your assets are put into the trust, administered for your benefit during your lifetime and transferred to your beneficiaries when you die — all without the need for court involvement.
Most people name themselves as the trustee in charge of managing their living trust’s assets. By naming yourself as trustee, you can remain in control of the assets during your lifetime. In addition, you can revoke or change any terms of the trust at any time as long as you are still competent. (The terms of the trust generally become irrevocable when you die. However, in trusts created by married couples, some or part of the trust may continue to be revocable by the surviving spouse.)
In your trust agreement, you will also name a successor trustee (a person or institution) who will take over as the trustee and manage the trust’s assets if you should ever become unable to do so. Your successor trustee would also take over the management and distribution of your assets when you die.
A living trust does not, however, remove all need for a will. Generally, you would still need a will — known as a pour over will — to cover any assets that have not been transferred to the trust.
Keep in mind that your choice of trustees is very important. That trustee’s management of your living trust assets will not be automatically subject to direct court supervision. —http://www.calbar.ca.gov
Do I Need a Will if I have a Trust?
Yes. A special type of will referred to as a “pour over will,” works hand-in-hand with the revocable trust and acts as a safety net, in the event you forgot to re-title an asset in the name of your trust. This legal document is included in your estate plan.
Advantages of a Trust vs. a Will
Apart from avoid probate, there are other advantages to using a revocable trust in your estate plan.
- If an illness or accident leaves you incapacitated, your successor trustee can handle your financial affairs without the need of a court appointed guardian or conservator.
- If the beneficiaries of your trust are minor children or others who might not use an inheritance as you intend, the trust can continue to hold the assets until they reach a more mature age.
- If you own real property in more than one state, you avoid the expense, time and hassle of multiple probate proceedings.
- By using the “A-B” provision in a trust, a husband and wife can pass the maximum estate tax exemption to their heirs.
What is so bad about Probate
Probate has many disadvantages, including:
TIME CONSUMING: The probate process can take a few months or as long as several years to complete. The average probate takes about 12 months. In complex situations, probate lasting 18 months or longer is not unusual.
COSTLY: Attorney’s fees to probate an estate can run into thousands of dollars. In addition, the executor must be compensated. All related probate fees must be paid before any of the descendant’s assets are distributed to the family. The average cost of probate is 4-8% of the gross estate.
LOSS OF CONTROL: The probate court controls the entire process. Someone “on the outside” will tell your beneficiaries who gets what and when.
LACK OF PRIVACY: All probate transactions are a matter of public record. Anyone can find out the size, contents and beneficiaries of your estate. This can be embarrassing and frustrating for your family, create disputes, and expose your family to unscrupulous solicitors.
The Bottom Line is that Probate is time consuming, inconvenient, and expensive. Even at best, probate is an unpleasant and emotionally trying experience. At worst, it can be a nightmare.
Benefits of a Revocable Living Trust
Avoids probate at death, including multiple probates if you own proPERTY in other states.
Prevents court control of assets in the case of incapacity.
Provides maximum privacy.
Quicker distribution of assets to beneficiaries.
Assets can remain in trust until you want your beneficiaries to receive the assets.
May reduce or eliminate federal estate taxes.
Inexpensive, easy to set up, and maintain.
May be amended (changed) or revoked (cancelled) at any time.
Difficult to contest.
Prevents court control of minors’ inheritance.
Can Protect Dependents with special needs.
You only need to set it up once during your lifetime.
Avoids probate in all 50 states, even if you move to a different state from where you created it.
The Kahn Law Firm, located in Claremont, serves clients in Claremont, Chino Hills, Chino, San Bernardino, Redlands, Montclair, Ontario, Upland, Pomona, San Dimas, La Verne, Glendora, Rancho Cucamonga, Fontana, Victorville, Riverside, Los Angeles County, San Bernardino County, the Inland Empire, high-desert communities and throughout Southern California.
