What is a Living Trust?
A Living Trust is a planning technique that offers benefits to virtually all Californians. It is particularly appropriate for individuals who are older or who have substantial assets. If you own a home in California, a living trust makes sense for you.
In a very real sense, a Living Trust is a new being. It will hold your property while you are living, and it will continue in existence after your death.
Who Manages the Living Trust?
You do, or the person of your choice may do so. In creating a Living Trust, you do not give up management and control of your assets. The assets and income are used for your personal benefit, or for the benefit of any other person or persons you name as beneficiaries.
What are the Benefits of a Living Trust?
1. Avoid Probate, Save Time and Money
Probate is a process whereby a court of law oversees the distribution of an estate upon a person's death. It can be very time-consuming -- taking up to two or three years in many cases -- and expensive because of attorney and other fees. For example, the probate costs for a $500,000 estate, which includes the value of a home, can be as much as $25,000.
2. Avoid Conservatorship
A Living Trust is especially important for a person who may lose capacity to make his own decisions. If no advance planning is done, a conservatorship may be required. In a conservatorship, a court appoints a person to make decisions and act for the individual who is unable to manage his personal or financial affairs.
Obtaining a conservatorship can be expensive, and there is ongoing supervision by the court. While a conservatorship can be healthy and protective in appropriate cases, it can as readily be unnecessarily intrusive and costly.
A Living Trust can avoid the need for a conservatorship in most cases. It can name someone to manage the trust if and when the person can no longer do so.
In other words, you can create your own mechanism for substituted control and management of your affairs without intervention by any other person or the court. You choose the person(s), and you can even include specific instructions about how the assets are to be managed.
While probate proceedings and records are open to the public, and anyone can look at the details of your estate and distribution plan, the terms of a trust are private.
4. "Test" a Trustee
If you like, you can name a person to manage the trust while you have full capacity and let her (or him) manage it for a test period, such as six months or a year. If the person does a good job, you let her continue. If she does not, you take over or replace her with another individual.
This is another illustration of how a Living Trust can help you retain as much control as possible over your assets, your personal security, and your future.
How Do You Create a Living Trust?
A Trust document -- such as the "John and Mary Smith Trust Agreement" -- is prepared. It specifies the beneficiaries of the trust, the managers of the trust, and numerous other things such as distribution of the assets upon the death of the first beneficiaries.
The Trust document is signed, and assets are transferred into the Trust. For example, the family home would be put into the name of "John and Mary Smith, Trustees for the John and Mary Smith Trust." Bank accounts and other assets would be similarly transferred.
Significantly, John and Mary Smith, as Trustees, can have the same amount of control over their money and other assets as they did without the Trust. The form of ownership changes, and John and Mary Smith will have specifically provided for their own and their family's future needs.
They will have retained control, preserved it in the event of incapacity, likely saved money, and avoided time-consuming inconveniences for their family.
It is emphasized that a Living Trust is a serious and comprehensive planning document. This summary is designed to acquaint you with many highlights of the Living Trust rather than be exhaustive. It does not, for example, explore tax and estate planning issues that are also important considerations when planning the provisions of a Living Trust.
"Peace of Mind" Trust Program
Gilfix & La Poll Associates LLP offers an annual fee plan for our trust clients. Participants receive many invaluable services on a no-fee basis, regardless of time consumed. These services include:
- Unlimited calls regarding operation of living trust
- Amendment changing trustee
- Annual trust letter re developments in trust law
- Litigation consultation
Note: This article provides information, it does not constitute legal advice.
Gilfix & La Poll Associates LLP attorneys practice elder law and estate planning and are available to answer any questions about Trusts, Durable Powers of Attorney for asset management, Advance Health Care Directives, and any other appropriate planning options.