Do you have a will? A trust? Neither one? Are you comfortable with how your assets will be distributed upon your death? What about disability? Have you considered what would happen to you and to your financial affairs in the event you were incapacitated for an extended period of time? Although a simple will, together with a durable power of attorney, will be sufficient for many situations, there are advantages to having a revocable living trust.
A revocable living trust is relatively easy to establish. You don't lose control of your property while you're alive, and as trustee of your own trust, you retain the ability to buy and sell assets, and to do everything you could do before as an outright owner. And, since the trust is revocable, you can modify your trust, or even completely revoke it, at any time.
What a living trust will do:
- Avoid the delays of probate proceedings
- Avoid probate fees
- Provide greater confidentiality than probate proceedings
- Avoid conservatorship
One of the major advantages of a living trust is that probate proceedings can be completely avoided (provided that all of your assets are transferred into trust). This eliminates the delays of probate proceedings, which in California are typically six months to a year, and possibly much longer in more complicated estates, during which time it might be necessary to seek court approval to sell assets, obtain an allowance for the family, or conduct other affairs.
Why the delay? What is probate? Probate is the legal process during which the court makes sure that, after your death, your debts are paid and your property is distributed according to your will, or, if you don't have a will, according to the laws of the state in which you live.
In addition to eliminating the delays of probate, a living trust will also eliminate the statutory attorneys' fees and the statutory commissions of the personal representative (executor or administrator) of the probate estate, which in California can total over 6 percent of smaller estates, and over 4 percent of estates as large as a million dollars.
Another advantage of living trusts is that they are significantly more private than probate proceedings. In every probate proceeding, the will and an inventory and appraisement listing the estate's assets and their value, are on file and open to public inspection at the courthouse, but this is not the case with living trusts.
In addition to these significant advantages after your death, an important advantage of having a living trust during your lifetime is that it will allow you to avoid costly and cumbersome conservatorship proceedings in the event of your incapacity, by providing for a successor trustee to manage the assets which you have placed in trust. (Although it is true that a durable power of attorney for asset management may also achieve substantially the same result without a living trust).
Despite the common belief that a having a living trust instead of a will can save you estate taxes, in most cases this is not a major advantage of living trusts. A revocable living trust, while an excellent vehicle for implementing tax-planning strategies, does not in and of itself reduce estate taxes to any greater extent than would a properly drawn will. Under Federal Estate Tax law, if the net value of your estate upon your death is greater than $625,000, Federal Estate Taxes must be paid at a rate starting at 37% on the excess over $625,000 and increasing to 55% on the excess over $3,000,000. If you are married, an "A-B" revocable living trust (or testamentary trust contained in a trust will) allows you and your spouse to fully utilize the $625,000 exemption of each spouse, thereby passing on a total of $1.25 million tax-free to your beneficiaries and saving around $246,000 in estate taxes. Other, more complicated living trusts, most of them irrevocable, exist to implement more sophisticated tax savings strategies which cannot be implemented through wills.
In conclusion, if you want to avoid probate fees and the delays of probate proceedings, then a trust may be the right estate planning instrument for you. A trust's confidentiality advantage over probate proceedings, as well as its ability to avoid conservatorship during periods of incapacity in your lifetime, may also be important to you and
your family. Of course, in order to determine whether or not a trust would be the best choice in your particular situation, you should consult a qualified attorney.
Zachary T. Prineas is an attorney in private practice in Newport Beach, California. His practice is concentrated in the areas of estate planning, wills, trusts, and probate, oil and gas, real estate and business law.