When most people hear the word “trust” in the context of estate planning, they immediately think of the super-wealthy. But trusts are not just for the rich and are in fact a common and recommended way of managing one’s estate in California. An essential component of many families’ estate plans is the revocable living trust. Loew Law Group is skilled in all aspects of California estate planning, including revocable living trusts. We can help you decide if a revocable living trust is right for you and your family.
What Is a Revocable Living Trust?
A trust is created when one or more individuals (known as grantors, settlors or trustors), transfer money and property, including real property and financial assets, into a legal entity to be managed by an individual known as a trustee. The trustee manages the assets for the benefit of third parties known as beneficiaries. The trust document dictates how the property is to be administered and provides instructions on how its assets are to be distributed upon the trustor’s death. Individuals can be both the trustee and beneficiary of their own living trusts.
A living trust is one that is created while the trustors are still alive. Trusts are further divided into revocable and irrevocable trusts, with the main difference being whether it can be changed or revoked. Revocable trusts, as the name implies, can be revoked or changed. A trust will remain revocable as long as the trustor can revoke or amend it. On the other hand, an irrevocable trust cannot be revoked or changed once it is signed. Also, a revocable living trust will generally become irrevocable once the trustor dies.
In the case of a family trust made between spouses, some or all of the trust may remain revocable after the first spouse’s death. However, a family trust generally becomes irrevocable once the second spouse dies.
There are numerous advantages to having a revocable living trust, and they are available to anyone regardless of their wealth or status:
- Avoiding probate
- Protecting the interests of minor children and others
- Avoiding estate contests
- Avoiding conservatorships
- Maintaining privacy
How Can a Revocable Living Trust Avoid Probate?
Probate is the process by which a deceased person’s estate is settled, debts are paid, and the property is distributed to heirs and beneficiaries. California’s probate process is complicated, slow, and expensive, specifically because of the significant expenses associated with it. Even where there is no objection or litigation involving probate, there are court costs, filing fees, and attorney’s fees that must be paid.
Estate planning attorneys and representatives of your estate have to be paid for their role in the probate process. California’s Probate Code sets the maximum amount these individuals can charge, based on the gross value of the estate. The current fee schedule is as follows:
- Four percent on the first $100,000
- Three percent on the next $100,000
- Two percent on the next $800,000
- One percent on the next $9,000,000
- One-half of 1 percent on the next $15,000,000
- For all amounts above $25,000,000, a reasonable amount to be determined by the court
The probate court can also order additional fees for particularly complex estates or those with special circumstances, including the need to market and sell property.
When wills are used to transfer assets to heirs, they are generally required to be probated. Property that is transferred and managed according to a revocable living trust does not have to go through probate, thereby avoiding these and other costs. Relatively speaking, revocable living trusts are much simpler and less expensive to administer than the delay and costs of probating your estate.
How Can a Revocable Living Trust Protect the Interests of Minor Children and Other Beneficiaries?
A revocable living trust gives you great flexibility in deciding not only who shall receive your assets when you die, but also how and when they shall receive them.
At the time of your death, some beneficiaries may be minor children, or other individuals who may not be well-suited to receive their inheritance all at once. For example, a minor child or even a young adult may not be sufficiently responsible to take on a large inheritance and use it responsibly. Other beneficiaries may have substantial debts, and their inheritance might be claimed immediately upon your death by creditors. Finally, some beneficiaries might receive public benefits, which may be adversely affected by an outright inheritance.
A revocable living trust can provide that certain beneficiaries receive their inheritance in a trust, to be managed by the trustee for that beneficiary’s health, education, maintenance or support. Some or all of the beneficiary’s share may be held in trust until they reach a certain age, such as 30 or 35, or even kept in a trust for the rest of their lives, where appropriate.
How Can a Revocable Living Trust Avoid Estate Contests?
Wills, even the best drafted and executed ones, can open the door to estate contests. This can take time, money, and cause headaches. Although there is no way to guarantee that someone will not contest a living trust, such contests are far less frequent and generally less successful. It costs more money and time to contest a trust, which discourages many people from bothering to do so. In addition, the formalities of creating, executing and funding a trust, with the consultation, advice and assistance of a skilled attorney, make it far more difficult for a contestant to assert that the trustors did not intend for the trust to be created, or that the terms are not what the trustors wanted.
What Is a Conservatorship, and How Can a Revocable Living Trust Avoid One?
A conservatorship is a process by which an individual, known as a conservator, is appointed to oversee the affairs of someone who has become incapacitated. The court proceeding required to appoint a conservator is expensive and can take a significant amount of time.
However, a properly drafted and executed revocable living trust avoids the need to appoint a conservator by naming a successor trustee to take over one’s affairs. With most revocable living trusts, there is no need for a court to step in and appoint a conservator. If you become incapacitated, the successor trustee will take over and have the authority to use assets for the benefit of you and your beneficiaries. In addition, an advance health care directive will ensure that you have an agent ready to make medical decisions for you if you are incapacitated.
How Does a Revocable Living Trust Maintain Privacy?
Because a trust does not require a court’s approval, it may avoid probate altogether. Probate is a public process, which means anyone can find out what you own and what it’s worth. Many people do not wish the public to know about this, and the revocable living trust, therefore, maintains you and your family’s privacy.
Beneficiaries have very limited ability to challenge your appointment of a trustee, and the trustee is not obligated to publicly reveal details of the trust to creditors. Only individuals you have chosen to have access to your trust can see it.
Talk To an Experienced Revocable Living Trusts Attorney
Revocable living trusts are not for everyone. If you have assets of less than $150,000 at the time of your death, for example, then your survivors may be able to use a simpler process to administer a small estate. However, if you have significant real property or financial assets, and want to be sure those assets avoid probate and are administered in the way you intend, you should consult with an attorney to explore creating a trust.
Every individual is different, which means every estate plan is different. But the most important thing you can do for yourself and for your family is to not wait to create an appropriate estate plan. Talk to the attorneys of Loew Law Group about revocable living trusts and other options.