Living Trusts

When a loved one passes away, his or her estate often goes through a court-managed process called probate or estate administration where the assets of the deceased are managed and distributed.  If your loved-one owned his or her assets through a well-drafted and properly-funded living trust, it is likely that no court-managed administration is necessary, though the successor trustee needs to administer the distribution of the deceased person’s assets. The length of time needed to complete the probate of an estate depends on the size and complexity of the estate and the local rules and schedule of the probate court. 

 Every probate estate is unique, but most involve the following steps:

• Filing of a petition with the proper probate court.
• Notice to heirs under the Will or to statutory heirs (if no Will exists).
• Petition to appoint Executor (in the case of a Will) or Administrator for the estate.
• Inventory and appraisal of estate assets by Executor/Administrator and the California Probate Referee.
• Payment of estate debt to rightful creditors.
• Sale or liquidation of estate assets. 
• Payment of estate taxes, if applicable.
• Final distribution of assets to heirs.

A living trust can be used to hold legal title to your assets and provide a mechanism to manage them. You (and your spouse) are the trustee(s) and beneficiaries of your trust during your lifetime.  You also designate successor trustees to carry out your instructions as you have provided in case of incapacity or death. Unlike a Will, a trust usually becomes effective immediately. Your living trust can be “revocable”, which allows you to make changes or even terminate it.   One of the great benefits of a properly-funded living trust is the fact that it will avoid probate and minimize the expenses and delays associated with the settlement of your estate. 

Like a Will, a living trust is a legal document that provides for the management and distribution of your assets after you pass away. However, a living trust has certain advantages when compared to a Will.  A living trust allows for the management of your affairs during your lifetime and in case of incapacity, without the need for a guardianship or conservatorship process.  With a properly-funded living trust, there is no need to undergo a potentially expensive and time-consuming court-supervised public probate process.   In short, a well-thought out estate plan using a living trust can provide your loved ones with the ability to administer your estate privately, with more flexibility and in an efficient and low-cost manner.

Absolutely not! During your lifetime when you are mentally competent, you have complete control over all your assets.   You may engage in any transaction as the trustee of your Trust that you could before you had a living trust.  There are no changes in your income taxes.  If you filed a 1040 before you had a trust, you continue to file a 1040 when you have a living trust.  There are no new Tax Identification Numbers to obtain.  The “revocable living trust” can be modified at any time or it can be completely revoked if you so desire. Upon your passing, the trust becomes irrevocable so that no one can change your testamentary wishes. For married couples, the surviving spouse still has total control over his or her share of assets after its transfer to the survivor’s trust, and the trust becomes irrevocable only as to the deceased spouse’s share.
 

Assets with beneficiary designations such as a life insurance policy or annuity payable directly to a named beneficiary should not be transferred to your Living Trust.   Furthermore, money from IRAs, Keoghs, 401(k) accounts and most other retirement accounts transfer automatically, outside probate, to the persons named as beneficiaries, and ownership of these assets should not be transferred to your trust. Bank accounts that are set up as payable-on-death account (POD for short) or an “in trust for” account (a “Totten Trust”) with a named beneficiary also pass to that beneficiary without having to be titled into your trust.  However, when you do your estate planning, it is important to seek the counsel of an experienced attorney who is familiar with the intricate regulations of retirement accounts and can coordinate the appropriate beneficiary designations with your overall estate plan.

Federal law prohibits financial institutions from calling or accelerating your loan when you transfer property to your Living Trust as long as you continue to live in that home.  The only exception to the federal law, enacted as part of the 1982 Garn-St. Germain Act is that it does not provide protection for residential real estate with more than five dwelling units.  However, we find that most clients who do own residential property with more than five dwelling units tend to own them through a business entity and not directly in their individual names and hence are not concerned with the five dwelling exception.

Pour-Over Will is used first to name a guardian for your minor children. Second, it protects against intestacy in the event any of your assets have not been transferred into the trust at your death.  It will also invalidate any previous Wills which you may have executed.  Its function is to “pour” any assets left out of the trust into it so they are ultimately distributed according to the terms of the trust.