Why A Living Trust?

As an estate planning attorney I am asked what the purpose of estate planning is and why I advise the use of living trusts.  The short answer is:
If a person dies in Cal with assets valued over $100,000, in order to transfer title, the estate has to go through a formal probate procedure, whether you have a Will or not.  A Will simply states who gets the decedent’s property and typically names an Executor as the representative for the probate.

The $100,000 threshold is easily reached if you own real property.

If a person dies with no Will, then the State names the “intestate heirs”.  Assuming a person is single, the line of succession is as follows:
first children, if none, then parents, if none, then siblings, if none, then nieces and nephews, if none, grandnieces and grandnephews, if none, then grandparents, if none, then cousins, etc.

Probate is a long, form driven process.  Nine months is the average length of time.  It is also a public record.  After the initial petition is filed, it must be published in a newspaper for the purpose of alerting creditors of the estate.  Any one can access the court file. 

The biggest detriment to probate is the fees.  Not only are there court filing fees, but also probate referee and publishing costs. 

A typical estate includes a home and stock and cash accounts.  Any assets, such as retirement or life insurance, pass outside probate because a beneficiary is named prior to death.

For example:

House                                      $600,000
Cash                                        100,000
Stock                                       200,000
Total estate                              $900,000

The estate attorney and estate representative are both entitled to statutory fees as follows:

On the first      $100,000         4%                   $4,000
On the 2nd          100,000       3%                     3,000
up to                1 Million         2%                   14,000
Total statutory probate fees                            $21,000  for each

Compare the probate fees to the cost of establishing an estate plan now.

The typical estate plan consists of office conference with the attorney to discuss your specific situation and find out your options.  The attorney is an experienced counseler who will help determine the right plan for you.  A basic estate plan consists of the following:

Living Trust:  A living trust is a document that springs to life upon execution and continues on after death.  It is a legal entity with rights and responsibilities of its own.  Trustees, are the administrators of the trust.  Property is funded, title is transferred from Mr. and Mrs. Smith to Mr. and Mrs. Smith, as trustees of the Smith Living Trust, dated January 1, 2005, during life.  The trust becomes the legal owner of the property for state, and some federal law purposes.  When a death occurs, the trust is already the owner, and does not need to go to the probate court for supervision.  Typically, the decedent was the trustee, and the terms of the trust automatically transfer power and responsibility to the person or persons the decedent wished to exercise those powers after the decedent’s death, OR UPON INCAPACTIY.

Because a living trust springs to life upon signing, it will contain instructions that enable a successor trustee to make decisions for an incapacitated Settlor, the person creating the living trust. 

Financial Power of Attorney:  A property power of attorney is a document, typically signed at the same time as the trust that appoints a person termed an Attorney-in-Fact, or an Agent.  The property power of attorney is an extremely important document that should be given very careful consideration.  Clients sometimes wonder why their powers of attorney for property are so long and detailed.  When answering that question, it helps to remember that the client has become unable to make decisions for him or herself, and the power of attorney is the set of instructions that enables someone else to make needed decisions, as such, the powers granted the Agent must be broad and thorough so as to enable the Agent to handle whatever comes along without court involvement.

Health Care Power of Attorney:  A health care power of attorney functions the same as the property power of attorney, except that the Agent is empowered to make health care decisions, including the decision to “pull the plug,” based on the instructions the principle included in the terms of the document.

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