Do You Need a Living Trust?

The Myers law Firm offers a full range of legal services relating to wills, trusts and estate planning, including living trusts. If you need to set up a living trust or modify an existing one, we can help you.

If you are not sure whether a living trust is right for you, call us at (415) 896-1500 or submit an inquiry using our online form and we will discuss the pros and cons of the living trust as it relates to your circumstances and objectives.

What Is A Living Trust?

A Living Trust is a way of holding your property during your lifetime that affects the way the property is handled and distributed at the time of your death. The person who sets up the trust (the "trustor") doesn't give up control over his/her assets and can revoke it whenever they want.

Why Would Someone Use A Living Trust?

There are a number of reasons why people use living trusts, including the following:

1. Privacy
   Because there is no need for a probate over assets held by a trustee in trust, a trust does not become a public record at the death of the settlor.
   


2. Probate fee avoidance
   The court costs, publication expense and attorney's fees associated with probate can be significant.  The statutory schedule for compensation provides fixed percentages to counsel for the estate which are often more than the cost of an hourly billing arrangement, as is often used with trusts.



3. Real estate purchases and sales after death
   Real estate may be bought or sold after death by the successor trustee without any court involvement.  This is particularly helpful when out-of-state property is held in trust, to avoid ancillary probates.



4. Time to Administer Upon Death of Settlor
   Generally, trusts can be faster to administer, because the necessity of a probate is eliminated.  In the case of assets held by the successor trustee of a trust established by a now-deceased trustor, there is no need to publish the Notice of Death, file a court petition, obtain letters testamentary, post a bond, file an inventory, etc., all of which generally slow down the process of administering a decedent's estate.  Most non-estate taxable trusts can be administered and distributed within a matter of months.
   
   Distributions for spouses and dependents (or emergency distributions) can be made without the necessity of court intervention or involvement.  There are procedures which govern how such distributions are accomplished, but the procedures are not supervised by a court unless the trustee specifically involves court jurisdiction to do so.



5. Ease of proving the Trustee’s powers
   Probate Code Section 18100 permits third parties dealing with a trustee to assume, without inquiry, that the trustee is properly exercising trust powers.  Section 18100.5 authorizes trust certificates to establish the existence of a trust or its terms.  They may include an abstract of relevant terms, third parties may rely on the certificate without liability, and third parties may be liable for damages for refusal to accept the certificate.



6. Avoiding a Conservatorship
   Conservatorships are becoming extraordinarily intrusive for California families.  As a result of some very bad press (a series of stories concerning conservatorships in Los Angeles County), the legislature overreacted and recently enacted a number of very draconcian procedural steps and safeguards for the establishment and maintenance of conservatorships.  These include notifying siblings, parents, children and grandchildren of the entirety of the reasons for the conservatorship.  In addition, an expensive bond is required to be posted by the Conservator and annual accountings – showing where every nickel was spent – are required to be filed with the Court.  The entire process is extraordinarily intrusive and, if there are trusted family members who can handle caring for someone if they become incapacitated without court supervision, a RLT combined with proper powers of attorney will be superior.



7. Minor beneficiaries
   Minors cannot own property or enter into contracts.  Frequently, minors are named beneficiaries on life insurance policies, retirement accounts and bank accounts.  This guarantees a court-supervised “guardianship” proceeding, whereby the court monitors the set aside of funds (and any expenditures) for the minor’s benefit.  Further, like custodial accounts, these funds – all of them – are immediately available to the minor upon their attaining their 18th birthday!  Most clients do not believe an 18 year-old is equipped to make investment, money management and budgeting decisions over large sums of money.



8. Metering distributions to beneficiaries
   A trust permits a “trustee” (third party that the trustor entrusts with the beneficiary’s money) to provide discretionary distributions to children, grandchildren, spouse or other beneficiaries.  This is particularly appropriate where the beneficiary has a need for such an arrangement (the beneficiary is developmentally disabled, a demonstrated spendthrift, or someone with significant potential creditor problems, among other things), but can also be helpful to the beneficiary who has no living trust of their own (addressing their future possible incapacity or premature death).



9. Setting investment standards
   On occasion, a trustor wants to ensure that his/her assets are invested in a particular manner.  This cannot be done with an outright bequest, because the beneficiary will then control the investments for all purposes.



10. Continuity of management
    In cases of closely-held businesses, trusts can serve to transition management between generations.  The trustee can hold and vote the shares of the company until the younger generation is mature enough to take control.  The year of maturity can be determined by the trustor when he/she sets up the trust.



11. Generation skipping
    It is often desirable, both for tax reasons and family dynamics, to leave assets to grandchildren.  This is known as “generation skipping.”



12. Estate tax planning
    Transfer taxes (the “gift tax” and the “death tax”) can be confiscatory (45% of the amount above a certain threshold).  Carefully structured trusts, drafted by competent lawyers, can reduce the death taxes otherwise payable by a married couple.

Disadvantages of Using a Revocable Living Trust

The utility of RLTs has, in come circumstances, been overstated.  In California, small estates can be probated by affidavits, which avoids the need for a full-blown probate.  This procedure is set forth beginning at Probate Code Section 13000 and can be used when the gross value of decedent's real and personal property does not exceed one hundred thousand dollars subject to other criteria ($100,000).  Thus, unless there are other reasons to do so (e.g., a special needs child or heir, an insolvent or spendthrift child or heir, or a likelihood of rapid increase in estate size), it is generally acceptable (and simpler) to use a will when the client’s gross probatable estate is less than $100,000.

Other concerns are that the “funding” procedures of trusts can be time consuming (funding is where assets are placed into the trust), that trusts are more expensive to establish than wills, and that trusts vest the trustee with too much unsupervised power, which can sometimes result in unintended consequences.  The specific concerns of each client must be taken into consideration in ensuring that the drafting of trusts is done correctly.  Specifically, it is important to build into the trust checks and balances so that future problems are avoided.

Contact Us to Discuss Whether a Living Trust Is Right for You.

Call us at (415) 896-1500 or submit an inquiry using our online form.