Important information about Living Trust and Will

What is a Living Trust?

A living trust is a form of estate planning that allows you to control your assets (your money and property) while you are still alive, but have it distributed to people or organizations you select when you die.

Avoiding probate court proceedings after your death can save your family time, money, and headaches. Revocable living trusts are the only probate-avoidance technique that allows you to avoid probate for virtually any property you own: real estate, jewelry, heirlooms, bank accounts, and much more.

Who are involved in a Living Trust?

Grantor: The person who creates the trust and puts assets in it. (Trustee)

Beneficiary: A person who eventually receives some or all of the assets in the trust.

Trustee: The organization or person who administers the trust. (Successor Trustee)

Many Californians have living trusts. The creator of the living trust is called the Trustee (usually parents, uncles, aunts, grandparents, etc). As long as the Trustees are alive, they are in-charge of their trusts. A living trust usually appoints a successor trustee who will execute the trust in accordance with the trust’s terms when the trustee dies. These successor trustees are normally the daughters, sons, brothers, sister, etc. 

What is the difference between a trustee and a successor trustee?

A trustee, who can either be the trustor or another responsible party, may be appointed while the trustor is still alive; a successor trustee is charged with administering a trust after the trustor or the appointed trustee (if they are different from the trustor) becomes incapacitated or dies.

What is a Revocable Trust?

Revocable living trusts are the only probate-avoidance technique that allows you to avoid probate for virtually any property you own: real estate, jewelry, heirlooms, bank accounts, and much more. Revocable living trusts are “living” because you make them during your lifetime. Lawyers sometimes call this “inter vivos.”

Revocable living trusts function like wills–you use them to leave your property, and if you change your mind at any time while you’re alive, you can change the terms of the trust or revoke it altogether. The advantage comes at your death. Property in the trust is controlled by the person you named to take over as successor trustee, and that person has the power to distribute the property to inheritors without any probate court involvement. That saves everyone a lot of work and gets property to the people you chose to inherit it much more quickly.

What’s the difference between the Revocable Living Trusts and Wills

Here’s a comparison of what living trusts and accomplish, compared to wills. Some estate planning goals can be accomplished by both living trusts and wills, while others will require you to use either a trust or a will.

With both wills and revocable living trusts you can:

• name beneficiaries for property
• leave property to young children, and
• revise your document as your circumstances or wishes change.

With a trust, not a will, you can:

• avoid probate
• reduce the chance of a court dispute over your estate
• avoid a conservatorship, and
• keep your document private after death.

With a will, not a trust, you can:

• name guardians for children
• name an executor, and
• instruct how debts or taxes should be paid.

What is the difference between a funded trust and unfunded trust?

California Probate Code 15200 requires that a trust must have some assets transferred into the it or else it is invalid. Often a living trust is drafted, signed and notarized but the grant deed to the house has not been re-titled to the trust. In this situation, the trust is worthless because there are no assets in the trust. This is commonly known as an unfunded trust.

Can I change my mind?

YES. Most living trusts are revocable, meaning you have complete control over your living trust while you are alive. Complete control means you can: 1) sell the house that you have put into the trust, 2) refinance or remortgage the house, 3) put other rental houses into the trust, 4) change the beneficiaries of the trust, 5) name a different successor trustee to the trust after you have created it, or 6) you can completely revoke the living trust.  By default, all trusts in California are revocable unless the trust document specifically says it is irrevocable.

What does my Durable Power of Attorney for Management of Property and Personal Affairs accomplish?

The Durable Power of Attorney allows someone that you designated to step into your shoes to act on your behalf if you are out of the country or become incapacitated. If you don’t have this document, then your loved one will have to seek the court’s approval of making your loved one your conservator. However, if you have this document, you have simply named the conservator to avoid any court proceedings.

What is an Advance Health Care Directive?

The Advance Health Care Directive allows someone whom you choose to make medical decisions for you in the event you are physically or mentally unable to make medical decisions.

Will my living trust avoid taxes?

The living trust document itself will help with the stepped-up basis. That means once your children receive the home that is in your trust after your death, the children will get a full stepped up basis and avoid paying capital gains. If an estate is worth more than $12.06 million dollars for single individuals and $24.12 million dollars for married couples in 2022. the estate will need to pay federal estate taxes. Therefore, 99% of Americans will not have to pay any estate taxes regardless of whether they have a living trust or not. Putting your house in a living trust will not result in change of ownership for property tax reassessment purposes.

Should bank accounts be in a trust?

To make sure your Beneficiaries can easily access your accounts and receive their inheritance, protect your assets by putting them in a Trust. A Trust-Based Estate Plan is the most secure way to make your last wishes known while protecting your assets and loved ones.

Some of your financial assets need to be owned by your trust and others need to name your trust as the beneficiary. With your day-to-day checking and savings accounts, I always recommend that you own those accounts in the name of your trust.

Is a Living Trust Public?

Living Trusts are NOT required to be public records in California and are in fact designed to be private documents meant for the eyes of family members and beneficiaries only.

You can keep all of your estate planning documents private as long as you’re alive. After you write your will, for example, you can and should just keep it in a safe place (such as a fireproof box); you do not have to file it with a local court or other government entity.

What You Can Not Do with Living Trust? 

There are a number of tasks that you cannot carry out with living trust. For example, you cannot:

Name a guardian to care for your young children.

Name an executor for your entire estate. (Though, if you have not named an executor through a will, a court may name the successor trustee named in your trust to serve as your executor.)

Forgive debts others owe you.

Specify how your debts and taxes will be paid.

Leave property under conditions, like that a beneficiary must act in a certain way to get the gift.

Name beneficiaries for property not specifically added to the trust. (You can’t name a beneficiary to get “everything else” you own, in your will). like you can .

Leave property to your pet.

Include detailed explanations about why you have decided to leave property in a particular way.

You can accomplish several of these tasks (like naming a guardian for children, naming a new owner for pets and forgiving debts) by making a will.

What are Pros and Cons of a Living Trust?

While saving your loved ones from the hassle and expense of the probate process is the greatest advantage of a living trust, there are a few other benefits:

    privacy (a will can be accessed by the public, while a trust document is typically private)

    greater control over finances

    the ability to plan for incapacity, and

    better protection from court challenges.

The main disadvantages of a living trust are:

 the added time and expense of creating and maintaining a living trust, and

  less protection from creditors.

What’s the difference between a Power of Attorney and a Trustee?

First, Trustee is the person or entity that protects and manages the assets in a trust. For a revocable living trust, that Trustee is usually the person that created the trust. The trust document will have a successor trustee or set of successor trustees. The successor trustee usually takes power when the person that created the trust either becomes incapacitated or has died. The Trustee only manages the assets that are owned by the trust, not assets outside the trust. Common assets that are owned by a trust include things like real estate, bank accounts, non-retirement brokerage accounts, LLC interests, stocks, corporate interests, and personal property. Trusts can also own other types of assets such as cars, boats, annuities, intellectual property, or even a note or partnership interest.

If the asset is owned by the trust, then the Trustee is in charge of that asset. The Trustee can typically borrow, sell, encumber, and invest in these types of assets (if the trust document gives them power to do so). Things that cannot be owned by a trust typically include retirement accounts and sometimes life insurance.  There are special types of trusts that can own insurance. However, most revocable living trusts are not of that species of trust.

In contrast, a Power of Attorney does not control anything that is owned by your trust. The Power of Attorney controls assets that are not inside your trust such as retirement accounts, life insurance, sometimes annuities, or even bank accounts that are not in trust title.  A Power of Attorney agent (if granted authority) can also have power over your tax return filings. If granted authority, your Power of Attorney agent can also “disclaim” property left to you or even apply for governmental benefits on your behalf. A Power of Attorney may also be given authority to create further trusts for you for estate planning purposes.

It should however be noted that a Power of Attorney is only as good as its drafting. In California, the most common Power of Attorney is the Statutory Power of Attorney. This Power of Attorney is laid out in the state statute. It is what most banks and financial institutions are familiar with and therefore it has benefit on that merit.

What is Trust Administration?

If someone dies having drafted a living trust, there is no probate proceeding but rather the process is called a trust administration. A trust administration is NOT a court-supervised proceeding, like a probate, but rather the successor trustee will manage the trust’s assets in accordance with the terms of the trust in strict adherence to the California Probate Code.

How to Begin a Trust Administration

California Probate Code Section 16061.7 requires that a formal notice be sent to the beneficiaries within 60 days of the date of death of the trustee.   This notice is very important because by sending out the notice to the beneficiaries, the successor trustee can shorten any trust litigation from the beneficiaries from four years to a mere 120 days. This is a very powerful arsenal for successor trustees to insulate themselves of liabilities from the trust’s beneficiaries. In addition, if a Pourover Will exists, you MUST “lodge” it with the court..

Dealing with Real Property

One of the largest assets in a living trust is a house. The successor trustee must follow certain steps in order to vest title in the successor trustee so that the house can be sold and managed. An Affidavit of Death of Trustee along with a certified trustee’s death certificate must be recorded with the county assessor’s office. Because death constitutes a change of ownership, a Preliminary Change of Ownership must be filed with the county assessor’s office within 150 days of the trustee’s death. If the living trust is giving the house to the children or grandchildren then the appropriate exemption form must be filed to retain the old property tax basis in order to save the children/grandchildren thousands of property taxes annually. (Propositions 58 and 193 allow the children or grandchildren to retain the old property tax basis)

Collecting Other Assets & Appraisal

The successor trustee will want to get a tax identification number from the IRS for the trust. It is important that all cash and investment accounts be placed in an account under the trust’s tax identification number so that the successor trustee is not personally liable for the income tax. There might be situations where the successor trustee discovers that certain assets were not placed in the trust; the successor trustee would petition the court to confirm that such assets be placed into the trust so that the successor trustee can administer all the trust’s assets accordingly. After all assets have been identified then the successor trustee might want to get appraisals for the trust assets.

Paying Debts & Taxes

It is the successor trustee’s responsibilities to pay all valid debts and taxes. It is imperative that the successor trustee understands California Code of Civil Procedures 366.2. This California’s law sets a strict 1-year statute of limitation on all unsecured creditors’ claims against the dead. Therefore, if mom died more than 1 year ago with credit card debts of $100,000 and left a $500,000 home with no mortgage against it, 366.2 says the successor trustee does not have to pay for the $100,000 credit card debts even though there is a house free and clear left by mom if more than 1 year has lapsed since the date of death.

What documents make a complete living trust package? 

The following 6 documents make a complete living trust package:

1) The Revocable Living Trust,

2) Will,

3) Durable Powers of Attorney for Property Management,

4) Advance Health Care Directives, 

5) Trust Transfer Deed,

6) Final Arrangement

Please call our office for more information.

Shokofeh Amin

818-642-7282