FAQs About a Living Trust
1. Why would anyone need a living trust?
When you are alive and can manage your own assets legally, you are the only person who has the authority to do so. When you die or become incapacitated, no one automatically has authority to handle any of your affairs. If something needs to be done, (for instance your assets distributed to your heirs; or if you are ill and your assets are needed to pay for your healthcare), the person who wants to do this has to get a court order allowing them to do so. Obtaining that court order following death is called a probate. Obtaining the order in the event of incapacity is called a conservatorship. A trust usually eliminates the need for a probate or a conservatorship.
Although a will gives instructions as to the distribution of your estate after your death, a probate will be required if you own assets of more than $100,000.00 or real estate. A probate is a court proceeding to implement your instructions in your will or the law's instructions if you have no will.
A power of attorney gives instructions for what to do when you become incapacitated. Not all powers of attorney are the same and they have no effect after your death.
A trust gives instructions on what to do after your death, like a will; and what to do when you become incapacitated, like a durable power of attorney. However, since a trust is created while you are alive and well and continues after your death, it avoids probate and conservatorship actions.
An estate plan with a will or a trust typically costs between $1,800 and $3,000. However, a trust estate plan avoids the cost of a probate. Probate actions usually cost much more than the preparation of an estate plan and are based on the size of your estate.
Avoiding probate is just one way to save money with a trust estate plan. Trusts can also include provisions that allow substantial estate tax savings.
2. What's so bad about probate?
Probate is the legal process through which the court provides that, when you die, your debts are paid and your assets are distributed according to either your will or state law if you don't have a will. A probate is required when you own any real estate or more than $100,000.00 in other assets.
The costs. Court fees, legal fees and executor fees are set by law and must be paid before your heirs are paid. If you own property in other states, your family could face multiple probates, each one according to the laws in that state. The fees are determined by the size of your estate.
- The delay. Probates typically take 6 months to several years to complete. Your assets must remain under court supervision until the process is complete. An inventory of all assets is required. There can be no distribution without approval of the court. In the meantime, if your family needs your assets to live on, they will have to petition the court for an allowance. It is up to the court whether they will get any assistance.
- The loss of control. The Probate code sets out very strict rules for probates. Probates are part of the public record, so your beneficiaries, assets and obligations become open to public review. More notices are required than in trust administrations, so more people can attempt to get involved in the process, including family members who want a piece of your estate and solicitors who want to take advantage of the situation.
You don't want to deal with the expense, headaches and hassles of a probate if you can avoid it.
3. Why does a trust work?
When you transfer your assets to a trust, you no longer own the assets, (the trust owns them). You took care of the decisions concerning who would have authority to manage these assets and how they would be managed, so the court isn't needed.
4. How do I manage my assets after they are transferred to the trust?
Basically, everything operates the way it did before. You write checks, you buy and sell property, you file tax returns, etc. The main difference is how you sign. Instead of just signing your name, you sign your name followed by your new title, "trustee." Trusts are common in California. Banks and other financial institutions routinely work with trustees and trust assets. Therefore, you will find it easy to make the transition.
5. How long does it take to get a living trust?
It normally takes several weeks to prepare the legal documents after you make the basic decisions.
These are frequently asked questions about trusts. Because every family is different, these answers may not fit your particular situation. If your question is not answered here, feel free to give us a call and schedule your free initial consultation with a Van Sickle & Rowley Estate Planning Attorney.
