Why Do I Need A Trust?
In this blog post we will the main reasons to establish a trust.
Bypass the probate proceeding
A properly funded trust will avoid the probate process. When someone dies without a will (intestate) or with a will, they must go through a process called “probate.” Probate is a legal proceeding which requires the state to oversee the validation of your will, and assembly and distribution of your assets to your beneficiaries after your liabilities and fees are paid with the total net amount being transferred to your beneficiaries. Avoiding probate is highly advantageous, because probate is a costly, time-consuming, and public process
(1) Cost of probate: In addition to paying for standard probate filing fees, California statutory fees must be paid to attorneys and personal representatives such as executors in probate cases. Statutory fees are 4% of the first $100,000 of the estate, 3% of the next $100,000, 2% of the next $800,000, 1% of the next $9,000,000, and one-half % of the next $15,000,000 (California Probate Code §10810.)
(2) Length of probate: In California, the probate process can last anywhere from 6 months to 2 years. Objections made by interested parties, size of the estate, as well as unique circumstances can affect how long the proceeding lasts.
(3) Public feature of probate: If one dies with a will, their executor must file a probate petition (and your will) in the county in which the decedent lived. Once the judge approves the petition, a file for probate is opened. This means that your personal information (including your beneficiaries, asset amounts to be distributed, and any other instructions regarding the administration of your estate), will be available to the public for viewing. Not only will this cause immense stress and frustration to your loved ones, but it will expose your estate to creditors.
With a funded trust, on the other hand, once the trust creator dies, the successor trustee immediately takes control and allocates the estate assets as dictated by the terms in the trust in a private manner.
Maintain flexibility and control
A trust can help you maintain flexibility and control over your estate even while you are alive and after your passing. With a trust, you can decide to whom to transfer assets to and the specific manner in which it is done. You can preserve your legacy and make your wishes clear by indicating the timing and conditions for distributions in your trust. For example, certain educational conditions for distributions can provide incentive for loved ones to accomplish your objectives in order to receive their inheritance. Specifically, a revocable living trust, provides you with the highest level of flexibility, because it allows you to make changes after the trust is formed or upon key life changes.
Protect your loved ones
A trust can include provisions which help protect your loved ones from their spouses, ex-spouses, creditors, or sometimes even from themselves. For example, by setting forth a timeline of staggered distributions to beneficiaries will protect them from possible irresponsible behaviors when it comes to spending their inheritance. Moreover, your trust can incorporate instructions about the care and wellbeing of your pets after your passing.
Plan for Incapacity and avoid conservatorship
Life is unpredictable. With a trust, you and your family will be prepared in the event of your death or incapacity. Wills only go into effect when an individual dies, while a trust, will allow your successor trustee to control your property and assets according to your wishes in the event of your death or incapacity. A trust will also include powers of attorney for healthcare decisions and financial management. A healthcare directive is particularly important if you wish to minimize the stress and grief for your loved ones by providing specific quality of life, end of life, organ donation, as well as burial instructions. A trust will also avoid conservatorship (a costly legal proceeding in which the court appoints a conservator to manage your financial matters in the event of incapacity.)
A properly drafted trust can help you avoid, reduce, or delay the federal estate and gift tax if your estate is large enough with the inclusion of certain trust provisions. The federal estate tax is imposed on assets that are assigned during your lifetime or upon death if your estate surpasses the current federal estate and gift tax exemption. In 2020, the federal estate and gift tax exemption is $11.58 million per person (or $23.16 million for married spouses). These tax rates will increase to $11.7 million per person (or 23.4 million for a married spouses) in 2021. The federal estate tax is not imposed on transfers of assets to a surviving spouse due to the “unlimited marital deduction,” which allows for transfers of assets amongst spouses without incurring taxes. Revocable living trusts can include certain provisions that take advantage of the unlimited marital deduction and provide estate tax savings when the surviving spouse who inherited the estate passes on.
Special needs planning
A trust can include separate sub-trusts such as a special needs trust for the benefit of a family member or loved one with a disability or special needs. A special needs trust will ensure that this individual will not face disqualification from government benefits such as Medicaid/Medi-Cal, SSI, and others.
A trust is more challenging to contest. There is increased legal protection against any person who disputes the asset distribution of the trust, trust conditions or provisions, or its legitimacy. Furthermore, by having a trust in place, inter-family conflicts are avoided by detailing which specific items, including those with sentimental value (such as family heirlooms) and assets are to be gifted to which heir.
If you are interested in speaking with an Los Angeles estate planning attorney, contact our office to schedule a free consultation.