LIVING TRUSTS

UNDERSTANDING THE FUNDAMENTALS

We are all concerned with the disposition of our estate following our death. Whether our estate is merely a home and a small bank account or worth millions of dollars, all of us are equally concerned with passing our property at death to our beneficiaries in a simple and efficient manner. Of equal concern is the management of our estate if we should lose our competency prior to death. Unfortunately, people have made the mistake of believing that a Will can accomplish these objectives.

Wills have Two Basic Limitations. First, at death a Will must pass through a lengthy court process known as Probate. Second, the use of a Will offers no help in the management of our estate if we should lose our competency prior to death. It is these two limitations that have led attorneys to change from the older style estate plans that rely on the use of Wills to the current estate plans that use Revocable Living Trusts. A Revocable Living Trust estate plan does not have these limitations. A Revocable Living trust permits the passage of your estate to your beneficiaries without long court proceedings and legal costs. A Revocable Living Trust also provides for the management of your estate if you should lose your competency prior to death and thereby avoids the need of a more costly court supervised conservatorship.

Why are Wills Subject to these Limitations? A Will, whether simple or complex, is actually no more than a series of written instructions that set forth a person's wishes as to who will receive their estate following their death. These instructions also "nominate" an executor. The executor is the person who will be in charge of carrying out these instructions until he or she is formally appointed by the court. Until appointment by the court, a nominated executor has no legal authority to act on behalf of the estate. Unfortunately, it is this formal appointment that is the first step in the lengthy court process known as Probate.

Probate is a Formal Court Proceeding. Probate is the formal court proceeding that empowers the executor to take control of the decedent's assets following death. Once the Will is filed for Probate and the nominated executor is appointed by the court, the executor must complete the remainder of the Probate process. This involves the preparation of a Probate inventory, an appraisal of the decedent's assets, notification of creditors, the payment of any unpaid bills, debts and taxes, and the court supervised distribution of the remainder of the decedent's estate to the beneficiaries named in the Will. In California, a Probate takes a minimum of eight months and very often may last two years. It is not until the Probate process is concluded that beneficiaries are entitled to receive their inheritances. During the Probate process the executor is represented by an attorney. The attorney is paid a statutory fee based on a percent of the appraised value of the decedent's estate as determined by the Probate Referee. Even in small estates the attorney's fee, executor's fee, Probate Referee's fee, court costs and publication fees can exceed several thousand dollars.

Advantages of a Revocable Living Trust. It is the delay and expense caused by Probate that has led people away from the use of Wills. By using a Revocable Living Trust your estate can be transferred at death to your beneficiaries without the delay and expense caused by Probate. In addition, the Revocable Living Trust also avoids the necessity of a court ordered conservatorship by providing for the management of your estate during periods of incapacity by the person of your choosing.

What is a Revocable Living Trust? Although the preparation of a competently prepared Revocable Living Trust estate plan requires an experienced attorney, understanding the basics of a Revocable Living Trust does not have to be difficult. A Revocable Living Trust is a document that contains your instructions as to how your estate will be used during your lifetime and who will receive your estate at your death. The first part of your trust sets forth the instructions regarding the use of your estate during your lifetime. These instructions permit you to use and invest your property in the same manner that you always have. The trust always keeps you in full control of your property and permits you to use, manage, and invest, your property exactly the same as you did before you had a trust. The second part of your trust contains instructions that set forth who will receive your estate following your death. The instructions in this part of the trust are very similar to those contained in an ordinary Will. One of the most important points to remember about a Revocable Living Trust is that the trust can be easily changed or completely undone at any time.

How Does the Trust Avoid Probate? Unlike the executor named in a Will, who may only act after receiving a court order, the person you name in your Revocable Living Trust to act as successor trustee can act immediately upon your death. The successor trustee can take control of the trust assets following your death because he or she is empowered to do so by the trust document. The successor trustee can pay bills, debts, and taxes from the trust estate and distribute the remaining estate to the named beneficiaries without hiring an attorney or having to seek court authorization in a Probate proceeding. Furthermore, if the creator of the trust is ever unable to manage their estate prior to death the trust document empowers the person they have chosen as the successor trustee to step forward and help manage the trust assets. It is this fundamental difference between the law of trust and the law governing Wills that has nearly eliminated the use of Wills as the primary estate-planning document in the United States.

Is My Estate Large Enough for a Trust? Estates that exceed $100,000 in value may be subject to Probate if a Will is used. Even though a person has only a modest home and a small bank account their family may benefit greatly from a Revocable Living Trust. Persons with estates that exceed $100,000 in value should have an attorney knowledgeable in estate planning review their particular situation to determine if a Revocable Living Trust is warranted.

Don't Confuse Taxes and Probate: Many people confuse death taxes with Probate fees. If your estate exceeds $100,000 (one hundred thousand) in value you have a Probate problem that can be eliminated with the use of a trust. If your estate exceeds $1,000,000 (one million) you not only have a Probate problem but you also have a death tax problem. Once again the Probate problem is taken care of by the use of a living trust. However, to reduce death taxes a more complex type of living trust must be used.

Using an Experienced Estate Planning Attorney. Although the fundamentals of a Revocable Living Trust seem easy enough, these estate plans are much more complex then the preparation of a simple Will. The instructions contained in your trust must be drafted to fit your particular situation. To ensure that your estate plan is prepared in the most advantageous manner for you and your family you should meet directly with an attorney that specializes in estate planning. At this meeting, the client has an opportunity to convey to the attorney the goals the client is hoping to achieve and the attorney will be able to explain the various ways that these goals can be accomplished. It is this exchange of ideas and information between the client and the estate-planning attorney that lays the basis for a sound and comprehensive estate plan. Clients are discovering that attorneys who specialize in estate planning are more accessible and affordable than they realize. There is no reason for anyone to trust their estate planning needs to anyone other than an experienced estate-planning attorney.

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CHAIN, YOUNGER, COHN & STILES
1430 Truxtun Avenue
Bakersfield, CA 93301-5220
Tel: 661-323-4000