WHY A TRUST?
Put conditions on how and when your assets are distributed after you die;
Reduce estate and gift taxes;
Distribute assets to heirs efficiently without the cost, delay and publicity of probate court. Probate can cost
between 5% to 7% of your estate;
Better protect your assets from creditors and lawsuits;
Name a successor trustee, who not only manages your trust after you die. but is empowered to manage
the trust assets if you become unable to do so.
There are almost no disadvantages to the use of a living trust and many advantages:
If the trust is fully funded (all property with record title is transferred to the trust, all other property passes under a beneficiary designation), there should be no need for a probate. The savings are significant in California which prescribes a statutory fee schedule in probate. In effect, the living trust converts probate property into non-probate property. Other property that is not probate property (and property that is not subject to the jurisdiction of a probate court) includes:
- A life insurance policy if someone other than the estate is designated as a beneficiary.
- A retirement plan or account if someone other than the estate is designated as a beneficiary.
- A bank account if someone other than the estate is identified as a POD (pay on death) beneficiary or if the account is in the name of two persons with rights of survivorship.
A probate usually requires the filing of an inventory. In California, a probate inventory requires the identification of property subject to probate, but does not require a report of non-probate property. You gain “privacy” if substantially all of your estate is in a living trust and is non-probate property. Do not underestimate the importance of privacy to your estate planning.
The trust law in California is far more flexible than probate law and the requirements for the formation and execution of a last will & testament. For example, the selection of a successor trustee in a trust may be made according to any method prescribed by you. You may appoint a son as your successor trustee and may provide that your son will have the right and authority to appoint his successors as trustee. This flexibility is not permitted for a last will & testament in California.
A last will & testament takes effect at death and when the instrument is admitted to probate. A living trust has its inception upon execution and produces a very real benefit for, and protection of, you during your life.
For example, you transfer all of your property to your living trust. Your son is a co-trustee (or the next successor as trustee) of the trust. You suffer an incapacitating stroke, and can no longer manage your property. Your son assumes the position of sole trustee and manages your property in the living trust during your disability. Result: No guardianship of your estate is required. There is no need to change record title to your assets. All assets belong to, and are controlled in use and disposition, by the living trust. Durable powers of attorney are considered to be an alternative to a living trust. In my experience, banks and transfer agents are far more willing to work with the trustee of a trust, and are reluctant to work with the personal representative under a durable power of attorney.
A living trust is more transportable from jurisdiction to jurisdiction. The trust laws of most jurisdictions are similar and become more so with a state to state adoption of the Uniform Trust Code.
The added cost associated with living trust planning is not the preparation of the document, but the time and effort required to transfer substantially all of the patron’s property to the trust.
The living trust may be required to file a separate income tax return if any part of the trust becomes irrevocable. Otherwise, Treasury Regulation Section 1.671-4(b) indicates that there is no requirement for a separate trust tax return if the trust is classified as a grantor trust.
The Office of Trust Protector:
I include the trust protector language for several reasons.
No contest provisions in a will or trust are difficult to enforce. The trust protector language provides a method, using an independent person or agency, to resolve disputes.
A family trustee may put in a position that can be construed as self-dealing if he or she is also a beneficiary. The trust protector language gives a family trustee a way to delegate difficult decision-making.
We need some method to control, and remove, a run-away or negligent trustee.
Some decisions to be made by a family trustee may be tax-sensitive in nature. The trustee can delegate tax-sensitive decision-making to an independent trust protector without the need to resign in favor of an independent trustee to avoid an adverse tax result.
The concept of “trust protector” is relatively new in the United States. There is little legal precedent to guide me in drafting and enforcement.
A malcontent beneficiary could possibly force the appointment of a trust protector and increase the time and expense to administer the trust.
The concept of a trust protector is relatively new in the United States. A trust protector may be appointed by the you, or by the trustee, or by a majority in interest of the beneficiaries.
The trust protector must be independent and cannot be related to any member of the family, nor may he or she be subordinate to (controlled by) any member of the family.
The trust protector serves several functions. He or she may resolve family disputes and may force mediation and arbitration of contested issues. He or she may remove a trustee then serving, usually for cause. This helps avoid problems associated with the inattentive trustee or the run-away trustee. To insure the independence of the trustee, I provide that the trust protector cannot appoint himself or herself as trustee.