What is a living trust?
Revocable Living Trusts, also referred to as revocable inter vivos trusts (“inter vivos” is Latin for “between the living”), are an increasingly popular way to hold title to assets and avoid the Probate Court process. It is anticipated many more Americans will use a Revocable Living Trust in the years ahead. Specifically, a Revocable Living Trust is a set of written instructions whereby persons or married couples are able to transfer property to their heirs upon their death without having to involve the probate court. The person creating the trust is called the settlor, trustor, grantor, or creator. The person holding legal title to the trust property is the trustee, and the person for whose benefit the trust is created is called the beneficiary. Initially, you are the settlor, trustee, and beneficiary of your trust.
The primary purpose of a Living Trust is the avoidance of the inefficient and expensive probate system, which charges probate fees based on the “gross value” of the estate, and can take years to complete. Probate can be an expensive process with the estate being responsible for executor, attorney, filing and other fees based on the size of the estate.
6 Specific Advantages of a Living Trust
The revocable living trust offers several important advantages over a traditional will. To summarize, some specific advantages of a living trust are:
- Cuts Costs. Probate costs can be exorbitant, particularly in California wherein the Probate Court awards executor fees and attorney fees based on a percentage of the decedent’s gross estate and can be as much as 5% or more.
- Saves Time. An average probate proceeding, just like most judicial proceedings, typically lasts anywhere from a minimum of twelve months up to several years. With a living trust, the property can pass to your named beneficiaries in a matter of months or less.
- Assures privacy. Probate proceedings are public. Anybody can gain access to your most personal information. Living trusts are completely private. No one, except your beneficiaries and heirs, can find out what you own, or who you are leaving it to, thus eliminating the potential for “scam artists” to prey on recently widowed individuals.
- Avoids multi-state problems. If you die with property in more than one state, separate probate proceedings must be conducted, which adds to the cost and delays of probate. With a living trust, all assets from each separate state are placed into one trust, thus avoiding the need for multiple probates.
- Discourages legal challenges. As a general rule, trusts are much more difficult to contest than will. A Will must be probated in the Probate Court and at the initial hearing any interested person may contest the Will. In order to challenge a trust, an individual must file a petition then provide evidence to satisfy their burden of proof. Obviously, this costly and time consuming process discourages most individuals from challenging a trust without a legitimate complaint.
- Protects during disability. An important, but frequently overlooked reason for establishing a living trust is to ensure that someone will be designated to handle your financial and legal affairs if serious illness renders you incapable of managing affairs for yourself. If, for example, you became suddenly incapacitated, your financial affairs could be in limbo. No one to operate your business, buy or sell property or even withdraw funds from your bank to pay bills. If you have a comprehensive estate plan, your successor trustee (or your attorney-in-fact named in a Financial Power of Attorney) can manage your assets until you regain your health.
The Revocable Living Trust
With a Revocable Living Trust, the settlor (“you”) transfers their assets into the trust to be held by the trustee (“you”) of the trust, to be managed for the beneficiary (“you”). Generally, the trust agreement provides that upon the death of the settlor, the property shall go to the named beneficiaries according to the settlor’s specific instructions. This avoids probate of all property that has been transferred into the trust, instead of being held in the settlor’s name individually. You enjoy all income from the trust assets during your lifetime. Moreover, you never lose control of your property because you can always terminate, modify or revoke the trust and reclaim the assets.
If you, or someone you know is in need of the above-mentioned legal services, please call our office at (619) 683-2545 to schedule a free, no obligation, one-on-one consultation with one of our experienced Estate Planning lawyers to discuss your legal needs.