Why do I Need a Trust?

I have a will. Why would I want a living trust?	Contrary to what most people have heard (and have been led to believe over the years), a will is probably not the best way to plan your estate primarily because a will does not avoid probate. In fact, a will is a one-way ticket to probate--all wills must be verified by the court before they can be enforced. Also, because a will can only go into effect after you die, it provides no protection if you become physically or mentally disabled--a real concern of millions of older Americans--and you could easily end up under the control of the probate court before you die. Fortunately, there is a traditional alternative to wills and probate. It's called a revocable trust. It avoids all probate and makes sure your plan won't be altered by the court or greedy relatives at your death or disability.
What is probate?	Probate is the legal process through which the court makes sure that, when you die, your debts are paid and your property is distributed according to your will. If you don't have a will, the state in which you live has written one for you. Probate can also take control if you become disabled or incompetent.
What's so bad about probate?	It's expensive. Legal/executor fees and other costs must be paid from your estate before anything can go to your heirs, and are usually estimated at 6 -10% of the gross value of an estate (before debts are paid). If there's not cash available then something will be sold. It takes time - often 1-2 years or longer. During this time the assets are usually frozen; nothing can be distributed or sold without the court's approval. If your family needs money to live on, they will have to ask the court for a living allowance, which it may or may not approve. Your family has no privacy. Probate files are open to the public, so anyone (including a business competitor) can see what you owned and who you owed. This also invites disgruntled heirs to contest your will and exposes your family to unscrupulous solicitors.
But I don't have that much. Why should I be concerned about probate?	Find out the costs of probate in your state--you might be surprised how much it costs for even a modest estate, especially if real estate is involved. And don't forget the other immeasurable costs (time, no privacy, etc.).
Doesn't joint ownership avoid probate?	Not really--it usually just postpones it. When one of the joint owners dies, ownership will transfer to the other without probate. But when the "second" owner dies. or if both should die at the same time, the property must be probated before it can go to the heirs. Watch out for other risks, too. When you add someone as a co-owner of your property, you lose control. You expose it to the other owner's debts. Also, you need your co-owner's signature to sell or refinance, and if he/she is disabled, you'll have to get approval from the probate court even if your co-owner is your spouse.
Why would the probate court get involved if someone is disabled or incompetent?	If your property must be sold or refinanced but you are disabled/incompetent, only the probate court can sign for you through a conservatorship/guardianship even If you have a will (remember, a will can only go into effect at death). This doesn't replace probate at death--your family would have to go through probate twice!
What is a living trust?	A living trust is a legal document that looks a lot like a will. In fact, it does what most people think a will does-- and much more. Because there is no probate with a living trust, all expensive court proceedings and delays are eliminated, your privacy is preserved, and emotional stress on your family is minimized. It can reduce/eliminate estate taxes, is extremely hard to contest, and makes a very effective pre-nuptial agreement. You may have heard of a "Marital Trust" (sometimes called a "By-Pass Trust" or a "Marital Life Estate Trust"). These trusts are designed to help couples with combined assets over $1 million save money on estate taxes. A bypass trust allows each of a married couple to use the $1.5 million estate tax exemption.
Do I lose control of the property in my trust?	Absolutely not. You keep full control over your property. As trustee of your trust, you can do everything you could do before--buy and sell property, make changes, even cancel your trust at any time (remember, it's revocable). Nothing changes but the names on the titles.
Should I consider a corporate trustee?	If you have a modest estate and your trust is fairly simple, you may be just fine as your own trustee. But if your estate is larger, has a variety of assets, or if your trust requires tax planning, you probably would be better off having an experienced professional involved. Many people select a corporate trustee (bank or trust company) as their trustee or co-trustee, especially if they don't have the time, ability or desire to manage their trust, or if one or both spouses are ill. Corporate trustees are in the business of managing trusts--they are reliable, objective, government regulated, and experienced investment managers. Their fees are usually very reasonable.
If something happens to me, who has control?	If you select a corporate trustee as your trustee or co-trustee, they will continue to manage your trust for you. If you and your spouse are co-trustees, either can automatically act if one becomes disabled or dies. If something happens to both of you, or if you are the only trustee, your hand-picked back-up trustee will step in for you.
What does a back-up trustee do?	At disability or incompetency, your back-up trustee looks after your care and manages your financial affairs for as long as necessary, using your assets to pay your expenses. When you recover, you automatically resume control. At your death, your back-up pays your debts and distributes your property according to your instructions.
Who can be back-up trustees?	Back-up trustees can be individuals (adult children, other relatives, or trusted friends) and/or a corporate trustee. Keep in mind, however, that family and friends may not be a good choice--they may be too busy, live too far away, or not be responsible or experienced enough to manage the trust assets. You may want to consider a corporate trustee as your back-up.
Does a living trust save on estate taxes?	If the net value of your estate when you die is more than $1.5 million, federal estate taxes must be paid (in 2004 starting at 48%!). If you are married, an "A-B" living trust or "Marital Trust", above, will allow you and your spouse to pass on $3 million tax-free to your beneficiaries, saving litrally hundreds of thousands of dollars in estate taxes *plus* many thousands of dollars in probate costs (remember? 6 - 10% of your gross estate). Similar tax planning can be done with a trust in a will, but you do not avoid probate under such a plan. A living trust also makes a great base for additional tax planning, including ways you can give to a charity or foundation so that both of you benefit. Talk to a tax planning attorney or your charity for more information.
Is a living trust expensive?	Not when compared to the costs of probate. How much you pay will depend on how complicated your plan is, type and amount of your assets, if you need additional tax planning, etc. Be sure to ask for an estimate in advance.
How long does it take to get a living trust?	It should only take about a couple of weeks to prepare the legal documents after you make the basic decisions.
Should I have an attorney do my trust?	Absolutely--preferably one who specializes in living trusts. An experienced attorney can provide valuable guidance and assistance for your situation and assure the legal documents are prepared properly. Avoid generic "do-it-yourself' kits and form books--they can't address every family's unique needs and can be very dangerous.
If I have a living trust, do I still need a will?	Yes, you should have a "pour-over will" in case you forget to re-title any property in the name of your trust. The will "catches" the property and sends it into your trust after your death. The properly will still probably have to go through probate first, but at least it can then be distributed as part of your overall plan.
Are living trusts new?	Not at all. In fact, they have been used effectively (in one form or another) for hundreds of years. Your banker, trust company, attorney, financial planner, CPA, insurance agent or charity are probably very familiar with them.
Who should have a living trust?	Married or single, old or young--just about everyone can benefit from a living trust, especially if you have children (even more so if you are a single parent) or own any titled property (for example, a house or condo, a car or motorhome, a boat or an aircraft, or stocks or bonds). If you want to make sure your loved ones (spouse, children or parents) will be spared from probate if something happens to you, you should have a living trust.
How does a living trust avoid probate?	When you set up a living trust, you transfer all of your property from your individual name to the name of your trust, which you control—such as from "John and Mary Smith, husband and wife" to "John and Mary Smith, Trustees Under Trust Dated 1/15/2004." Legally you no longer own anything (everything now belongs to your trust), so there is nothing to probate when you die or if you become disabled. The concept is very simple, but this is what keeps you and your family out of probate.
Is it hard to transfer property into my trust?	No, and your attorney, banker, trust officer, financial planner, broker, insurance agent, etc. can help you. Make sure you change titles on all real estate (local and out-of state) and other property with formal titles (checking and savings accounts, stocks. CDS, insurance, mutual funds, etc.). Most trust documents automatically include personal property without formal titles (jewelry, clothing. art, home furnishings, etc.).
Is there any upkeep on a living trust estate plan?	Yes. But with a diligent attorney to assist you, there is very little effort after the initial setup. Discover if your attorney has a plan in place to stay in touch with you and monitor how you're doing every 6 months to a year or so. Creating an effective living trust estate plan is a great idea. It only makes sense to keep it working by an occasional checkup with your attorney.

So, set your estate up properly, preserve it for your family or intended beneficiaries, and enjoy the peace of mind that you have cared for this important "detail" of life.

All of the above information is designed to provide accurate information about the subjects covered. It is not provided with the intention or purpose of rendering any legal, accounting or other professional advice. If you wish to implement an effective estate plan, you are strongly recommended to speak with an attorney, accountant or other professional.

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If you've read this far, you're obviously serious and want to know more about estate planning with a trust.

Rex Alan Lowe, Attorney at Law
Estate Planning, Probate & Trust Law
630 South El Camino Real, Suite A
San Clemente, California 92672-4200
949.498.3045