There are many tools in an estate planner's toolbox.  Wills, trusts, specials needs trusts and gift trusts (irrevocable trusts) are some of the main instruments families use to accomplish their estate planning goals.  No single technique is the total solution for everyone, and not every one needs to use each instrument. 

           WILLS.  A will accomplishes the basic task of telling the world who receives your property after your death and who will take care of your minor children.  Everyone over 18 who owns property or who has minor children should have a will.  The only exception is for people who want the state courts to distribute their property according to the state's rules (i.e., "intestate succession") and to appoint guardians for their children.  This is not an acceptable situation for most people.

           LIVING TRUSTS (also called Revocable Inter Vivos Trusts).   A living trust is a vehicle for holding and managing your property during life and distributing it after your death.  Living trusts are popular for the simple reason that property put into a living trust avoids the often long and expensive probate process, especially for probate estates over $100,000 in value (in California).  When you set up a living trust, you become the trustee over all property transferred into the trust, and as trustee you have the same rights as an owner; that is, full control over every aspect of the property while you are living.  You pay taxes on the income in your living trust under your social security number, at the same tax rates and with the same tax forms that you use now.  During your life, you can change or revoke the trust (or your portion of the trust) at any time. You can sell the property or transfer it to any one you wish.  You will not be breaching your mortgage or loan agreement by transferring your home into a living trust; nor will you be paying more in real estate taxes.  But make no mistake:  you cannot avoid bank foreclosure or creditors by transferring property into a living trust. A living trust does not protect your assets in any way from your creditors, although after your death when the trust (or a portion of the trust) becomes irrevocable, the trust assets can be sheltered from your children and grandchildren's creditors. 

        A living trust is a great way to transfer the family residence without going through the probate courts.  Yes, there are other, less costly alternatives to a living trust that, under certain circumstances, can achieve similar results.  For instance, holding joint title to real estate will avoid probate and ensure that the property passes to your "joint tenant" owner when you die. (There are, however, potentially adverse capital gain tax consequences from holding appreciated property as joint tenants).  Updating the beneficiary designations on your bank, investment and retirement accounts is also a convenient way to transfer assets and avoid probate.   But if you want the convenicence of smooth, private and organized distribution of your estate outside of the probate courts, and a creditor-protected vehicle for protecting your family legacy in the years to come, and a built-in mechanism to minimize estate and generation-skipping taxes, the advantages of a living trust are truly remarkable.    

         My free consultation will explain what a living trust does and does not do, what probate is, and how trusts, gifts and powers of attorney, retirement accounts can be useful for smoothing and speeding the process of settling your estate at minimum cost.  

          SPECIAL NEEDS TRUSTS.  Sometimes a generous gift can have unintended consequences.  A special needs trust protects against the loss of eligibility for government benefits when a loved one receives an inheritance gift that pushes their "countable" "resources" over the eligibility threshold (i.e., the gift makes them too rich for government assistance).  The law now recognizes that special needs trusts are a supplement to, not a substitute for, government aid programs such as SSI and Medi-Cal.  Property placed into a special needs trust (by gift or by transfer from inside of a living trust) will be available to meet ancillary needs of a loved one who continues to receive a public benefit program.  Strict requirements must be met and careful drafting is required for a special needs trust to be effective. 

          IRREVOCABLE TRUSTS (LIFE INSURANCE, GRANTOR RETAINED ANNUITY AND UNITRUST TRUSTS).  Placing assets into an irrevocable trust removes them from your taxable estate for estate tax purposes, and allows you to use the annual gift exclusion (in 2009, $13,000 per year per beneficiary) to shelter your gifts from the gift tax regime.  When the trust owns a life insurance policy on your life, you can transfer the annual exclusion amount to the trust to pay the premiums. When you die, the life insurance proceeds are removed from your taxable estate (thus avoiding estate taxes) and your beneficiary, or the on-going trust, receives the proceeds income tax-free.  In this way, an irrevocable life insurance trust is an effective way to provide the liquidity you need to fund buy-out (for small business owners), pay estate taxes, support loved ones, or settle other obligations at your death, without having those assets counted as part of your taxable estate for estate tax purposes.  When designing an irrevocable trust, you must pay close attention to the possible tax complications that can arise from the selection of certain trustees and beneficiaries and from the character of the property (community or separate property) used to fund the trust.  And if the trust will receive annual gifts, there also must be an on-going plan for providing notice to trust beneficiaries in order to effectively use your annual exclusion.