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 $150,000 in value (in California). When you set up a living trust, you become the trustee over all property transferred into the trust. 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 do not breach your mortgage or loan agreement by transferring your home into a living trust; nor do you pay more in real estate taxes.
There is very limited creditor protection inside a living trust. You cannot avoid bank foreclosure or debt collection by transferring property into a living trust. A living trust does not protect your assets in any way from your creditors. However, after your death, a properly designed trust for the benefit of your family can shield those assets from the creditors of your spouse, children and grandchildren.
A living trust is a great way to transfer the family residence to subsequent generations 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. But if you want the convenience of smooth, private and organized distribution of your estate outside of the probate courts, and a means for protecting and preserving your family financial 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.
Our 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 out and speeding up the process of settling your estate at minimum cost.
How do you set up a living trust?
A living trust consists of three basic steps: a declaration of the terms of the trust, a transfer of assets and an acceptance of fiduciary responsibility by the trustee. All three steps can be accomplished in one trust declaration, signed and notarized by the trustees. The trust declaration and accompanying transfer documents should be prepared by an experienced attorney after a thorough client interview in which the various options are explained and explored.
Updating living trusts
Your living trust should be updated from time to time as your life circumstances and family change. Amending a living trust involves preparing a trust amendment document, signed and notarized either by the original party, a person with power a durable power of attorney, or a conservator with court approval. Amendments should be prepared by an experienced attorney familiar with the changing laws and regulations.
Funding a living trust
All living trust property is held in the name of the trustee. The jewelry, furnishings and other personal property in your residence is transferred into the living trust simply by signing the trust document declaring yourself to as “trustee” over this property. Real property must be transferred by means of a recorded deed naming the trustee as the new owner. Strange as it may seem, the simple name change from “John Smith” to “John Smith, trustee of the John Smith Living Trust” has important legal significance that could save an estate enormous time and expense.