What is a Living Trust? The ABC’s of Estate Planning by Attorney Gerald Cummings ~ Part 4 of 5

What is a Living Trust?

While it has been touched on earlier, the question “What is a Living Trust” is worth a second look.  It is very common for me to hear people ask “Do I need a trust?” or tell me that they do not have enough money to justify a living trust.  For most people, this is simply not true.  If you own a home or if you don’t but have liquid asset exceeding $100,000, you need a living trust.  Otherwise, you estate may be subject to probate when you die.

A living trust is simply a contract between the creator of the trust (the settlor) and the manager of the trust (a trustee) who agrees to hold property for the benefit of another (the beneficiary).  Usually, the settlor, trustee, and beneficiary are the same person or persons.  A living trust can be modified or revoked during the creator’s lifetime.  A living trust names a successor trustee to serve when the original trustee is no longer able to do so.  The successor’s job is to carry out the terms of the trust either by using the trust for the benefit of the settlor if he or she is still alive but unable to manage the trust or distributing the trust to the beneficiaries if the settlor has passed away.  If the beneficiaries are minor children (or children who, for various reasons, would be unable to handle receiving a large sum of money), the assets will stay in trust, managed for their benefit, with payments being made for their health, education, care, support, and maintenance, until the beneficiaries reach a specified age.  If a beneficiary is disabled, the assets can be placed into a special needs trust which will allow the disabled beneficiary to qualify or continue to receive government benefits such as SSI and Medi-Cal.

What do you Need a Living Trust?

There are many reasons why a living trust is superior to a will or doing nothing, but, for most people, the biggest advantages are that the living trust will avoid probate, the living trust can be distributed quickly if the trust so provides, and the living trust is a private, not public document.

Probate is the process where a person’s estate is collected, inventories, and distributed to the person’s heirs under court supervision.  The living trust avoids probate, a will does not.  Probate is expensive (a $500,000 estate will generate $13,000 is attorney’s fees), it takes a long time (at least eight months from the time the court appoints an administrator of the estate to the time the court approves the order for final distribution), and it is a public process (all documents filed in the probate are public records, including the names and addresses of the beneficiaries and a description of the assets that are subject to the probate proceeding).  Again, a living trust avoids these problems while a will does not.

One thing to keep in mind regarding probate fees:  In this area, anyone that owns a home will have an estate subject to probate, no mater how much may be owed on that home.  Even if there is no equity in the home, the probate fees will be based on the fair market value of the home, not the decedent’s equity in the home.

If you have any questions about this article or any of the topics discussed, please feel free to call me at (408) 286-2122.  Next issue we will discuss planning for a disabled child.

Gerald W. Cummings is an estate planning attorney in San Jose, California.  He works with families to help them achieve peace of mind, the peace of mind that is obtained by putting their wishes down in their wills, trusts, and other estate planning documents.  He can be found on the web at www.cummingslegal.com.