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SOME THINGS YOU MAY NOT KNOW ABOUT THE REVOCABLE LIVING TRUST
TABLE OF CONTENTS
INTRODUCTION TRUSTS DEATH TAXES PROBATE I. WILLS OR TRUSTS TO TRANSFER ASSETS? A. Saving Taxes - Trusts Offer No Tax Advantage Over Wills B. Avoiding Probate Is Not Always Wise (1) Delay in Distribution of Your Estate (a) Trusts and Probates Must Wait on The Tax Man (b) Reform Has Streamlined the Probate Process (c) A Problem In Probate Is A Problem In A Trust (d) Trustees Often Submit Your Trust to Probate Jurisdiction Anyway (2) Ease of Transfer of Assets (a) “Wild Card Assets” Plague Trusts (b) Trust Beneficiaries May End Up In Court (3) Excessive Compensation (a) Trusts Cost More To Set Up (b) Unregulated Fees Make Trusts More Expensive Than a Probate II. A WILL OR TRUST? OTHER CONSIDERATIONS A. Dependents are Protected By A Will Or A Trust B. Living Trusts Offer No More Privacy Than Wills C. Better To Litigate In Probate Than With A Trust D. Probate Provides For Family Support III. ALTERNATIVES TO REVOCABLE TRUSTS A. Wills B. Other Alternatives 1. Real Estate 2. Personal Property SUMMARY
and heirship claims and do it for less money. A will can do as well as or better than a revocable trust to protect your estate from creditors. audits. that is terminable at the whim of the settlor or upon certain conditions or events specified by the settlor.Do I … INTRODUCTION The revocable living trust is also known as the “family. TRUSTS WHAT IS A TRUST? The trust form of property ownership was devised in England long ago to permit legal title to be transferred by the owner of property (the trustor or settlor) to another person (the trustee) for the benefit of the trustor/settlor or a third person (the beneficiary). which is effective to create the trust only on your death. in the event of death.” or even “loving” trust. even substantial estates. However. and most over 65 we recommend a revocable living trust because of the fact that it permits management of a disabled person’s estate without the need for a cumbersome and expensive court conservatorship.php?… 3/10 . The conservatorship process. We are concerned that many people enter into these trusts without fully understanding what it is they are buying. the widespread use of the “revocable living trust” as the estate planning and administration device of choice has many times turned out not to be in the interest of the client or the client’s beneficiaries. all of which are effective to create the trust immediately. There are many estate planning situations where a trust is appropriate. or agreement. For some of our clients over 55. except in a few states). even for several lifetimes (but not in perpetuity. With a trust. Propper & Hardacre.com/bph/index. lawsuits. WHAT IS THE PRACTICAL DIFFERENCE BETWEEN A REVOCABLE TRUST AND A TESTAMENTARY TRUST? None. and has become the vehicle of choice for almost all estate plans. HOW DO YOU CREATE A TRUST? By signing a deed. friend or care giver seeks appointment by the court to completely take over and manage a person’s estate while the ward is still living is to be avoided unless there is no one who can be trusted to administer a private trust. taxes and probate. the beneficiary does not have legal title to the property. Trusts can be established for varying lengths of time. declaration. . or by signing a will. What we want you to know is that there is nothing wrong with using a will to transfer assets in many estates. Too often the revocable trust is promoted as a wealth transfer device when it is not appropriate to do so. or can be revocable.” “intervivos. To understand why this is so. you need to know some basic facts about trusts. Inc.7/13/2010 Blum. we have used the revocable trust for their benefit when it is appropriate to do so. but has the right to enjoy the use and benefit of the property placed in trust according to the terms of the trust (this is known as a “beneficial interest”).” “living. During our fifty years of service to our clients. whereby a relative. The problem we see is that the revocable trust often fails to provide the advantages claimed for it and there are cheaper and more efficient legal vehicles available to do the job the living trust is supposed to do. The only difference is that a trust established on your death by a will is hardacrelawoffice.
Beginning in 2009. and the death tax will be fully repealed in 2010. DEATH TAXES We do not have a death tax in California. A testamentary trust provides the same protection as a revocable trust for your beneficiaries.” and a revocable trust established before your death is called a “living trust. at least if you have no tax problems or disgruntled heirs. WILLS OR TRUSTS TO TRANSFER ASSETS?: The two major selling points used to promote revocable trusts are: (A) saving taxes. the 100% federal estate tax marital deduction is available to your spouse. will reinstate the tax in 2011 as it existed in 2000 unless Congress votes to override that Amendment. We will discuss this and other less expensive alternatives after comparing wills and revocable trusts as estate transfer devices. Propper & Hardacre.500. particularly overcharging. while protecting your heirs. and $7. only the second spouse’s exemption will be available on the second death.php?… . probate is not something to be shunned and feared out of hand.000 for single persons. I. Probate is a shorthand way of describing the court supervised procedure designed to pass your property as you have instructed in your will.7/13/2010 Blum. Inc. particularly if it is a bank.Do I … called a “testamentary trust. the decedent’s lifetime exemption is preserved. and a total of $7. and do not realize that probate avoidance may have a high price if a revocable living trust is used as a will substitute to avoid probate. it must be funded while you are alive. A. Our position is that once you are gone. PROBATE While it may be desirable to transfer your assets without filing a petition in probate. If a married couple sets up a simple “bypass” trust for the survivor and places $3. if one spouse dies without using his or her exemption. if you are married when you die. no federal estate tax will be due in estates valued at less than $3. For married clients. Regardless of the size of your estate.000 of marital property in that trust on the first death.000. Many people don't really know what probate is or what it does. A bypass trust does not require a living trust.000 can go to the heirs tax free. although the “sunset” provisions of the Byrd Amendment (which is intended to avoid a federal deficit). formal transfer procedure can be avoided on the first death by simply holding title in co-tenancy. To do this. and (B) avoiding probate. However. but can be set up in your will along with trusts for the protection of children or other dependents. However. no matter how large the estate. Saving Taxes . Tax is imposed on the spousal estate only after the surviving spouse dies.500. 4/10 hardacrelawoffice. A revocable living trust used to transfer your assets is not subject to court control like a testamentary trust. Very often the successor trustee is a bank.com/bph/index.Trusts Offer No Tax Advantage Over Wills.000 for married couples who plan properly. should be subject to probate court review and accountability to protect the trust estate from abuse. although a beneficiary can petition the probate court to take jurisdiction of the trust. A revocable living trust is supposed to transfer your assets on your death without a proceeding in probate court. This means that there is no tax due at the first death.” Both forms become irrevocable on your death. your trustee's actions. .000. your estate may be liable for federal estate tax.
if a federal estate tax is due because the value of your estate exceeds the available estate and gift tax credit. It is not. Avoiding Probate Is Not Always Wise. The reasons for this are: (a) Trusts and Probates Must Wait on The Tax Man. even if a revocable trust is involved. the federal estate tax return is due nine months after your death. creditors and the taxing authority. it will take at least six months to transfer all of your estate to your beneficiaries. our clients who have attended lectures. and settle heirship proceedings hardacrelawoffice. For most estates that we administer there is no difference in the amount of time required to distribute an estate under a will or a trust.php?… 5/10 . This is because of a basic fact of life and the cardinal rule of tax planning . you must give up something.Do I … Now that you have an overview of the death tax applicable to your estate. In response to criticism of the probate system nationwide. Both a trustee and an executor must wait for the alternative valuation date to pass before distributing your estate. A will does not have any effect on your property until your death and can be changed or revoked at any time. we can examine the tax advantages of revocable trusts over wills. with no tax benefit over a will. has been for many years an example of progressive and efficient probate administration.you don't get something for nothing. read estate planning articles. your trustee must pay claims. Even if your estate owes no estate tax. The fact that your estate planning trust is revocable means that its legal effect is identical to that of a will. California. Nevertheless. The thing you must give up is control of your estate while you are alive. Ironically. Rather. a revocable living trust has no advantage over a testamentary trust set up under a will. or risk overpaying death tax. are often under the mistaken impression that the revocable living trust is a device to save taxes.com/bph/index. (2) making it easy to transfer assets to your heirs. there's no getting out of it or changing it. Let’s look closely at the supposed benefits of probate avoidance: (1) Delay in Distribution of Your Estate. . the only trust that can effectively save you taxes is an irrevocable trust. The principal reasons given for avoiding probate are: (1) eliminating perceived delay in distribution of the estate.7/13/2010 Blum. and (3) avoiding excessive compensation to lawyers and executors. Therefore. There are none. The Probate Division of the Los Angeles County Superior Court pioneered progressive methods of court administration which were followed in many other parts of this state and others. handle property transfers. The passage of the California Independent Administration of Estates Act several years ago gave executors much more flexibility and freedom in administering probate estates without time consuming and costly court supervision. This is because the federal estate tax law gives your executor or trustee the choice of valuing the estate either as of the date of death or a date six months later. Inc. regardless of changes in your circumstances or wishes. while maintaining essential protections for heirs. B. wind up your business affairs. remedial statutes have been passed streamlining the system and eliminating most of the perceived problems. where the revocable trust device has found perhaps the greatest favor. In order to effect a tax savings with a trust. Propper & Hardacre. (b) Reform Has Streamlined the Probate Process. and most estates stay open at least that long. or otherwise. When it comes to taxes. (c) A Problem In Probate Is A Problem In A Trust. In fact. Once you're assets are in an irrevocable trust. Whether you use a will or a trust. For this reason living trusts used as will substitutes must be revocable. it can result in excessive fees and costs in the short and the long run. or been advised by well-meaning relatives and friends.
” the will that accompanies all revocable living trusts provides for transfer of any “wild card assets” to your trustee when you die. or they may be replaced. Inc. Due to the failure of the revocable trust to perform effectively as a will substitute (and an upsurge in trust litigation). and (b) even if all of your assets are transferred to the trust. This happens more often than you might think. liabilities of trustees to beneficiaries. The lawyer will tell you that this is to take care of any assets that are not transferred to the trust. there is no one pushing your trustee to meet deadlines and transfer those assets. creditor's claims are barred. the revocable trust device often results in a more complicated and difficult transfer procedure following your death than is the case with a will. and winding up and distributing your estate. for paying your bills. Once the probate creditor's claim period has run. It is true that it is possible (although rare) for a trustee to distribute trust assets earlier than an executor distributes assets in probate because an executor must allow the creditor's claim period to run before closing probate (four months in California). powers of trustees. but that won't happen until they have been through probate. and maintained. the Court routinely reminds counsel and the executor of deadlines and insists that the matter go forward expeditiously. If they don't meet the deadlines. liability of trustees to third persons. The problem is that proper set up and maintenance does not often occur. Division 9 of the Probate Code has been expanded to cover creation and validity of trusts. Revocable trusts are promoted precisely because they are supposed to permit your estate to avoid the dreaded probate courts. If the trust is properly set up. and. These new provisions allow your trustee to invoke probate court jurisdiction to resolve any issues he or she may be worried about. a number of new provisions have been “cobbled” onto the California Probate Code in the last few years to try to solve some of the problems facing trusts and trustees as they struggle to deal with issues already addressed in the probate of a will. the court sends a letter demanding action. your assets will be transferred quickly and efficiently. remember). (b) Trust Beneficiaries May End Up In Court. but at your trust’s expense and without fee regulation. Propper & Hardacre. (a) “Wild Card Assets” Plague Trusts. but many estates end up with a probate and a trust administration. If they still don't respond.Do I … or law suits before he or she releases the assets to your beneficiaries. they may be hauled into probate court and see their fees reduced. (d) Trustees Often Submit Your Trust to Probate Jurisdiction Anyway. Rather than have such assets “fall through the cracks. judicial proceedings concerning trusts. No such system exists for trusts. debts. but now that people are dying with revocable trusts in place (they become irrevocable on death. payment of claims. (2) Ease of Transfer of Assets.php?… 6/10 . In fact. failing to hardacrelawoffice. but is in fact becoming a probate proceeding. trust administration. In probate. and expenses of a deceased settlor. Far from being a hindrance to distribution. .7/13/2010 Blum. as stated above. In probate. You must transfer all your assets to your revocable trust if it is to work as planned. There are two reasons for this: (a) an inherent problem of the revocable trust device is that assets are often left outside the trust and require the use of both a probate and a trust administration (we call these “wild card assets”). Anyone who adopts a living trust will find that the lawyer who drafts the trust with the purpose of avoiding probate. your executor and his or her lawyer are required to meet deadlines for filing your estate inventory. and many trustees elect to subject trust assets to probate jurisdiction to take advantage of the four-month time limit for filing claims. For years the revocable trust has been sold as a probate avoidance device.com/bph/index. always insists that the client have a will as well as a trust. There is a real chance that an unregulated trustee may drag his or her feet. the post death administration of these trusts not only looks like a probate. the protection of the probate creditors claim statute has now been made available for trusts.
” The legislature responded with a two-part system for the control of compensation for executors and their lawyers. . it is often with the desire to save on lawyers' fees and other administration expenses. (b) Unregulated Fees Make Trusts More Expensive Than a Probate. there were wide swings in the cost of estate management and distribution unrelated to the value or complexity of the estate. Fees quoted for revocable living trusts range from $2500 to $7. adopting the concept of statutory and extraordinary compensation. some with more than fifty typed pages. in our offices. without regulation. revocable trusts are often hugely complex. it can end up in a probate proceeding anyway. Provisions do exist in probate to regulate fees of executors and their lawyers. this was not done because lawyers wanted it! In California. If you pay for a revocable living trust. and in California they are set as a percentage of the value of the estate However. The only criterion for setting fees was “whatever the traffic will bear.500 for a will which includes a testamentary bypass trust for married couples to make sure each spouse's federal estate and gift tax lifetime exemption is used so that the maximum exemption is obtained. and not accounting for their actions.com/bph/index. Statutory (sometimes called ordinary) fees are fixed as a percentage of the value of the estate. unregulated trustee fees following your death are often higher than probate fees for an estate of comparable size.7/13/2010 Blum. about the only protective provisions of the probate code not applicable to your trust are provisions limiting the freedom of trustees and their lawyers to charge fees. but must file a petition and appear in probate court to do this. any services of an unusual or extraordinary nature are also covered by statute.php?… 7/10 . In the case of fees for statutory or ordinary services. This is a truly ironic result. If your estate is held in a revocable trust at your death. In California. fee regulation came about in the early part of the Twentieth Century because. paying claims. In addition. but none exist with living trusts. If that happens.Do I … communicate with beneficiaries. ranges from $500 for a very simple will to $1. Inc. In fact. preparing an inventory. This includes locating and listing your assets. lawyers' fees in a decedent's estate are fixed by statute. Disputes following death can arise in a trust setting also. and a testamentary family trust to protect children and grandchildren. In most states. Propper & Hardacre. but are not paid as hardacrelawoffice. and cover run of the mill services normally required to transfer your assets to your heirs. In probate. a trust beneficiary may petition to reduce fees. Let's examine the facts about compensation for estate planning and for estate administration and its impact on your desire to save money for your beneficiaries: (a) Trusts Cost More To Set Up. Trusts have no such hold back. It costs more to set up a trust than to execute a will which. If he believes they are excessive. beneficiaries have been given the means to force trustees who delay or even refuse to account or make distribution to toe the mark. living trusts usually cost a great deal more than wills to set up.. but that requires your beneficiary to file a trust petition in probate court. given the fact that a major selling point for revocable living trusts is avoidance of supposedly excessive fees in probate. the court is prohibited by the statute from allowing more than 70% of statutory fees until the estate is actually closed and distributed. A revocable trust does not save fees. In comparison to wills. if any. and distributing the assets to your heirs and beneficiaries.500 and often more. including gains and losses on sale of assets. (3) Excessive Compensation.
Living Trusts Offer No More Privacy Than Wills. If the lawyer will not agree to such a fee arrangement. tax audits. after your death. either by the statutory table or by the review of a skeptical judge. Before your death a will is an absolutely private document. you can no longer keep your final wishes a secret using a living trust. At least in California. nonexistent and never was meaningful. II. Your trustee must divulge the terms of your trust to all your potential heirs.com/bph/index. It has been our custom to enter into agreements with our clients or their heirs which limit our statutory fee to an amount calculated by multiplying the number of hours which we spend in connection with the probate administration times our normal hourly rate. The executor has the choice of deducting compensation on the federal estate tax return or the estate's income tax return. or a reclusive billionaire with secrets to hide who sets up a trust for that reason. Therefore. if your estate has problems which may result in “extraordinary” compensation in a probate. They are awarded only after a hearing in court on a written fee petition. even if the estate has not been distributed. Dependents are Protected By A Will Or A Trust. securing privacy. Tell your executor that this sort of fee arrangement is possible and that he or she should negotiate with the lawyer who will do the probate work. In the case of a trust. Extraordinary services involve such things as preparation of estate tax and income tax returns.php?… 8/10 . probate extraordinary fees are awarded at a rate of 10-30% less than the going hourly rate of most lawyers in the community. it will have those problems whether it's administered under a "revocable trust" or in probate court. Compensation paid for the services of a lawyer or an executor is a tax deductible expense of the estate. A judge or the court probate staff looks at the written fee application and weighs all these factors very carefully. ask yourself what incentive they have to administer the estate efficiently of quickly. A. and they may collect monthly. avoiding litigation.Do I … a percentage of the estate. it must be filed with the probate court. or by applying the statutory fee table. A WILL OR TRUST? OTHER CONSIDERATIONS: Additional advantages often cited in favor of the revocable trust include protecting minor children and incompetents. for all practical purposes. the trustee and the lawyer are paid unregulated fees at whatever rate they may set. the so called “privacy” of the revocable living trust is. Contrast this with a revocable trust where there is no review or regulation. Remember. your executor should take the probate somewhere else. In the case of fees for extraordinary services. However. . The important thing to note is that lawyers' fees in a probate setting are regulated. The lawyer must tell the court in writing what he or she has done and how those services benefit the estate to justify an award. fees are rarely allowed by the court until the particular extraordinary matter is resolved. even if you are a rock star or an eccentric. litigation and settlement of substantial disputes with heirs. and providing a ready means of supporting family members during estate administration. The California Probate Code now hardacrelawoffice. B. Propper & Hardacre.7/13/2010 Blum. or if you must care for someone who is not mentally competent or is unreliable. Generally. Inc. This probate filing is not a bad thing unless you are a rock star whose family will be hounded by the pulp newspapers. creditors or other claimants. A probate lawyer is not bound to charge the full statutory fee and can take less. whichever fee is less. We generally suggest that wills provide for a trust if there are minor children. Provisions in testamentary trusts set up by a will to do this job are identical to the provisions used in living trusts.
Propper & Hardacre. or a summary prepared by your lawyer under the probate code.com/bph/index. You cannot sell real estate or stocks without showing the buyer or transfer agent your revocable trust. With a will. If you die and leave unpaid creditors. Because of this.000 and there is no real estate). for instance) the trustee must give notice to potential heirs and deliver a copy of the trust on request. Wills: A will is the most obvious alternative to a complex revocable trust and should be used in most instances when a client's estate does not exceed the federal estate and gift tax lifetime exemption. Having a trust won’t stop a litigant from suing.7/13/2010 Blum. etc. heirs who have potential disputes. III. This is not so.. when a probate may be required. your trust ends up in civil litigation instead of the less formal. If a suit is filed after your death. When your spouse dies. without the delay of a court hearing. Better To Litigate In Probate Than With A Trust. in California. In Los Angeles County (and most other counties) there is a professional staff of attorneys and assistants who review. On the second death. However. hardacrelawoffice. we recommend that you hold your community property with your spouse as “Community Property With Right of Survivorship” instead of in a revocable trust. See ¶B. tax problems. or part of a trust. C. but that is not something to be avoided by the application of the revocable trust device where it makes no economic or practical sense. while retaining the survivorship benefits of joint tenancy. A. you do not need a revocable trust to achieve this goal. The court will not allow excessive payments and will not let them continue to the detriment of the estate. Other Alternatives: 1. D. In a lawsuit. Real Estate: Beginning in 2002. the estate is worth less than $100. This may mean a probate (unless. Even before your death trust privacy is circumscribed. if you are married and do not have a complex estate. becomes irrevocable (upon the death of a spouse. One purpose of the revocable trust if you are married is to transfer title to your spouse without going through probate. B. co-tenancy bank accounts can make it easy to obtain funds immediately without a trust. your representative. matters which might otherwise drag on in the civil courts are often disposed of at the procedural level or in settlement. unhappy business partners.. is faced with identical problems. at least pre-death privacy is assured. a married couple can avoid probate of real estate without a trust by holding real property as “Community Property With Right of Survivorship” (California Family Code §750). the other side can discover the provisions of your trust. whether a trustee or an executor. Inc. below. ALTERNATIVES TO REVOCABLE TRUSTS. A will is an obvious alternative and. The fact that the court continues to have jurisdiction over the amount and duration of family allowance payments is a positive. the other will receive a full step up in basis of all the community property for federal income tax purposes. usually more efficient and responsive probate court system. the California Probate Code allows dependents (or their guardians) immediate access to funds by way of the probate family allowance. prepare and comment to the judge on all proceedings. This form of ownership assures California couples that when one of them dies. 1. You may hear that with a will your money can be tied up in probate with no immediate provision for protection of surviving family members. which summary must be paid for by you. Probate Provides For Family Support.php?… 9/10 . as well as the right to live in the family residence during probate.Do I … provides that once a trust. .
This is in large part because of the additional drafting and set up expense and the problems of unregulated fees post death. or those over age 65 who wish to delegate management of their estate assets without giving up all control.Inc. 2001) you don't have to have a probate or other court proceeding to transfer property to you on the death of your spouse. and a “bypass” trust if you have a fairly large estate and want to take full advantage of the lifetime federal estate tax exemption granted to each spouse.7/13/2010 Blum. Next > Site design by MT Page Designs . bank accounts. although they have their place in an appropriate setting. Propper & Hardacre. and many other states. Inc. SUMMARY Remember that we stated at the beginning of this article that Revocable trusts are definitely not panaceas. are transferred upon presentation of a death certificate without the need for court proceedings or a trust. or those with debilitating illnesses. Community property with right of survivorship is also an inexpensive and practical way to transfer any property between spouses.Do I … With the advent of Community Property With Right of Survivorship under California Civil Code §682. However.php?… 10/10 . 2. et seq. For instance. or where the client owns assets in several states or countries (particularly real property). we use revocable trusts only when there is a good reason for doing so. If it is advisable for income or estate tax reasons to have a court proceeding. .1 (operative July 1. stocks and other intangibles held in the names of both husband and wife. and are often oversold.). we may recommend a revocable living trust for incapacitated persons. or owns intellectual property which requires ongoing management during his or her lifetime and after death.com/bph/index. A simple “affidavit death of spouse” can be used to clear title to assets. Personal Property: In California (Probate Code §5100. Your wills may or may not contain a trust for minors or other dependents. Feel free to call us with any questions. Propper & Hardacre. You do need wills for each spouse to transfer what's left on the second death. you may use the inexpensive. streamlined spousal property confirmation petition now available in California. < Prev [ Back ] © 2008-2009 Blum. and especially in the event of litigation over the estate.Joomla Templates by Joomlashack hardacrelawoffice.