Rand L. Stephens, Inc. 511 West Third Street Antioch, CA 94509 Telephone: 925-757-1700 e-mail: help@jobdiscrimination.org

Do You Need a Living Trust?

There is a lot of information floating around about the benefits of creating a living trust as part of a sound estate plan and/or for other uses such as tax structuring or the avoidance of third party creditors claims. The sudden interest is not surprising with all of the advertising going on by attorneys and paralegals. Indeed, the issue has even become the subject of books.

For many, a Simple Will is sufficient to provide for their heirs. One major exception is when an individual wishes to provide for minors. A minor child may not hold property until the child reaches the "age of majority", in California (and most states) that age is 18. Therefore, a "trustee" must be appointed to take the title of any property and to distribute money to the minor for support or other purposes.

A Trust Will is a document, that like a simple will, only becomes empowered by the testator's death. The Trust Will, however, creates a vehicle (the Trust) by which the bounty of the testators life can be given to the minor heirs. As in the Living Trust, the trustee manages the property until a date or age specified by the settlor or decedent. Sometimes this is a very desirable term of the trust, especially if one or more of the minors may not be mature enough to handle an inheritance at the age of 18.

One clear benefit of a living trust is the protection it may provide you from claims of third parties. For instance, I virtually always advise professional or self-employed individuals to create a Living Trust for a depository for their personal assets. Depending on the type of business, it may be advisable to further separate the business assets into a separate entity such as a corporation or LLP. The reason for this is to shield the personal property from taxes, or from catastrophic or nuisance claims that can arise from the operation of a small business.
For instance, a trucking company may not be absolutely positive that their insurance policy is large enough to cover all the liability that could arise from a fatal accident. A properly created business entity could be the only responsible party, thereby protecting the owner from personal liability. Should the owner somehow sustain personal liability (perhaps by driving the truck), then the personal assets could be further protected by a Living Trust. The Living Trust can be an even better shield if it is an irrevocable trust.

• Lifetime management, including management during periods of incompetency, without court intervention.
• Privacy, as probate records are public; the trust will not need to be probated.
• Probate is avoided and costs are generally lower after death. Routine probate-related legal services are avoided. Depending upon the complexity of the estate and the organization and adequacy of your records, such fees can be substantial, especially if you own property in more than one state.
• Time savings, as probate can take a year or more. Most routine work in a living trust can be accomplished a few weeks after death.
• Tax services generally are the same in both cases. There can be tax advantages to large estates (over $600,000 to $1,200,000 for a married couple).
• Asset Protection

• Although probate fees may be incurred at death, the cost of preparing a will is substantially less than a living trust.
• The estate may not need to be probated when an estate consists entirely of joint accounts, payable-on-death accounts, and joint tenancy property.
• Probate should not be avoided in some estates. This is particularly true where disputes among heirs are likely or where claims or sizable lawsuits may be pending. Probate offers a statutory means to handle disputes among heirs and claims against an estate. These procedures are not available to the trustee of a living trust. A will can be produced in addition to the trust and its customary to create a pour-over will in conjunction with a Living Trust.
• Possible after-death income tax savings. If you are in a high income tax bracket and own assets that will continue to produce substantial income after death, probate may result in income tax savings because both the estate and trust created in the will are separate taxpayers and income can be split between them through proper planning. The estate can also receive the benefit of a step-up evaluation of certain property, which can create substantial savings in taxes.

Don't rush in to an estate plan that is a current fad. The Living Trust can be very advantageous in certain circumstances. However, it can be very expensive, usually starting at around $850 and up. The price can be much higher if many deeds to real property are necessary. On the other hand, a simple will usually starts at $200, some attorneys offer prices as low as $75 purely as an accommodation for their best clients. Trust wills fall between the two in price, generally $350 and up. As can be seen above, the will may do everything you need and save you money.

The caveat is that a Living Will Trust may cost more in the inception, but there can be considerable savings later in probate fees and taxes.