Most people in California want to plan their estate to avoid a court-supervised probate administration. The document that allows this to happen is a revocable living trust. Here is a simple example of how a trust can be beneficial both during lifetime and after you pass away.
Mary Smith is a single woman with one grown daughter, Susan Smith. Mary is 85 years of age. Her home is her most significant asset. When Mary was 80, she made a revocable living trust so that transfer of her house to her daughter at Mary’s death would be relatively straightforward and there would be no probate administration required.
At age 85, Mary had a stroke and could no longer live in her home or handle her own financial affairs. Mary’s revocable trust named Susan as the successor Trustee to act when Mary could no longer act. Susan stepped into the role of successor Trustee to manage her mother’s house for Mary’s benefit. She rented the house so that Mary would have some income to pay for medical care. She collected the rent and deposited it into a trust checking account that she established. She took care of maintaining the house and used rental income to pay expenses related to the house, insurance, taxes, maintenance, etc.
Eventually, Mary passed away. The revocable trust named Susan as the sole beneficiary of the trust. Susan transferred title in the house to herself.
This extremely simple example shows that Mary’s trust was helpful to her not just to transfer assets after she dies, but also to assist her with asset management when she had a stroke.
The Basics of Revocable Living Trusts
- What is it? A revocable living trust is a contract with yourself. The terms of the contract are set forth in the Declaration of Trust or the Trust Agreement.
- What is the purpose? The purpose of the revocable living trust is to hold certain kinds of property as Trustee of the Trust. By holding property as Trustee of the Trust, instead of in an individual name, the Trust owns the property.
- Who benefits from the Trust? The person who establishes the Trust benefits from the Trust so long as that person is alive. If a couple establishes a Trust, then they both benefit while they are both alive. The survivor of the couple benefits after one person dies.
- The person/couple who establishes the Trust also set forth who will receive any assets of the trust estate when that person/couple is no longer living. This can be descendants, other family members, friends, charities, and even pets.
- Who manages the assets of the Trust? The individual who manages the trust assets is referred to as the Trustee. Typically the person or couple who establishes the Trust is also the one who acts as the Trustee. They manage the assets for their own enjoyment while they are alive. When the person or couple who establishes the Trust is no longer alive, however, a new Trustee must act. This person is known as the successor Trustee. The role of this person is similar to that of an Executor under a Will. The successor Trustee is responsible to settle the estate of the deceased person who established the Trust and to distribute the remaining trust assets according to the express terms of the written trust document.
Once you create a Trust, what if you want to change the terms? A revocable living trust can be changed by the person or couple who initially establishes the Trust. That is why the document is referred to as revocable. It is referred to as a living trust because you establish it while you are alive.
What advantages does a Revocable Living Trust have over a Will? A revocable trust has significant advantages over a Will.
- In most cases, the expenses to settle an estate after someone’s death are considerably less if the deceased has established a revocable trust during lifetime. There are few if any court required fees with a revocable living trust. Attorney fees to represent the Trustee are frequently less with a revocable trust.
- Settling an estate with a revocable living trust does not require filing a list of estate assets with the court. With a Will submitted for probate in California, the Executor is required to file a list of estate assets and values.
- A successor Trustee settling an estate according to a revocable living trust may have more flexibility in the management and distribution of the trust assets so long as the terms of the Trust Agreement are upheld.
- With a revocable living trust, you start by managing the assets of the trust for your own benefit. If, however, you become incapable of handling your own financial matters due to age, illness, or incapacity, your successor Trustee named in the revocable living trust can act on your behalf. A Will cannot do this.
Bonnie has more than 25 years of experience preparing revocable trusts for clients, updating trusts, and advising her clients on how the revocable trust works to the client’s advantage. If you have been considering doing an estate plan with a revocable trust, she will serve you well.
Keeping Your Estate Plan Up To Date
Below are typical things that people overlook after they have made an estate plan. Does anything apply to you?
- Where are Your Estate Planning Documents? Do you know where your documents are? Some people put their estate planning and other important documents in a really safe place, but then forget where that safe place is. Copies do not always substitute for originals–especially the Durable Power of Attorney and the Last Will and Testament. Know where your original documents are!
- Refinance? Have you refinanced your home since creating your revocable trust? If yes, most likely the refinance process required you to transfer your home out of the Trust during the escrow process. Do you know if the necessary deed to transfer the real property back into the Trust was prepared, signed, and recorded? Real property must be titled to you as Trustee of the Trust to avoid probate at death, so get that house back into the Trust after a refinance.
- Advance Health Care Directive? Have you given a copy of your Advance Health Care Directive to your primary care physician and any other physician from whom you are receiving medical treatment? Make sure this has been done.
- New Account or Investment? Have you established any new bank accounts or investment accounts (not including retirement accounts) since you signed your Trust? Did you remember to title the account to you as Trustee of the Trust?
- Safe Deposit Box? If you have a safe deposit box, do you know where the key is? Are you the only person on the box? Consider authorizing another individual to have access to the safe deposit box by signing the necessary forms at your bank. Otherwise, in an emergency or at such time as you pass away, gaining access to the safe deposit box will be a headache for your Executor or Trustee. If you have a safe deposit box that is empty and not being used, consider closing it so as not to cause confusion in the future about what might or might not be in the box.
- Have you Read Your Documents Lately? Finally, when was the last time you pulled out your estate planning documents to read through them? Take a look at your documents, especially with regard to these provisions:
- The individuals you appoint to act on your behalf. Are these still up to date? The distribution provisions in your Will or your revocable trust for your estate to take effect on your death. Is this information still current?
- Finally, if you are married, does your revocable trust direct that two (2) sub-trusts be created when the first spouse dies. Many revocable trusts have these provisions, especially revocable trusts created before the year 2000, but not only. You may not need this provision any longer because fewer estates are subject to estate tax now that the exemption is over $5,000,000 per person. An amendment now could make the Trust easier to manage in the future for the surviving spouse.
If this checklist raises any questions for you, please feel free to contact Bonnie.