Five Reasons You Should Have a Trust
In our previous post, we discussed the most common estate planning documents: revocable trust, will, power of attorney, and advance health care directive. This article will take a closer look at the benefits of a revocable trust.
1. Avoid Probate
One of the most attractive features of a revocable/living trust is the possibility of avoiding probate. While nothing can guarantee that your estate will be able to avoid probate, transferring assets to a revocable trust is a great starting point. Personal property and real estate owned by a trust are not subject to probate and can be transferred without going to court. [i]
More specifically, for California estates where the total value of the assets subject to probate is less than $184,500, the executor and trustee of the estate can avoid probate by using various affidavits and/or summary proceedings that allow for the transfer of property. [ii] However, if the value of the assets subject to probate is $184,500 or more, then full probate proceedings would be required. Probate proceedings mean the court is heavily involved in validating the decedent’s will and supervising the distribution of the estate’s assets.
Avoiding probate can save a significant amount of time. A standard probate process can take at least nine months but sometimes may drag on for up to a year and a half. [iii] Waiting on court approval before your assets can be distributed will likely frustrate your heirs/beneficiaries. By contrast, if your assets are held in a trust, they could be distributed to your intended beneficiaries almost immediately (depending on the type of assets involved, potential tax return filings, and other administrative tasks).
Avoiding probate can also prevent your estate from paying unnecessary fees. Going through a probate process in California courts can cost anywhere from 4% - 7% of the estate's total value. [iv] Some of the costs could include state-mandated attorney’s fees, appraisal costs, executor's fees, court filing fees, and accounting fees. On a million-dollar estate (which is common if you own a home in California), the probate proceedings could potentially cost $70,000. With a trust and a comprehensive estate plan, this unnecessary probate cost could be avoided, and more assets would flow directly to your beneficiaries.
2. Give Your Heirs Clarity
The beauty of a trust is that it’s like a detailed roadmap. Your successor trustee (the person you choose to handle your estate upon your passing) can read the trust document and see exactly how you intended your assets to be distributed. A well-written trust provides clear, precise instructions about how to handle the estate. The hope is that this clarity heads off any disagreements amongst beneficiaries.
Of course, family dynamics are often complex, and some beneficiaries may be unhappy with how the trust is structured. However, the written terms of the trust should be the “final say” on how distributions are made. Once you have an estate plan, we encourage you to discuss it with the successor trustee and beneficiaries. Having a high-level discussion with your family can mitigate potential surprises down the road. For tips on having this conversation, Hannah Boundy provides some valuable insight in this article.
3. Transfer and Manage Assets Easily
Another added benefit of a revocable trust is the ability to transfer/distribute assets easily. With a trust document in place, real estate and personal property can be sold or transferred. The successor trustee will pay any eligible creditors and can then distribute assets according to the trust. This is designed to be an efficient process that avoids bureaucracy and eliminates court intervention (i.e., probate). Moreover, if any assets are slated to remain in the trust for specified purposes or for a specified length of time, the successor trustee can easily manage those assets accordingly.
4. Keep Your Privacy
In the Internet age, so much of our information is publicly available. If your estate does require a probate proceeding, even more of your information could potentially be exposed to the public. Probate records are, in fact, public records and can be accessed by anyone. If your estate finds its way into a probate court, your will, your children's names, the assets you owned (including real estate), and any liabilities/debts you had may become publicly available.
You may remember hearing about high-profile probate cases involving Aretha Franklin, Howard Hughes, and Prince. The media could report on these cases because the probate documents were easily accessible. If you structure your trust and estate plan correctly, you should be able to avoid probate and keep your personal information out of the public sphere.
5. Control Your Future
A revocable trust (in conjunction with a power of attorney and an advance health care directive) allows you to decide who manages your assets if you become incapacitated. These documents can also set forth your wishes on how you would like to be cared for should the need arise. By planning out this potentiality ahead of time, you receive peace of mind knowing that the person you select to act on your behalf has clear instructions directly from you, hopefully maximizing your happiness and comfort.
A revocable trust is a vital tool to plan for your future and your legacy. If you have any questions regarding your existing trust or are considering establishing one, we’d be happy to assess your individual situation, recommend estate planning attorneys, and work together to develop a comprehensive legacy plan.
Disclosures: This information should not be construed as investment, tax, or legal advice.