What is a Living Trust and Do I Need One?

There are two things every person can count on: (1) everyone will eventually pass away; and then (2) there will be some sort of legal process to transfer assets to intended beneficiaries.  For many, the preference is for that post death legal asset transfer process to be short and affordable, not long and expensive.

The law of post death transfer of assets works like this.  All assets that are in “your name” (ex: “Jane Doe”) at the moment of death must be transferred to your beneficiaries through the long and expensive Probate Court process.  On the other hand, all asserts in a Living Trust at the moment of death, transfer to your beneficiaries quickly and at an affordable price.  Here are further details about each process.

Probate Court - When someone passes away, the Attorney immediately creates an inventory of what assets the decedent owned and the exact title on each asset.  If the asset is titled in the actual name of the decedent (ex: “Jane Doe”), then all those assets (called an “estate”) must be transferred to the decedent’s beneficiaries through the Probate Court transfer of assets process.  In California, the Probate Court transfer process is long and expensive.  It takes at least 10 months to complete a Probate Court case from the day it is filed.  The Probate Fees are statutorily authorized and are based on the gross/market value of the assets (date of death balance).  The statutory Probate Fees are contained in a complicated formula, but a rule of thumb is that the first $1,000,000 of estate value incurs a Probate Fee of $48,000.  If the estate is worth more, then the Probate fee increases.  Loans are not considered.  That means, if Dick and Jane Doe buy a house for $1,000,000, $50,000 downpayment, on January 1st, and then both are struck by lightning on January 2nd and die, the transfer of that house through the Probate Court will take at least 10 months and cost $48,000. That is all money that could have gone to the children of Dick and Jane. Children get nothing. 

Will - “But Jason, doesn’t a Will avoid this?”  No! All a Will does is simply tell the Judge at the end of the long and expensive Probate Court transfer process who to give your assets to (“car to daughter, house to cousin, etc.”). This is why it is often said that “we use Living Trusts as Will substitutes in California.”  

Living Trusts – Unlike assets in “your name” which are subject to Probate Court, at the end of life, all assets in your Living Trust “escape Probate” and are transferred quickly and affordably to the beneficiaries listed in your Trust. The mechanics of the transfer are such that it all happens in the privacy of your attorney’s office (versus all your assets being listed publicly on the Probate Court’s Website). Further, your Living Trust can control aspects such as “please hold my children’s inheritance until they are 21 years old” or “my surviving spouse may be supported by my half of the wealth, but they may not transfer it to their second spouse if they remarry and my half must in fact be given to my children at my surviving spouse’s death.”  A Will cannot accomplish these more customized choices regard the transfer of your wealth at the end of life. 

Attorneys often prepare a Living Trust on a flat fee basis and as part of an overall estate plan which typically includes Powers of Attorney, Advance Health Directives, and a Back-up Will.  

There are many more customized aspects of an estate plan that you will want to discuss with your Estate Planning attorney.  Those interested may contact me for a complimentary consultation in either San Mateo or San Francisco; just say “Mary Hawley sent me!"