Basics Facts of Living Trusts
How do I avoid probate?
By Patrick McCarran
Real Estate Broker
I have plenty of time? If you are young and healthy and in your 30’s or 40’s you never know what life has planned and a trust can give you peace of mind even though the need will be in the distant future. I believe in living trusts even for a modest estate, it’s the principal of paying the state to make a difficult period in your family lives more difficult and expensive.
The probate process in California isn’t exactly complicated, but it can be expensive. The fees for Probate are based on the gross value of the assets and are a tiered rate according to the value of the estate. Bear in mind that these are based on the gross value of your assets, so if you have a house worth $500,000 but there is a $480,000 loan on the property you would owe the state $13,000 for the probate tax leaving the heirs with $7000. In addition there are attorney fees, Executor fees, filling fees, and miscellaneous court fees!
The process for a probate is not quick and can easily take a year or more. If there are disputes, problems or a backed up court system, it can take much longer delaying closure for the family and draining money from the estate for expense such as a mortgage, other loans and credit cards.
Most of the deceased person’s property has to go through probate in an estate currently over $150,000, whether there is a will or not (intestate). However, there are several instances where property and assets would avoid the process, such as assets that are held in joint tenancy or with a designated beneficiary.
You may be asking by now, “How do I avoid this?” I would not recommend transferring title to your heirs prior to death because this also will transfer the cost basis the profit of the item and create a tax burden for the heirs. A second option that helps avoid this is a deed on death which activates, on passing and can avoid the step up tax basis. The third option is a living trust, the cost basis is the value at time of death and therefore the heirs may have limited or no tax liability.
What is the process and how is a Living Trust a viable option to avoid probate? Real estate, bank accounts, and vehicles can be held in a living trust created through a trust document that names yourself as trustee and someone else – a “successor” trustee – who will take over as trustee after you die. A living trust’s terms can be changed at any time, or the trust may be cancelled entirely, hence is revocable.
A typical trust is the Family Trust and can be an individual or a couple who are the Trustees and, with their children or heirs, the Beneficiaries. Those who establish the trust and transfer their property into it are known as Trustors or Settlors. After the passing, the designated heirs become the primary beneficiaries. A successor trustee designated by the trust creator will execute the wishes of the Trustees via a will contained in the trust. No contest clauses are placed in trusts as a caution to potential challengers. Beneficiaries under the will or trust who challenge the document lose or forfeit their inheritance under the document, this discourages would-be challengers from contesting the document.
A Living Trust provides you with peace of mind now by setting a clear plan and knowing that your estate will be handled exactly as you wish later. It will also provide comfort to your loved ones during an already stressful time because you’ve laid everything out for them and eliminated stressful guesswork and government bureaucracy.
The purpose of this article is to help get you thinking and start a conversation with your family and appropriate legal counsel. I am not an estate planner nor an attorney. This article is not meant as tax or legal advice. The examples I have given are merely illustrative and should not be relied upon. You should always consult with a tax consultant and/or lawyer for your specific circumstances.
Patrick McCarran is a local Realtor and Broker DRE# 01325072. He can be contacted by phone or text at (925) 899-5536, firstname.lastname@example.org or www. CallPatrick.com. An independently owned and operated office. In association with Realty One Group Elite DRE# 0193160. Equal Housing Opportunity