Sebastopol Trusts & Estates Law Blog

The biggest mistake I see people make with their Living Trust is not keeping it properly funded. In other words, the assets that are supposed to be in the trust (to avoid probate) are not in fact in the trust.

I usually describe a trust as a bucket. This bucket, the trust, is an independent legal entity, akin to a corporation, that survives the person who creates it. Assets owned by the trust, or in other words placed in the bucket, generally do not need to be probated upon death. However, if an asset is not placed in the bucket, it could require probate when a person dies.

“Trust funding” is the process of placing assets in the bucket. This is accomplished by re-titling” one’s property and accounts into the name of the trust. For example, to transfer a parcel of California real estate into a trust, one generally executes and records a Deed transferring title to the trustee of the trust. Similarly, a bank account is placed in a trust by revising the bank signature card to show the trustee of the trust as the owner of the account.

Note that listing an asset on a schedule of trust assets or similar document may be evidence that one intends the asset to be in the trust, but by itself does not serve to transfer the asset. The deed, signature card, account registration, stock registration, etc. must be changed to show the trust as the owner of the particular asset.

A Living Trust is an excellent estate planning tool. However, I have seen many estate plans fail due to people simply not following through to ensure that their trust is properly funded, and that it remains funded over time. This common error can lead to costly and time consuming probate proceedings, thus defeating one of the main purposes of preparing a Living Trust.

-Ken

The first question I get from many clients is, “Which is best for me, a Will or a Living Trust?” There is no quick and easy answer to that questions, but I can offer some general advice.

In California an estate usually must go through probate when the estate value exceeds $100,000 in market value (not equity value). Probate is the court process to administer an estate with or without a Will. In other words, having a Will does not avoid probate, in fact, it generally guarantees probate. Probate is something most families want to avoid. It is very costly, takes many months to over a year, can be required in multiple states, and is generally a hassle for everyone.

There are many ways to avoid probate. Account beneficiary designations (TOD or POD accounts) and Joint Tenancy are two of the most common. However, each of these also has a downside in many cases. There are of course situations where these methods work, but in many instances problems occur.

This leads us to the best way to avoid probate for most clients: The Living Trust. A Living Trust not only avoids probate, it is usually the quicker, easier, cheaper, and most hassle-free way to administer an estate. For married couples it can minimize or completely avoid Estate Taxes. It handles situations where someone becomes incapacitated. In many cases it is more likely to achieve one’s wishes regarding estate distribution than other alternatives.

In short, for most Californians who have an estate with a market value over one hundred thousand dollars (meaning just about anyone owning real estate), a Living Trust is the preferred estate planning document. To read more about Living Trusts on my website click here.

-Ken