Legal Center for the Elderly
Gerald S. Kallan, Directing Attorney
Vox: (530) 621-6154
Fax: (530) 642-9233
El Dorado County
937 Spring Street
Department of Community Services
Placerville, CA 95667
Living Trusts
●What is it? A trust is much like a corporation; it is a
legal “fiction”. A creature of paper, the law allows it to
own property. A real person , however, called a
“trustee”, is placed in charge. Usually you will be the
trustee of your own living trust, keeping full control
over all property legally owned by the trust.
●How many types are there? There are many names
for the same basic thing: inter vivos, revocable trust,
family trust, AB trust, probate avoidance trust, etc.
All living trusts are designed to avoid probate. Some,
with special provisions, also help you save on death
taxes; others let you set up long-term property
management.
●Do I need it? Not necessarily if (1) you are making
lots of gifts during your life; (2) have “pay-on-death”
on accounts; (3) your assets are titled in “joint tenancy”;
(4) have life insurance or annuity benefits primarily; (5)
your real estate worth less than $20,000; (6) your
personal property is worth less than $100,000; (7) have
a spouse.
Basically, if you don’t fit in one of the categories above,
you’ll face probate or at least need to ask for more
information from someone knowledgeable on the
subject. Probate is the court-supervised process of
collecting assets, paying debts and distributing your
property to the people who inherit it.
●Can I throw away my old Will? Even if you make a
living trust, you still need a will.
A will is a “safety net” for property that you don’t
transfer to your living rust. For example, if you acquire
property shortly before you die, you may not think to
transfer ownership of it to your trust – which means that
it won’t pass under the terms of the trust document.
But, in your back-up (or “pour-over”) will, you can
include a clause that leaves your property to your trust.
The will “catches” the property and sends it to your
trust after your death.
If you don’t have a will, any property that isn’t
transferred by your living trust or other probate
avoidance device (such as joint tenancy) will go to your
closest relatives in an order determined by state law.
These laws may not distribute property in the way you
would have chosen.
●How does it avoid probate? A good trust, at the time
of set-up, gets the properties you want included listed in
it and transferred into it right away. Property you
transfer into a living trust before your death doesn’t go
through probate. The successor trustee—the person you
appointed to handle the trust after your death – simply
transfers ownership to the beneficiaries you named in
the trust. In many cases, the whole process takes only a
few weeks, and there are no lawyer or court fees to pay.
When the property has all been transferred to the
beneficiaries, the living trust ceases to exist.
●Are all living trusts the same? No.
The two most common types of living trusts are:
• a simple living trust (for an individual or couple),
which avoids probate, and
• a “living trust with marital life estate” or “AB” trust,
which both avoids probate and saves on estate tax.
There is even a complex living trust with as much as
four subtrusts for people with more substantial assets.
●What’s a simple living trust? Unless you expect to
owe federal estate tax at your death or your spouse’s, a
basic living trust to avoid probate may be all the trust
you need. It allows property to avoid probate and to
pass to the beneficiaries you name quickly and
efficiently, without the hassles and expense of probate
court proceedings.
A married couple can use one basic living trust to
handle both co-owned property and the separate
property of either spouse.
To create a basic living trust, you (called the “grantor”
or “settlor”) transfer ownership of some or all of your
property to the living trust. Because you make yourself
the “trustee,” you don’t give up any control over the
property you put in trust. If you and your spouse create
a trust together, you can both be co-trustees.
In the trust document, you name your “beneficiaries” –
these are the people or institutions you want to inherit
the trust property after your death. You can change
those choices if you wish; you can also revoke the trust
at any time, or make it not revocable on some future
event.
When you die, the person you named in the trust
document to take over – called the successor trustee –
transfers ownership of trust property to the people you
want to get it.
●Can a living trust save on estate taxes?
A simple probate-avoidance living trust has no effect on
taxes. More complicated living trusts, however, can
greatly reduce your federal estate tax bill if you expect
your estate to owe estate tax at your death.
●What’s a Tax-Saving Trust? If you have a goodsized estate, you will need to think beyond just avoiding
probate. There are federal and state death taxes. Those
taxes apply to all property, regardless of how title is
held and regardless of where you are receiving it from
(so even life insurance will count). But if you (or you
and your spouse) expect to own more than $1.35
million in assets, consider creating a living trust that
will both avoid probate and also save on federal estate
taxes.
If you don’t, there may be a big estate tax bill when the
second spouse dies. That’s because the survivor’s estate
includes his or her share of the couple’s property plus
the property inherited from the deceased spouse.
If you can’t leave your spouse property without also
saddling his or her estate with a large tax bill, one
obvious alternative is to leave much of your property
directly to your children or other beneficiaries. But
most people want to provide financial security for the
surviving spouse – which may not be possible if they
leave much to others.
A “bypass” trust lets a couple pass the maximum
amount of property to their children or other
beneficiaries after both spouses die, while at the same
time ensuring the surviving spouse is financially
comfortable. This type of trust has many different
names, but it is the same thing: credit shelter, A/B,
unified credit, family trust, exemption trust, exemption
equivalent trust, etc.
●How expensive is it? A simple living trust done by a
private firm can cost between $250 to $1500. Fancier
ones can cost up to $5000. Some people use books,
computer software programs, or even “borrow” friend’s
“forms”. Remember, short-cuts can be dangerous; if
you make a mistake and don’t realize it, that mistake
will probably not show up for years, and possibly after
the death of the trustors. If it is too late, then it’s just
plain too late. Get help, at least with your questions,
from competent attorneys or financial planners.
The Legal Center provides living trusts and wills for
seniors age 60 or older who, regardless of income, are
permanent residents of El Dorado County. If you have
no attorney or do not know where to turn to for legal
guidance, consider calling this office. We work on a
donation basis; this means you’re not obliged to pay for
legal services to get the legal help you need.
●Isn’t it a lot of trouble to own property in a trust?
Making a living trust work for you does require some
crucial paperwork. For example, if you want to leave
your house through the trust, you must sign a new deed,
showing that you now own the house as trustee of your
living trust.
●Does a trust protect property from creditors?
Holding assets in a revocable trust doesn’t shelter them
from creditors. A creditor who wins a lawsuit against
you can go after the trust property just as if you still
owned it in your own name.
After your death, however, property in a living trust can
be quickly and quietly distributed to the beneficiaries
(unlike property that must go through probate). That
complicates matters for creditors; by the time they find
out about your death, your property may already be
dispersed, and the creditors have no way of knowing
exactly what you owned (except for real estate, which is
always a matter of public record). It may not be worth
the creditor’s time and effort to try to track down the
property and demand that the new owners use it to pay
your debts.
On the other hand, probate can offer a kind of
protection from creditors. During probate, known
creditors must be notified of the death and given a
chance to file claims. If they miss the deadline to file
(usually four months), they’re blocked from pursuing
their claims forever.
●Do I lose control of the property in my trust?
Absolutely not. You keep full control over your
property. As trustee of your trust, you can do
everything you could do before – buy and sell property,
make changes, even cancel your trust at any time
(remember, it’s revocable). Nothing changes but the
names on the titles.
●What does a successor trustee do? At physical or
mental incapacity, your successor trustee looks after
your care and manages your financial affairs for as long
as necessary, using your assets to pay your expenses.
When you recover, you resume control. At your death,
your successor pays your debts and distributes your
property according to your instructions.
●Who can be successor trustees? Successor trustees
(“Back-up trustees”) can be individuals (adult children,
other relatives, or trusted friends) and/or a corporate
trustee. If you choose an individual, you should name
more than one in case your first choice is unable to act.
However, family and friends may not be a good
choice—they may be too busy, live too far away, or not
be responsible or experienced enough to manage trust
assets. You may want to consider a corporate trustee.
●How long does it take to get a living trust? It should
only take two to three weeks to prepare the legal
documents after you make the basic decisions.
FOR MORE HELP CONTACT:
For educational information concerning estate planning
and living trusts, contact the Legal Center for the
Elderly (El Dorado County Department of Community
Services) at (530) 621-6154.