A living trust is an arrangement under which one person, called a trustee, holds legal title to property for another person, called a beneficiary. You can be the trustee of your own living trust, keeping full control over all property held in trust. A “living trust” (also called an “inter vivos” trust) is simply a trust you create while you’re alive, rather than one that is created at your death. Different kinds of living trusts can help you avoid probate, reduce estate taxes, or set up long-term property management.
Just like a will, a living trust spells out exactly what your wishes are in regard to your assets, your dependents and heirs. A will becomes effective only after you die and the will has been entered into probate. A living trust bypasses the costly and time-consuming process of probate, allowing your trustee to carry out your instructions at death and also if you become unable to manage your finances, healthcare or legal affairs due to incapacity.
There are two types of living trusts:
Revocable Living Trust: With a revocable living trust, you transfer all of your assets into the ownership of the trust. You retain control of those assets as the trustee of your revocable living trust. You can change or revoke the trust at any time you want. The assets in the trust pass directly to your beneficiaries without going through probate upon your death. The vast majority of individuals and couples who establish a living trust, establish a “revocable” trust as the basis of their estate plan.
Irrevocable Living Trust: An irrevocable trust allows you to permanently and irrevocably give away your assets during your lifetime. Usually, after you give away these assets, you have relinquished all control and interest in these assets. Due to that fact, these assets are no longer considered part of your estate and aren’t subject to estate taxes. Irrevocable trust may also provide certain asset protection benefits, due to the fact that you no longer own the assets of the trust.
All living trusts are not the same. Unfortunately, it has been our experience after reviewing thousands of trusts drafted by our competitors, that the vast majority of Living Trusts and other estate planning documents drafted today, are boilerplate documents, cranked out on a computer software program. As a result, many crucial provisions are often left out. For example, in the event that someone were to become incompetent and require nursing home care, under California law, we can do much to protect their assets, as well as their home. However, if that person is no longer competent to sign documents, then we must rely upon the plan they already have in place. If that plan does not adequately address long-term care asset protection issues, the individual or couple may lose thousands, even hundreds of thousands of dollars unnecessarily. If, on the other hand, the recipient of long-term care services had established his or her plan through our office, under current law we could protect their principal residence, and a substantial amount (or even all) of their liquid assets. It is, indeed, crucially important to make sure your documents are comprehensive enough to cover a multitude of issues, and flexible enough to adjust to changing circumstances.
Other extraordinary provisions which, upon your option, may be included in our Estate Plans which are generally not found in typical estate planning documents drafted by other firms include, but are not limited to:
- Several alternate provisions to reduce or eliminate estate taxes on the passing of a spouse;
- Provisions to reduce or eliminate capital gains taxes on appreciated properties on the passing of a spouse;
- Provisions which assure that your trust may be amended or modified at any time, without a required court petition;
- Provisions which protect the inheritance of your minor beneficiaries;
- Provisions which protect the inheritance of your beneficiaries from possible losses due to divorce, lawsuits, etc.;
- Provisions which protect the inheritance of your beneficiaries from possible losses due to their own improvidence (e.g. drug use, gambling, incarceration);
- Provisions which assure that if you have a disabled beneficiary, or if you have one who becomes disabled in the future, his or her share is protected against loss due to complex public benefits laws; and
- Provisions which provide that any trust which survives you and becomes irrevocable, may still be updated and modified without having to spend thousands of dollars for a court order.
It is due to the comprehensive and flexible nature of our documentation, that for the entire duration of Mr. McKenzie’s professional experience, not one of his clients who have established his comprehensive plan, has ever had to resort to a court to protect their assets, modify their documents, or otherwise accomplish any needed or beneficial objective.
A Will or Last Will and Testament is a legal declaration by which a person, the Testator, names one or more persons to manage his or her estate, and provides for the distribution of his or her property at death.
The estates of those who pass away without a Will, will be required to go through the expensive and time-consuming probate process, unless the value of their probatable estate is less than $150,000. Because there is no Will or Trust, the beneficiaries of the estate will be those determined by the State of California under the law of Intestate Succession.
The estate of those who have established a Will as the basis of their plan (meaning, that they do not have a Living Trust), will also be subject to the probate process, as described above, however, the beneficiaries of the estate will be those persons and/or entities as set forth in the Will.
Those who have established a Living Trust as the basis of their plan, will still have a Will, but the type of Will used with a trust-based plan is called a “Pourover Will”. A Pourover Will names your executors, just like a standard Will, however, the “beneficiary” of your Pourover Will is your Living Trust. This provides for the uniform administration of your estate when you pass away.
DURABLE POWERS OF ATTORNEY
A Durable Power of Attorney is a legal document that gives someone you choose the power to act in your place. In case you ever become mentally incapacitated, you’ll need what are known as “durable” powers of attorney, so that your agent can assist you without having to initiate an expensive court procedure (e.g. a conservatorship).The Durable Power of Attorney is one of the most important documents of your comprehensive estate plan, even for those who have a Living Trust, for although the Successor Trustee of your Living Trust can step in and manage your trust property in the event that you cannot do so yourself, there are many other issues which arise outside of the purview of your Living Trust. For example, you may have qualified accounts which cannot be transferred to your trust (e.g. IRAs, 401(k)s, etc.); you may need someone to sign a document on your behalf; or you may need someone to assist in protecting your assets in the event that you have extremely high medical or long-term care costs. Your agent under your Power of Attorney will be a crucial part of your overall management and asset protection plan. Remember, that if something needs to be done to protect you or your estate, and you either do not have a plan, or your plan is not comprehensive enough to accomplish the needed task, an expensive court procedure would need to be established to authorize someone to assist you. It has been our experience that our comprehensive and flexible estate planning documents have eliminated the need for this expensive procedure, and at the same time, made sure that your wishes would be carried out in accordance with your stated objectives, by someone of your choosing, rather than someone appointed by a court.
And please remember, all Durable Powers of Attorney are not the same. It has been our experience that most, just like most Living Trusts drafted today, are one-size-fits-all computer generated documents. They routinely lack certain important provisions, the absence of which could cause you and your loved ones severe problems. A custom-drafted, comprehensive Durable Power of Attorney is an essential part of your overall estate plan.
ADVANCE HEALTH CARE DIRECTIVES
Generally, an Advance Health Care Directive is a document under which you give instructions about your own health care; you name someone else to make health care decisions for you, in the event that you cannot make them yourself; and you set forth your wishes regarding the administration of life support in the event that you are, for example, in a coma or persistent vegetative state. As with the other documents we have discussed, the Advance Health Care Directive is an extremely important component of your overall estate plan.
Please be advised that the information on this site is not meant to be construed as legal advice. If you need legal advice, or for more information about creating or evaluating a Living Trust, please contact our office at (562) 594-4200 for a FREE 30-minute consultation.
It is impossible to know whether a Living Trust based estate plan is drafted properly and comprehensively without reviewing the documents themselves. In order to assure maximum protection, this review should be conducted by an attorney with a superior level of competence in “comprehensive” estate and long-term care planning procedures. Many couples and individuals who already think they are “protected” under their current plan, may have significant deficiencies. Unless these defects are corrected BEFORE problems arise, serious consequences could follow.
Thomas L. McKenzie gives a personal guarantee to all of his clients, that each and every Living Trust, Durable Power of Attorney and other estate planning document, is PERSONALLY drafted by him in accordance with your unique circumstances.
Please be advised that the information on this site is not meant to be construed as legal advice.If you need legal advice, or for more information about creating or evaluating a Living Trust, please contact Estate Planning Lawyer, Mckenzie in Orange County at (562) 594-4200 for a FREE 30-minute consultation.