A living trust, separate from your last will and testament, is one of the most secure ways to ensure your assets are distributed in the manner you wish, without incurring the estate taxes accompanying a straightforward will. However, setting up a living trust is more complicated than drawing up a will and should only ever be done with the help of a Los Angeles estate planning attorney.
Why Choose a Living Trust
A living trust is considered a legal entity in its own right, so the rules that affect a will don't necessarily apply. For instance, the biggest difference - and advantage - between wills and living trusts is that assets in the trust aren't subject to probate.
This is particularly advantageous if you live in California because probate costs are very high. A revocable trust avoids probate, saves you time and money, and enables your beneficiaries to benefit from the terms of the trust far more quickly than if they had to wait for the terms of a will to come into effect.
What is a Living Trust Exactly?
A living trust is an estate planning tool that facilitates the distribution of your property upon your death. It's a place where you put your assets so that they can optimize their value and returns while keeping them safe from contestation.
You can't just put anything into a living trust, there are some limits. For example, you can transfer investment accounts to the trust, but you can't include life insurance policies, which have specially designated beneficiaries.
You can choose between two types of living trusts: revocable and irrevocable.
A revocable living trust can be amended, changed, and revoked whenever the trustor (owner) deems it necessary. An irrevocable trust is far more rigid. You can only change the trust with the consent of the beneficiary, which can be a challenge if you want to remove them from the trust.
A revocable living trust can become irrevocable upon your death. Talk to an estate planning attorney in Los Angeles, CA, for more information on revocable and irrevocable living trusts to determine which is best for you.
Why a Living Trust is Recommended in California
Unfortunately for Californian residents, the state has a long and expensive probate process. It's not uncommon for the process to stretch out for several years - and that was before COVID. It takes even longer post-covid, so if you want your family to benefit as quickly as possible, a will is the last thing you want.
The expense of a will is also doubled in California because the first $100,000 is charged a probate fee of 4%. You may have to pay this twice, once to the trust attorney and once to the executor. They are paid from the estate, which means your beneficiaries are significantly short-changed.
Steps to Create a Living Trust in California
There are several parts to a comprehensive living trust in California. You can work with a Los Angeles estate planning lawyer to ensure you cover all the bases.
Step 1
Think about all your assets. You may be surprised at just how much you actually have. You must include all physical property (your home), financial property like a bank account, and other valuables (heirlooms and jewelry).
You must exclude vehicles because they depreciate in value quickly and tend to be fluid, as they are bought and sold relatively often. Vintage vehicles are different. Their worth can increase in time, which can put them among the other assets in a revocable trust.
Non-probate assets must also be excluded, including life insurance and retirement accounts. These assets already have designated beneficiaries.
Step 2
Appoint a trustee. The trustee manages the trust on behalf of the beneficiaries. If you choose to create a revocable living trust, you can name yourself a trustee. However, you must still choose a successor trustee who can manage the trust if you become incapacitated or die.
Step 3
Choose beneficiaries. These are the people you want to receive the assets in the trust. You can decide how you want the trust distributed. You can split it evenly between your stepchildren or you could match beneficiaries to trust assets, for example, your daughter gets the vintage motorcycle and your son gets the antique writing desk.
You can also put restrictions on the trust, so your daughter receives the trust property when she turns 23 years old.
Note: You can name your favorite charity or organization as a beneficiary, for example, the local animal shelter or your alma mater.
Step 4
Create a Declaration of Trust. A Declaration of Trust (or nominee declaration) is a statement that officially appoints the trustee and details the terms of the trust, including how it must be managed.
There is no pre-defined structure or format but you must use the correct legal language, so assistance from estate planning attorneys in Los Angeles is invaluable.
Step 5
Sign the trust document. In California, a signed document is sufficient for it to be valid. However, it's a good idea to sign the document in the presence of a notary public, which includes your trust lawyer. This helps to establish the legality of the document.
Step 6
Transfer ownership of the trust. Your trustee becomes the owner of the property in the trust, as defined by the new deed or title. You need to change assets to the name of the trustee (new trust owner) even if you are the trustee.
Place Your Trust in the Hands of an Estate Planning Specialist
Creating trusts is a specialized area of estate planning, so it's a good idea to consult a Los Angeles estate planning attorney whose primary field of interest is revocable and irrevocable trusts.
McKenzie Legal & Financial has a department dedicated to this service, so you can rest assured that your trust meets all regulations in California.
Our experience enables us to tailor living trusts to your personal needs. Find out more by calling 562-594-4200 or completing the contact form on our website to arrange a free consultation.
