The Living Trust: A Legal Bucket for Your Assets
An attorney I learned from early in my career described a living trust as being like a bucket. The explanation goes something like this:
1. You take your assets and put them in your bucket (trust). While you are alive and well you get to hold and control your bucket. You can put new property in, take it out, sell it, or use it however you see fit (just as you do now).
2. If you become incapacitated and unable to hold your own bucket, you can hand the bucket over to someone you trust (trustee), who can be a spouse or other family member, friend or a professional, to look after the bucket and use it for your benefit and those who depend on you for support (just as you do now).
3. When you “kick the bucket” (die), the property in the bucket is given to whomever you specify (spouse, children, charity, etc). Since the property is in the bucket and not in your name, no courts need to authorize any of this - it all happens privately and at relatively little cost.
Much like a will, a living trust is created by a written document that you sign during your lifetime. You are able to change its terms as you desire by signing an amendment to the trust document. That is why it is often also referred to as a “revocable trust” or a “revocable living trust.”
Benefits of a Living Trust
There are many reasons why the living trust has become such a popular estate planning tool, especially in California. Here are some of the most significant benefits of a living trust:
A Properly Funded Living Trust Avoids Probate
When a person dies with property in their name, a court process called probate is often required to transfer the property to the person or persons entitled to it under the will or pursuant to state laws referred to as intestate succession.
There is an entire page on this site dedicated to avoiding probate. Therefore we won’t go into great detail here (but I highly suggest you read that page). Suffice it to say that it’s a huge benefit that, because all assets owned by a trust are out of a person’s name (and titled in the trust) they do not have to pass through the long, public, and expensive probate process.
A Living Trust Avoids a Conservatorship if Incapacity Strikes
Incapacity is not what people typically think of when they are considering estate planning and a living trust, but it should absolutely be a top priority.
If No Legal Documents Exist, the Court Must Appoint a Conservator
If a person becomes unable to manage their own property and financial affairs due to mental or physical incapacity (due to a loss of mental function, severe physical illness, and the like) there is no one who can automatically act on that person’s behalf. This presents a huge problem, because life needs to be able to carry on. Bills are still due, dependents may have needs, property may needs to be sold, and so on.
In the above scenario, if no legal documents such as a living trust exist, a conservator must be appointed by the court to manage the incapacitated person’s affairs.
A conservatorship proceeding is often referred to as a “living probate.” Just like the probate described above, a conservatorship is a public inventory of a person’s assets, extensive notice to interested parties, ongoing court oversight, hearings, accountings, and so on. It continues until a person regains capacity (if ever), or dies.
The Living Trust is the Ultimate Incapacity Plan
With a living trust, however, the trust document authorizes a person we trust (trustee) to be able to step in do everything needed on your behalf with respect to all property owned by the trust. No court hearings, notifications, public inventory of assets, or ongoing oversight by the court is required. Your property and financial life can carry on smoothly, privately, and with dignity if incapacity strikes.
What would avoiding a conservatorship be worth to your loved ones? If you ask someone who has been there, they will quickly tell you it is invaluable.
A Living Trust Keeps Your Affairs Private
Because the probate and conservatorship proceedings described above are all public, all of your property becomes a part of the searchable public record. That means predators and creditors can easily find out information about what you own, and who gets it once you’ve passed away.
For good reason, many people value privacy today more than ever before.
A living trust ensures your privacy and that of your loved ones. If you become incapacitated or when you die, there is no public trail to be found of what your trust owns or who gets it down the line. Everything remains private, as it should be.
Living Trusts are Harder to Challenge than Wills
Wills involve probate, which is an open forum for anyone to come forward and contest the will. Even if a will has a no-contest clause, they are only applied in limited situations in California.
With a living trust, however, if someone wants to challenge the terms of the trust after a person dies, they will have to start their case in court from scratch. That means they will have to hire an attorney to file a petition to challenge the trust and pay all of the legal fees involved with that process. That fact alone makes trusts inherently more difficult to challenge than wills.
In addition, unlike wills that go through probate, there are no legal requirements that all potential “default” heirs under state law be notified following a death. That being said, there may be good reason to notify them anyway so as to cut off any future claims. Point being, the trustee has the freedom to choose.
A Living Trust Can Protect Assets Left to a Surviving Spouse
As part of the process of designing the terms of a trust, married couples will have the ability to include provisions in the trust document that will provide asset protection over money and property left to the surviving spouse. That protection includes lawsuit and creditor protection, and can ensure the property
can’t be given to a new spouse if the surviving spouse remarries.
Although some couples are not concerned with asset or remarriage protection (and in that case we simply don’t include those terms) other couples are highly motivated by this feature, and in those cases we include the appropriate asset protection provisions described above.
A Living Trust Can Protect Assets Left to Children or Other Beneficiaries
If minor children or other beneficiaries are involved, assets can stay in the trust and be used for the children or beneficiary’s needs until they are old enough to manage their inheritance themselves.
For adult children or older beneficiaries, there may be a desire to protect assets from their own money problems, potential lawsuits, rocky marriages, or just as precautionary risk management. In that case, we can include provisions in the trust document that can keep the assets in trust for longer periods or for a lifetime, preventing trust assets from being taken if the child or beneficiary is ever sued or involved in a divorce.
If there are also concerns or goals related to who is to receive (or not receive) trust property at the death of a child or other beneficiary, that can be addressed in the trust document as well.
Living Trust FAQ’s
Here is a list of all the common questions potential clients have asked over the years:
Searching for the right attorney to help create (or update) your living trust and estate plan?You want to leave a meaningful legacy behind when you are gone, instead of leaving behind a burden for your loved ones or a stressful series of messes to clean up. Perhaps this topic has been a concern for many years now, and you are ready to work with a trusted professional to experience the peace of mind that comes along with completing your estate plan;
Searching for the right attorney to help a loved one create or update their estate plan?Perhaps you are an adult child of a parent who relies on you for input and guidance. If that sounds like you, I respect your effort, and personally know exactly what it’s like to be in that role. You want to be sure that you find an attorney that really knows what he or she is doing so they can make the process as easy and hassle-free as possible. You also likely want to be sure the attorney will be fair and transparent with the legal fees involved, and be there after the fact when your family needs support; or
A professional advisor looking for an attorney to assist your clients with implementing their living trust and estate plans?Perhaps you have worked with other attorneys in the past who made the process too complex or difficult to understand, were slow to respond to questions or concerns, or who valued their hourly billings more than their client relationships. You are ready to have an attorney you can count on who values integrity above all else.
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