ESTATE PLANNING AND THE LIVING TRUST

Jason A. Fetchik, Esq.

Unless you’re in the throes of a severe case of mal de mer (or seasickness, as we say in the States), chances are you don’t spend much time thinking about dying. Back on dry land, however, making reasonable preparations regarding your property can save your heirs a good deal of money and grief and make your golden years a lot easier.

Maybe you’re thinking that your financial situation is so straightforward that it should be foolproof? Perhaps you’re a widower with only one child, and you take it for granted that as soon as you’ve gone to your reward, he’ll inherit everything. At last, you think happily, he’ll cut his hair, take a shower, and become a responsible (and presentable) member of society! Maybe you’ve even left a will to guarantee the results you want. What could go wrong? Ha! We’re talking about the legal system here.

As if dying isn’t enough of a bummer, after you die, California law generally requires that your property be probated before it can be distributed to your heirs, whether or not you have a will! Probate requires that a court-appointed representative of your estate must petition the court for an order that your property be distributed in a certain fashion. This can be slow (frequently a year or longer), intrusive (certain documents pertaining to your life and finances will be available to the public), and expensive! Consider this alarming scenario:

You die owning a house worth $500,000 and have $200,000 in a savings account. The house has a $400,000 mortgage, and thus only $100,000 of equity. However, California law sets fees for the attorney probating the estate and the executor of the estate based on the estate’s gross value, or, in this case, $700,000. The upshot? The attorney receives $17,000; the executor receives $17,000; even though the beneficiaries receive only about $300,000. And as if this isn’t disgusting enough, there would be costs such as filing and publication fees that could exceed $2,000. So the cost of probating this estate could be as much as $35,000: money that you wanted your beneficiaries to receive.

So what’s a person to do? Is there a legal way to chop through all this red tape?

Thankfully, there is indeed, and it’s called a revocable, or living, trust. With a living trust in place, one person (the trustee) holds property for the benefit of another (the trustor). The beauty of a living trust is that the trustor and trustee are usually the same person: You as trustor will transfer your property to yourself as trustee, to be held in trust for your benefit. Your financial life doesn’t change and you can amend or modify the trust and transfer and sell your property to your heart’s content! (Your son still refuses to get a haircut and you’ve decided to leave everything to the dog instead? No problem….).

Returning to reality, upon your death, your assets will avoid probate because you’ve transferred them all to the living trust, which now owns all the property, leaving nothing to probate! Also, the trust will now become irrevocable (unchangeable), and must be distributed according to your wishes. A successor trustee, whom you’ve named in the trust, will take over managing and distributing the trust. If the successor trustee retains an attorney to administer the trust and distribute the assets, typically the fees and costs associated with the administration of a trust pale in comparison to those of probating the same estate. And, in the event you decide that instead of worrying about administering your estate during your life, you’d rather spend your later years snowboarding in Vale, or taking Zumba classes, or whatever makes your day, the successor trustee can take over for you in managing your trust assets according to your wishes.

Well, you may be saying, that all sounds Perfectly Peachy, but why shouldn’t I Do It Myself and maybe save even more money? Or use one of those nifty little lawyer-free legal services that are forever sticking “WE DO TRUSTS CHEAP!” pamphlets under my door? The simple answer is that a trust isn’t simple, and it won’t serve its purpose if it’s not done correctly. Depending on your situation, finances, holdings, and particularly your own desires, you need a reputable attorney with estate-planning experience to determine what kind of living trust you need, and even in some cases, whether a trust is the best answer for you. (There are cases where a simple Will is a better choice, although these are becoming less and less frequent). For a flat fee, most estate planning attorneys will assess your needs and wants, prepare your Trust; Pourover Will; Powers of Attorney; Advance Health Care Directives; and the deeds that are needed to transfer real estate into your trust. They will listen to your concerns, answer your questions, and make sure that your estate runs smoothly.

And once that’s done, you can rest easy and enjoy your Zumba class.

Jason A. Fetchik is an attorney at Driskell & Gordon, a probate and litigation firm in Glendora. He can be reached at 626-914-7809 or at driskellgordon.com