This blog post was originally published on The Watch in November 2016. It has been updated as of November 2019.
While many people think of a living trust as a tool very wealthy individuals use to safeguard their sizeable assets from a heavy tax bill upon their death, the reality is that these estate planning agreements provide a multitude of benefits for people of varied economic means. With a revocable living trust, your assets are placed into a trust for your use during your lifetime and are then transferred to your beneficiaries upon your death by a successor trustee that you appoint. It is referred to as “revocable” because it can be amended or revoked at any time by the person (or people) who created it, as long as they are still competent. Here are just a few good reasons you should consider establishing a revocable living trust:
To safeguard your money for your children or other heirs: There are a number of situations in which it could be potentially disastrous for your beneficiaries to receive total control of your assets and property upon your death. They may be too young and inexperienced to handle large sums of money on their own, have demonstrated difficulties in managing their money even as mature adults, or they may have special needs that would prevent them from administering an estate on their own. They also may be unduly influenced by a spouse seeking to control the money that they will inherit. In setting up a living trust, you appoint a successor trustee (e.g. a trusted friend, family member, attorney or financial institution) that can manage and invest money and other assets for your beneficiaries until such a time (if ever) that you designate. This way, you will have peace of mind knowing that you will have provided for your heirs in the best way possible after your death.
Protect your money and assets if you become incapacitated: Not only does a revocable living trust provide instructions for inheritance after your death, but it is also highly useful for ensuring that your financial affairs are managed according to your wishes should you become unable or unwilling to handle them yourself. Unfortunately, financial crimes against the elderly are all too common. In addition, it can be difficult, financially messy and cause friction in the family for one person to take over management of property in your name without a living trust in place. Furthermore, without a trust, your loved ones may be forced to get the courts involved in order to appoint a guardian of your estate—exposing your personal finances and causing you to be publicly declared incompetent. Under a living trust, the handling of your assets can be seamlessly transferred to your successor trustee without your suffering any indignities, or there being any delays or intrusions from the courts.
Have your estate settled quicker and with fewer costs:
Assets that are placed in a trust are not required to go through the court-supervised process called probate which costs your beneficiaries money and will delay distribution of your assets (including money) until it is settled. In addition, property that is jointly owned with rights of survivorship (e.g. a home you and your spouse own) and assets with designated beneficiaries (e.g. life insurance policies, 401 (k) plans, IRAs) are not subject to probate.
The probate process is expensive and time-consuming—often costing tens of thousands of dollars and taking two or more years to administer. This is especially the case in California, which allows attorneys to charge a statutory fee (starting at four percent of the first $100,000 of the gross value of the estate) and does not use the Uniform Probate Code to simplify the probate process. Although California does allow for a more streamlined process in lieu of a traditional probate to administer an estate that is valued at less than $150,000, even those with who meet this criterion may want to consider a revocable living trust for other important reasons.
Keep your financial affairs private: Another disadvantage of probate is that it is a public process in which just about anyone can access details of your finances and how you want your property distributed. This can cause problems among your designated beneficiaries who may clash over the division of assets if they have full knowledge of what is contained in your will. But it also means that even those who are not named in your will can access your estate file to learn what you own, what you owe and who will inherit what. With a living trust, information about your finances and your heirs remains private, since nobody is able to view the trust unless the grantor of the trust or the trustee allows it.
Although it is widely believed that a living trust can help reduce estate taxes, the truth about tax-savings and trusts is not so simple. Technically, most trusts don’t offer income-tax savings beyond the same provisions that a will can provide. Furthermore, the amount of money that is exempt from federal estate tax has increased tremendously—as of 2019, it is $11.4 million for an individual or $22.8 million for a married couple and will rise each year to adjust for inflation. Regardless of your net worth; however, it’s vital that you seek out the help of a qualified estate planning attorney when you’re ready to create your revocable living trust.
The Police Credit Union holds informational seminars periodically to equip our members with the knowledge needed to make good financial decisions. Our next Estate Planning seminar on November 23, 2019 has reached capacity—but we are maintaining a waitlist and will contact members if seats become available. Visit https://www.thepolicecu.org/seminar to learn more about our past, present, and future educational seminar offerings.