Why Set Up a Revocable Living Trust?

Estate planning attorneys in California recommend revocable living trusts for most of their clients for the following reasons:

Cost

The main reason for setting up a revocable living trust in California is usually to avoid the cost of probate. Although a trust costs more to set up than a will, it is far less expensive to settle. Probate attorney and personal representative (executor) compensation begins at $4,000 for the first $100,000 in the estate, 3% of the next $100,000, 2% of the next $800,000, 1% on the next $9,000,000, one-half of 1% on the next $15,000,000, and for all amounts above $25,000,000, a reasonable amount that is determined by the probate court. Since 2012, the probate threshold in California has been $150,000, and the probate fees in this state for even a $100,000 estate far exceed the cost of a simple trust.

Time

When an estate is being settled, the first to be paid are a decedent’s creditors and taxes, the estate attorney and personal representative. Then, what remains is distributed to the beneficiaries. Through the California probate courts, this process takes an average of 9-18 months. For uncontested non-estate-taxable estates, a properly drafted and executed revocable living trust can usually accomplish the same without court involvement in a matter of just a few months.

Management Flexibility

During probate, the beneficiaries usually have limited or no access to the assets until the closing of the estate, and never without court approval. In contrast, the trustee of a living trust generally has wide discretion to manage trust assets throughout the trust administration process. The availability of the decedent’s assets to the beneficiaries is only one aspect of the flexibility of trust management. Revocable living trusts facilitate the transfer of asset control upon the trustor’s incapacity without conservatorship proceedings. They can also set forth instructions for distributions to children, both with and without special needs.

Privacy

A list of the decedent’s assets, as well as other private information, becomes a matter of public record when an estate enters probate. In the case of trust administration, only the pour-over will becomes public record – this document merely lists the name and family members of the decedent, wishes for burial or cremation, and that all assets be distributed in accordance with the decedent’s revocable living trust. The trust itself is never filed and its terms remain private.

Difficult to challenge

It is much more difficult to contest a longstanding trust than it is to contest a will in probate. And more expensive.

Estate Tax Avoidance

Individuals and couples with estates exceeding the estate tax exemption amount should discuss the inclusion of tax provisions in their revocable living trust. These provisions can minimize or even eliminate estate taxes. Note that another popular estate planning technique is to establish an irrevocable life insurance trust to keep life insurance proceeds out of the estate for estate tax purposes. Couples in which one spouse is not a U.S. citizen should also discuss Qualifying Domestic Trust (QDOT) provisions with their estate planning attorney.

Other Considerations

The upfront cost of creating a trust is more expensive than creating a will, and trusts also require periodic updating and maintenance. Straightforward incapacity provisions may be handled through Durable Powers of Attorney alone, and testamentary trusts in wills can provide for minor beneficiaries. Some people may wish to have the probate court oversee the distribution of their assets, and may not care about the time or cost involved.

A revocable living trust isn’t for everyone, but this estate planning tool should nevertheless be considered by every person residing in California who owns their home and/or has at least a few investments. Contact the estate planning and tax attorneys at Moskowitz, LLP to discuss the most appropriate estate planning vehicles for your needs.

Our final post in this series will focus on transferring property to your trust.