Living Trusts in California

Living Trusts in California

The growth in the use of Living Trusts that I have seen in my law practice is due primarily to the desire of my clients to avoid the need to probate their assets after their death. A probate is a time consuming court proceeding, and therefore open to the public, which requires payment of a filing fee, publication costs and other expenses. Normally the allowed attorney fees, based on percentages of the gross value of the property subject to the proceeding, are the largest single expense.

Using what are known as “Living Trusts”, ones that can be amended later if the settlors decide to do so, has become popular in part because of how easy they are to manage during the settlors’ lifetime. One way to see how much Living Trusts are now being used can be demonstrated by looking at a residential real property index and seeing how many people have placed their house into their Living Trust.

Normally the lawyer prepares a Living Trust together with a Will and also a Durable Power of Attorney for Property Management and an Advance Health Care Directive. This estate planning package in most cases provides all of the documents needed by the client to meet their estate planning needs. If done properly, the Will never needs to be used but is prepared just in case assets not placed in the trust will require to be put through the court probate process. In most cases, if the assets not transferred to the trust total less than $150,000, the probate proceeding is not required.

Once the Living Trust has been prepared by the lawyer and executed by the client the designated assets of the client are transferred to the trust. It is my practice to prepare for the client any deeds necessary to transfer the home or any other real property asset into the trust, and take those steps necessary for the deed to be recorded. This transfer will not result in the reassessment of the real property so that Proposition 13 real property tax savings are not lost.

While I find that saving taxes is not the primary purpose for my clients to use Living Trusts, in the case of a married couple, death tax savings in larger estates are possible.  In 2010 the federal government changed the law for 2011 and 2012 so individuals who die in those years will not have their estates subject to the federal estate tax if their estate is less than $5,000,000.  Next year, however, we do not yet know what the credit amount will be nor what will be the estate tax rates.  The amount of the estate tax also depends on a variety of other factors such as whether you have made taxable lifetime gifts.  While transfers between spouses on the death of the first spouse avoid the federal estate tax, the exempt amount for the first spouse to die, by using a properly prepared trust, may be preserved for use by the beneficiaries at the time of the second spouse to die. This is typically done by using a so-called “A B Trust”.

I have established a fee schedule that sets forth my normal attorney fees for preparation of these estate planning documents. There is no charge for your initial office conference about setting up a Living Trust. Should you wish me to send to you my fee schedule, or arrange for an office conference, please do not hesitate to contact me.


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