Why a living trust instead of a will or no will at all?

Because the estate tax exemption is now $2 million per person, many feel there is no need to have a living trust. In reality, the trust is not even intended to be a principal form of estate tax avoidance. The primary purpose is to avoid probate and its related costs.

The costs of probate can be significant. There are the statutory probate court fees, the cost to publish legal notice, probate referees, possibly a probate bond and, last but most expensive, attorney’s fees, the maximum established by statute. The fees are based on the value of the estate. The following shows the potential costs to probate an estate with a value of $1 million, no longer considered a very large estate that includes a home. Again, this is for someone with just a will or with no will at all.

Probate court fee $1,135

Legal notice cost 500

Probate referee’s fee 2,000

Probate bond 700

Attorney’s fees 23,000

Total $27,335

The above costs increase as the value of the estate increases.

The average amount of time to probate an estate is one year, and this is if there are no issues regarding ownership of assets or intended beneficiaries.

The reason a living trust avoids probate is because there is no change of ownership of assets upon death. When a trust is executed, the property is transferred from the owners of the assets to the owners of the assets as trustees of the trust, and then successor trustees take over upon their death.

Because each person in a marriage is entitled to the estate tax exemption, there are some estate tax avoidance strategies that can be employed in drafting a living trust.

The trust, like a will, also names beneficiaries and how and when they will receive their inheritance, guardians of minor children, and successor trustees to manage the trust after the initial trustees (those who create the trust) die. For example, some parents prefer that their children or grandchildren not receive their entire inheritance at 18 years old. The trust language can establish when the inheritance will be received, even creating an incentive for children and grandchildren to graduate from college and prepare for a successful career. The trust also can provide for pets left behind upon the death of their owner.

So, what is the cost of a living trust and the related documents? It is usually between $1,500 for single person and up to $2,500 for a married couple. If there are multiple marriages, complicated distributions to beneficiaries, or many real properties to be transferred to the trust, the cost will likely be more.

The entire estate planning package usually includes the following:

• Living Trust.

• Pour-over wills for each person that provides that anything not transferred to the trust or naming the trust as beneficiary is left to the trust where distribution to beneficiaries is prescribed.

• Durable powers of attorney for each person. “Durable” means the power of attorney can be used as long as the person is alive.

• Advanced health care directive for each person that states desires with respect to life support, cremation or burial, donation of organs, etc.

• Authorization for use and disclosure of protected health information document for each person which names those, usually loved ones, who may look at medical records in order to make a more informed decision with respect to health care.

All these documents may be amended, revoked or restated when circumstances change.

Those who complete their estate planning enjoy greater peace of mind, knowing that their desires will be met when they die and that their loved ones, not the probate court and attorneys, will receive what they worked hard to acquire.

To ask any question about a living trust, without charge, please call Carl Morrison at (760) 724-9580 or Andrea Aston at (760) 758-1565.