What Is a Revocable Living Trust & What Happens if I Don’t Have One?
If you die without having placed your property, real and personal, into a living trust, you are running the risk of your property transferring via the probate process. If you die without a revocable living trust, your assets will generally pass by State laws of intestate succession. If you are married, your assets will be divided among your spouse and children, who would be entitled to his/her share upon turning 18 years old.
In addition, assets that do not automatically pass outside of probate by beneficiary designation (ie: pension beneficiary or life insurance beneficiary), titling (such as joint tenants with rights of survivorship), contractual arrangement, or by being below a specified threshold value ($150,000) will go through court-administered probate proceedings. Like bankruptcy, probate proceedings are made public, so the general public can access them.
In the probate process in California, court-appointed administrators and attorneys are hired to handle the probate and are paid at a rate based upon the gross value of the probate assets, before any indebtedness is accounted for or paid off.
- 4 percent of the first $100,000
- 3 per cent of the next $100,000
- 2 percent of the next $800,000
- 1 percent of the next $9,000,000
As you can imagine, probate can be a costly and time-consuming hassle compared to the cost of having proactively prepared an estate plan ahead of time. So why do it? It’s simple - avoid the cost, delay, and lack of privacy of probate. There are very few reasons to simply rely on a will to distribute property. The revocable trust is also very flexible in that if a trustor has a change of heart as to its provisions, he or she can change the trust at any time before death or incompetency.
What Is the Difference Between a Will & a Revocable Living Trust?
A will is subject to probate, while a transfer into a living trust is not. While both a will and a living trust can accomplish the same objective and direct specific beneficiaries of specific property, the transfer of property through the will triggers a probate process. Instead, a revocable living trust allows you to name a successor trustee to administer your estate upon incapacitation or death, without having to go to court for a conservatorship or guardianship. In addition, a revocable living trust allows assets to pass at death completely free of probate.
A revocable living trust is a private contract between you as "grantor," (the person granting assets to the trust) and you as "trustee" (the person managing the assets) for the benefit of the beneficiary (you while you are living, and anyone else you name, while you are alive and whomever you delegate upon your death). You then need to transfer your assets (such as real estate and financial accounts) into the revocable living trust, generally with the assistance of an attorney. You stay in control and manage your assets just as you do now, but upon your incapacity or death, your named successor trustee can manage the assets and distribute the assets to your beneficiaries, privately according to the terms of the trust, and without ever having to first get a court order.
I Already Have a Will, Why Do I Need a Revocable Living Trust Too?
Yes. In order to avoid probate, and the costs that come with it, you need to create a revocable living trust. With a living trust, the will is called a pour over will, acting as a catchall for any property that may have been intended to be transferred into the living trust, but was left out. Those assets can be "poured over" into the trust at death and distributed according to the trust’s terms.
Does My Estate Plan Help Me Avoid Taxes?
Federal estate tax is a tax that is assessed on the gross amount of the decedent’s estate, over and above the individual’s exclusion amount. The applicable exclusion amount is $5.35 million. Therefore, each person is permitted up to 5.35 permitted in the gross estate without having to pay federal estate tax. If your assets exceed this amount, they will be charged up to 40% in the federal estate tax.
If you have more questions, our Orange County estate planning attorneys can help. Call (949) 570-5466 or contact Financial Relief Law Center, APC online to schedule a free consultation to discuss your unique circumstances. We serve most counties throughout California!