At the Law Offices of Alice A. Salvo, we help clients throughout Southern California understand their estate planning needs, including when it makes sense to create a trust. When we create a trust, we stay abreast of all the legal issues and communicate carefully so you can relax and understand each step.
Establishing a trust, such as a revocable living trust (also known as a grantor trust) is beneficial to homeowners. This trust is used to hold assets, typically real estate. The beneficiary of the trust is the same person who created the trust. When considering setting up a trust, here are a few items to note:
It’s important to understand that setting up a trust will not protect your assets from lawsuits, creditor claims or other risks to your wealth. The purpose of establishing a revocable living trust is to reduce the size of your probate estate. If you die without a fully funded living trust, or if all you have is a will and assets worth $150,000 or more, then your loved ones will have to go through the long process of Los Angeles Probate Court. However, if you reduce the size of your probate estate enough, then your estate will be able to avoid costly probate court proceedings.
As an example, let’s assume your estate (home) is valued at $700,000 and you die. In this case, the probate court will intervene to determine who receives what. Even if you had a last will and testament, the probate procedures are still necessary for the court to make sure that your wishes are carried out and your estate is distributed. Probate is extremely expensive, and if disputes or minor children are involved, the process could reduce your estate significantly. It is common to have probate costs of over $35,000, or roughly 5 percent of the example gross estate.
Suppose you are smart in setting up a trust, and the (home) $700,000 worth of assets is held in a revocable living trust. In this case, your probate estate is zero and there is no need to involve the Los Angeles Probate Court after your death. Creating a trust has eliminated the high probate cost. Assets are quickly passed to those of your choosing (the beneficiaries). Without a trust, you’ll need to go through probate court, which takes about a year to adjudicate. This means that your chosen beneficiaries will not actually inherit your cash or property until a full year after your death. Since you are the trustee of your revocable living trust, while you are alive you maintain sole, total control of the assets. Any tax consequences of profits generated by assets in the trust are also your personal responsibility. Bear in mind, too, that with a revocable trust the assets in it are not protected against creditor claims. In essence, a revocable living trust is a pass-through entity.
As we mention setting up a trust, establishing a trust, or creating a trust, the type of trust being referred to is typically called a family trust, living trust, or revocable trust.
Would you really want a court full of total strangers involved in your personal affairs to make a determination that you should be making now? The reality is that establishing a trust is extremely complex. Creating a trust the “right way” requires that you and your attorney take the time to determine what you have and how it can most effectively be allocated after your passing. The analysis required for creating a trust involves a serious conversation with an attorney to review your specific situation so that your wishes are legally implemented for your family. Taking the time and investing the initial cost to establish a trust will not only give you peace of mind, it can also save you and your loved ones a lot of time and money later on.
That is where we come in as your Los Angeles estate planning firm. Attorney Alice Salvo will guide you smoothly through the process of creating a trust so as to avoid the probate court. It is our understanding that you want to lay out the terms of your estate, at a cost that you feel is reasonable, so as not to burden to your loved ones. We can help with that.