A living trust, set up during your lifetime, is designed to allow for easy transfer of your assets. A trustee holds legal possession of the assets and property in your trust and has a fiduciary duty to manage the trust prudently for the trust’s beneficiaries. Most significantly, it provides for an easy mechanism to facilitate the management of your asset if you become incapacitated, to designate what you want to occur upon your passing, and tp avoid the costs and delays of a probate administration.
Unlike a Will, a living trust is in effect while you’re alive. The trust doesn’t have to clear the courts to reach its intended beneficiaries at the time of death or incapacity.
Revocable vs. Irrevocable Trusts
Living trusts can be irrevocable or revocable. With a living revocable trust, you can designate yourself to be the trustee and take control of assets in the trust. Revocable trusts are subject to estate taxes, but the federal estate tax applies only to the extremely wealthy. You have the power to amend trust rules at any time. You’re free to change beneficiaries or undo the trust altogether. But you relinquish control over the trust when it is created. The trustee is the legal owner.
While a revocable living trust does not assist you in being able to qualify for long term care Medi-Cal or Veterans benefits, it can help facilitate that planning in the future. More importantly, because it avoids probate at death it avoid recovery of your assets by the Department of Health Care Services after you pass away. Without a trust or other planning, the home or other assets of a person on Long Term Care Medi-Cal may end up going to the state at death.
An irrevocable trust is active and except in limited circumstances, cannot be changed — even by you. A revocable trust automatically converts to an irrevocable trust on your death. Despite its irrevocable nature, with proper planning, you or someone you designate may be able to change the trustees or the beneficiaries if the circumstances require it.
A living trust itself can be named the beneficiary of such assets as employer-sponsored retirement accounts — 401(k) plans, IRAs, life insurance policies, and certain bank accounts such as Payable on Death accounts.
In fact, almost anything can be placed in a living trust if it has value of any kind, including:
- Real estate.
- Bank and savings accounts.
- Fine art and jewelry.
- Virtual items like mining rights and intellectual property.
The process of transferring assets from your name to the trust is called funding the trust, and the items together form a trust fund. You can leave a full inheritance to your heirs and have the power to impose certain conditions that need to be met before these beneficiaries receive items from the inheritance.
Benefits of a living trust:
- Can facilitate Medi-Cal or Veterans planning in the future
- Makes management of assets when incapacitated much easier
- Saves time and money in the probate process. Your trustee can take care of your end-of-life affairs, like paying for funeral costs and distributing property to heirs, without having to wait for the probate judge.
- Offers more protection if challenged. A living trust is less likely to be challenged in court than a simple will is. Challengers would have to prove you lacked capacity and were coerced into signing the documents and forced through the process of funding the trust.
- Protects privacy better. A will is a public document, which means that anyone can get a copy of it from county records after your death. A living trust is private, so no one is permitted to know the details unless the trustee blabs it about.
Disadvantages of a living trust:
- The funding of the living trust is crucial. It can require some work on your part. When a living trust fails to accomplish the intended goals of its creators, it is most often because it was no properly funded.
- A living trust can’t designate a guardian for your minor children. Only a Will can do that.
- A living trust takes more time to set up. There’s more paperwork involved in setting up a living trust than there is in setting up a Will.
A living trust can often get inheritances to your beneficiaries more quickly and with fewer complications. And should you lose mental capacity, your trustee can step in and manage the assets in the trust for you. The authority you grant to your trustee is more readily accepted by outsiders than a standard power of attorney is.
Southern California’s Premier Estate Planning Law Firm
Decisions like these are complicated. Be sure you get the advice you need to make the choices that will provide you and your family with the financial peace of mind they need. If you have additional questions or concerns regarding your estate plan, elder or tax law, or probate, contact the experienced and trusted estate planning lawyers at Sandoval Legacy Group, A division of Holstrom Block & Parke, A Professional Law Corporation, by calling (951) 787–7711 to schedule an appointment. No other law firm in Southern California has the knowledge and experience relating to estate planning, special needs planning, probate, conservatorships, business succession planning, tax planning, and trust administration as our lawyers and paralegal staff.