What is the difference between a Will and a Trust?
Both a will and a trust designate who you want to have receive your property when you pass away, how they will receive it, and who will be in charge of distributing the property. You can leave your entire estate to a single individual, split your estate between your children, or designate particular items for particular people. Generally speaking, you have a great amount of freedom in making such designations.
Living Trusts are generally preferred when you own real property, or if you have a large estate. Almost anyone who owns real property should have a living trust. If you simply had a will, your real property would still need to be transferred out of your name on death. Naming a beneficiary in a will would advise the court who you wanted to have receive the real property, but you would still have to go through probate or a probate procedure in order to effect that transfer of ownership. Probate cases can be expensive and can sometimes take over a year to complete. In probate cases, statutory probate fees are based off of the gross value of the estate:
4% of first $100,000 of estate
3% of second $100,000 of estate
2% of next 800,000 of estate
That means that if the estate is worth $400,000, the statutory fees you would pay would be $9,000. Filing fees and miscellaneous costs (publication in a legal newspaper, etc.) would bring the total probate fees and costs up to around $11,000. When considering the amount of money and time that loved ones would have to put into a probate case, a living trust is a much preferred and easier alternative.
When you create a living trust, you transfer any real property you own into the trust which you want the trust to control. While you are alive, you control and manage the living trust. You can amend it, modify terms, or revoke it. You can sell or refinance any real property owned by the trust, you simply sign documents as trustee of the trust. When creating the trust, you also name a successor trustee. That individual then takes over control of the trust and trust property when you pass away, allowing them to sell and manage trust property without having to go through probate or any court process. They are responsible, of course, to manage and distribute the trust according to your wishes as set forth in the trust.
With a living trust, you also have a lot more freedom to control your property after you pass away. For example, if you have minor children, you can set up the trust so that they receive property when they reach a certain age, or even have multiple distributions when they reach certain ages. Instead of receiving assets outright at age 18, a trust can call that they would receive 1/3 of their share at age 22, 1/3 at age 25, and 1/3 at age 30.
Our Ventura Estate Planning Attorneys at the Werner Law Firm are dedicated to representing clients who wish to create a smooth succession plan. If you have any questions or would like an overview of the process, feel free to contact us for a free telephone consultation. We will explain the legal process in creating these documents, determine what would be most beneficial to you, and figure out a game plan moving forward.
Why should I hire a lawyer instead of doing it myself through LegalZoom or another form preparation service?
We sometimes compare hiring an attorney to hiring a mechanic. If something is wrong with your car, as an intelligent person, you could probably spend the time and effort to educate yourself on what is wrong and attempt to fix it. With trial, error, and some potential mistakes, you could probably repair it yourself. Most people hire a mechanic because it is easier and they want it done properly by a professional.
Creating a living trust and estate plan is a complicated matter. We have spent years as attorneys dealing with various situations and trust language is constantly evolving. It is easy to make mistakes in “do it yourself” trusts, and such mistakes can be devastating. Unlike repairing a vehicle, where you could test drive it, a mistake in a trust generally will not be discovered until after you pass and it is already too late.
We commonly deal with the aftermath of flawed trusts, and such mistakes usually result in your beneficiaries having to go through probate. These mistakes can end up costing beneficiaries substantially more in terms of time and money than what would have been spent on a professionally done trust. As discussed in our probate section, probate fees are based on the gross value of the estate and can easily cost tens of thousands of dollars.
At The Werner Law Firm, our Trust Attorneys will tailor and prepare your living trust and estate plan to address your particular situation and goals. We will work to ensure that your estate plan is set up properly to take care of your beneficiaries and to give you peace of mind.
Can I just deed my property to my children instead of doing a trust?
Some people take the approach of simply transferring assets or signing a deed to put their children on title to their property. This is generally a bad idea, for a number of reasons:
1) Ownership – You are essentially giving away your property while you are alive. By deeding them property and putting them on title, they have an immediate ownership interest in the property. While family members usually will honor your wishes, we have seen situations where there is a falling out between family members years later. In such a case, you could potentially be evicted from your own home as they now have an ownership interest;
2) Exposure to Creditors – By giving family members immediate ownership interest in the property, you are exposing your property to that family member’s creditors. For example, if you put your son on title to property, and he has a substantial amount of debt, his creditors could sue him and go after the home. Even if he does not have debts, he could accidently cause a car accident or injure someone, which could expose him to liability. If he is sued, and there are major damages involved, the house could be put at risk. While the odds of this happening are hopefully slim, it is something that people need to be aware of.
3) Capital Gains Tax – One of the most compelling reasons to have a living trust is the benefit your beneficiaries can receive in terms of avoiding capital gains tax. Generally, if you sell your property while you are alive, you will be taxed on the difference between the amount you originally purchased your property for and the amount that you sell it for. For instance, if you originally purchased your property for $100,000 and you sell it for $300,000, then the $200,000 increase in value could be subject to Capital Gains Tax.
When you transfer ownership to a family member, their basis for capital gains tax purposes is the value of the property as of the date of the transfer. Since property values traditionally go up as time goes on, it is better to have that transfer occur later in time. A trust can allow that transfer to occur later in time, when you pass away. Alternatively, if you put them on title before you pass away and they later sell the property, they are much more likely to pay more in terms of capital gains tax.
Given all of the above, setting up a living trust and estate plan is generally the best plan to take care of your family and beneficiaries. If you have any questions or would like an overview of the process, feel free to contact us for a free telephone consultation. We will explain the legal process in creating these documents, determine what would be most beneficial to you, and figure out a game plan moving forward.
What exactly is Probate?
A probate case is a legal case filed within Probate Court that addresses the assets of an individual’s estate when they pass away. It is a long and slow process, but can be a necessary one.
If a loved one passes away with a simple will naming you as a beneficiary, or if you are a family member and they had no will, then steps will need to be taken to address their assets. Such steps depend largely on the nature and value of their assets.
The probate process, on average, takes about a year. We must petition the court to admit a will to probate, or if there is no will, to open the estate and appoint an administrator to represent the estate. Your or another family member can usually serve as administrator. Once an administrator or personal representative is appointed, that person then has the authority to act on behalf of the estate, communicate with banks and other financial institutions, and conduct any other business necessary to close the estate. What is generally the largest task within probate is the accounting, wherein the Court needs to be presented with an accounting of any and all assets and debts within the estate, and ultimately what will be done with them.
Note that our firm often fronts the costs associated with probate and that attorney’s fees are not collected until the close of the estate, so generally no out of pocket payments are necessary by our probate clients to retain us. Attorney’s fees are based on a statutory fee schedule that is based off of the gross value of the estate.
If you have any questions regarding the steps you need to take, feel free to contact us for a free telephone consultation. We will listen to your situation and figure out what needs to be done
Are there alternatives to Probate?
There are often alternatives to probate. It really depends on the value of the estate and the kind of assets in the estate. Sometimes, probate is the only way, but it is important to speak to an attorney before taking action.
Probate and probate procedures can often prove to be a maze to lay persons. Employees at banks and financial institutions will often demand letters of administration or letters testamentary before they are willing to do anything. These are probate documents. They often make people feel like probate is a must. The reality is, these bank employees did not go to law school. They often receive minimal training on probate procedures and defer simply to what they were told by their supervisors. It might make their job easier if you went through probate, but it does not make yours. Contact one of our attorneys to see what options are available.
If the decedent simply had life insurance, bank accounts, or other accounts on which beneficiaries were named, then probate may not be necessary as the named beneficiaries would have a claim to those items. It would be a simple matter of providing a death certificate to those financial institutions.
Alternatively, if the decedent simply had a bank account without a beneficiary named but the estate is less than $150,000, we would be able to go through a simple affidavit procedure.
For more information, take a look at our alternatives to probate page or contact on of our Probate Lawyers for a free consultation at (805) 583-2027.