Is It Too Late To Create Your Living Trust?
Living Trust
A living trust, which can be established to be revocable or irrevocable, can be created at anytime during a person’s adult lifetime. Many people who have large property packages that are being rented out for income assign these properties to a living trust, and enjoy the rental income as long as they are alive. When they pass on, the property passes on the benefactors of the trust, who continue to earn income from the rental property in perpetuity. Theoretically, as soon as the benefactors are bequeathed the property assets in their name, the can immediately establish a living trust in their names, further protecting the assets from the ravages of probate and estate taxes.
So how do you go about creating a living trust?
The majority of living trusts are revocable. The trustor or the estate, or the owner of the property, can also be the trustee of the estate. Once the papers have been signed and authorized, stating how the property assets transferred to the trust will be managed, to whom the income from the trust property will be paid, and who will be beneficiaries of the trust’s assets once the trustor moves on to the next life.
The advantages of establishing a revocable trust is that it can be totally fluid. If the trustor, for example has considerable property assets, they can be actively dealing in them, buying, selling, trading up and trading down. However in the event that the trustor passes on unexpectedly, and assets that they have in their possession is not included in the assets of the living trust, then the beneficiaries may be liable to pay estate tax and probate fees on the assets.
It is also possible for a trustor to establish several trusts, both revocable and irrevocable to suit their personal and business interests. Obviously each trust must contain its own assets, and they cannot overlap.
For every property asset that is transferred to a living trust, the trustor must sign what is known as a trust deed. If the trustor wishes to transfer publicly traded stocks and bonds to the living trust, they will be required to retain the services of a broker in order to do so. It is even possible to transfer shares in a business partnership, incorporated company or even a corporation into a living trust.
If Revocable Living Trusts Are So Great, Why Doesn’t Everyone Have One?
Question: When discussing Living Trusts, I have often heard the following: “If trusts are so great, why doesn’t everyone have one? Actually, you may be surprised at how many people have living Trusts. They are more common than many people realize. Folks don’t often discuss their estate plan with others. Trusts are perfectly legal in every state (with the possible exception of Louisiana).
Answer: There are many reasons why people do not have Living Trusts.
Unfortunately, there is no place where estate planning is taught, except, maybe, law school. Our public schools tend to avoid teaching anything practical about actual living. The issue is that most of us must learn about things like estate planning from family, friends, associates, or professionals. Professionals may have their own agenda. I suspect many of my fellow attorneys avoid explaining everything to their clients in order to protect the “mystery” of the law. With a Living Trust, your heirs won’t need a lawyer, and they don’t like that.
- They don’t have enough assets to need any type of estate plan. Most states have a threshold before probate is required. In California, the probate threshold is $75,000. In Oregon, it’s $50,000 in personal assets or $150,000 in real estate assets. Every state is different and these laws change with inflation. $75,000 won’t buy you a tool shed in Los Angeles. If you own a home almost anywhere, you probably need a Living Trust. If an estate is smaller than the state probate threshold, no probate is required. Otherwise, no estate plan is needed for these people.
- People procrastinate. Even if they know they need a Living Trust, they don’t want to deal with it. Some people even believe that if they plan for their death, they will die. Procrastination is the biggest obstacle to estate planning.
- They are afraid they cannot afford a Living Trust. Many attorneys charge thousands of dollars to prepare a Living Trust, and many people do not have that kind of money in their budget. A trust need not cost that much, however. Much of the language in trust documents is the same in every trust. Trusts are almost universally prepared on computers that remember all that language. The preparer’s job is to fill in the personal details for each individual. The preparer does not start from scratch for each trust.
If you shop carefully, you should be able to find someone to prepare your trust documents for a reasonable fee. Revocable Living Trusts are not new. Compared to other areas of the law, trust law is fairly stable and doesn’t change very often, other than estate tax considerations. Living Trusts have become more popular in recent years as the probate process has slowed to a crawl and become a quagmire of pain and expense.
