Why have a trust?
A living trust has numerous benefits for you, your family and beneficiaries:
Avoid Probate.
Probate is necessary in California when an individual dies owning assets that exceed $150,000.
- Costs thousands of dollars. Statutory (set by law) fees on assets worth $500,000.00 are $26,000. This does not include fees for tax preparation, the sale of assets or litigation.
- Lengthy, can take 6 months, sometimes over a year.
- Quickly depletes valuable resources: not only money, but time, energy and probate can become an emotional nightmare.
- Makes the estate a public matter. Intimate details of your finances and last wishes will be made public. Heirs will know your desired division of assets which can prod them to contest/ legally challenge your will or intended beneficiaries.
Avoid A Will Contest.
A will is much more likely to be contested than a revocable living trust.
- To successfully contest a will one must only prove that the testator was either incompetent or under undue influence at the precise moment the will was signed.
- To contest a revocable living trust, you have to prove that the grantor was incompetent or under undue influence not only when the trust instrument was signed, but also when each property was transferred to the trust, when each investment decision was made, and when each and every distribution was made to the owner or anyone else. That is virtually impossible to do.
Protect Assets For Certain Beneficiaries.
- Minor Children: Without any provision, minor children will most often be given their entire inheritance when they reach the majority age of 18. Most 18 year- olds are not capable of making sound decisions about thousands, hundreds or millions of dollars that will have life-long repercussions.
- Writing a check to your 20-year old child for $500,000 is probably not a good idea.
- Instead, create a trust for the benefit of your child with someone you trust – say a friend, family or relative, to serve as trustee. The trustee would then hold the money and invest it for your child’s benefit until they reach a more mature age.
- In the meantime, the trustee would use the money to pay for your child’s schooling, general living expenses, and other expenses you might specify in the trust instrument – including a down payment on a home or a new business.
- When your child reaches the age specified in your trust instrument, the trust would terminate and all property held by the trustee would be turned over to your child. And, because your child will probably be finished with schooling at that time and embarking on a career of their own, your child will probably be mature enough to make good decisions regarding the inheritance.
- Disabled Family Members or Beneficiaries: Providing an inheritance directly to your disabled loved one can disqualify them from receiving some forms of government support and/or the need to reimburse the government for some of the provided services.
- A Special Needs Trust (“SNT”) should always be set up unequivocally BEFORE mom and dad pass, through a third-party SNT, rather than after the fact, which is called a first-party SNT.
- A first-party SNT is funded by property already owned by the person with special needs, i.e. a personal injury award, retirement plan, life insurance policy or inheritance. A first-party SNT is subject to the “payback” rules which require the State to be reimbursed for medical expenses from any funds remaining in the SNT after the person with special needs passes.
- A third-party SNT is funded by property not owned by the person with special needs or their spouse, i.e. money from mom/dad or other family member. There is no “payback” provision for a third-party SNT and you, the creator of the trust, can designate how any remaining funds will be disbursed upon the passing of the person with special needs.
- The important point to understand is that either SNT, if properly established, can allow an individual on SSI or Medi-Cal who has received a windfall (gift, inheritance, personal injury settlement, lottery winning, etc.) to continue receiving benefits, while also enjoying a life significantly improved by the resources of the special needs trust.
- It is equally important that families of people with a disability effectively communicate the benefits of establishing a third-party SNT to anyone thinking of providing for their loved one, such as aunts, uncles, and grandparents so what is meant to be an inheritance gift will not result in the loss of important benefits and a subsequent disqualification period.
- A Special Needs Trust (“SNT”) should always be set up unequivocally BEFORE mom and dad pass, through a third-party SNT, rather than after the fact, which is called a first-party SNT.
Allow For Management Of Your Property In Case Of Incapacity.
In the past, people worried about not living long enough—now the worry may be about living too long. As a daughter with a mother aged 71 and a father aged 78, I worry about them living in their own home, making sure their bills are paid, and I get nervous someone will trick them out of their hard earned savings with the incidents of elder fraud and abuse ever on the rise.
- Absent any estate planning, in the event of incapacity, I would have to file a petition with the court to become a legal guardian, or have one appointed. Their private financial information, medical conditions, evidence of incapacity, etc. has to brought forth in open court—who wants that? This process ultimately results in the indignity of them being declared incompetent.
- Other options than a trust—the alternatives are simply not as good as a trust.
- For instance, putting a bank account in the name of an additional relative may insure the bills get paid, but would subject the account to the relative’s creditors and leave other important matters uncovered. Subsequently, when the parent dies, that account is automatically transferred to that child—leaving other siblings with nothing.
- Another option is a durable power of attorney—this allows you to designate someone to handle specific affairs in the event you become incapacitated. One major problem with the durable power of attorney is that the attorney in fact whom you appoint, is limited to the instructions specifically mentioned in the document creating the power of attorney. If an option is left out, the attorney in fact will not be able to act. For example, let’s say you annually donate money to a particular organization or a family member. If that specific instruction is left out of the powers given to the attorney in fact, the money will not be donated.
- Other options than a trust—the alternatives are simply not as good as a trust.
- The best solution is a revocable living trust.
- A revocable living trust allows for your successor to take over immediately upon your incapacity, with no formal court requirement or even filing.
- There should be no interruption in the management of your affairs.
- There is no court supervision.
- If you have not transferred all of your assets into the trust by the time you become incapacitated, a durable power of attorney or a pour-over will allows such a transfer.
SPECIAL NEEDS TRUSTS
Why Do Some People Need A Special Needs Trust?
To preserve government benefits and allow for a person with special needs to live a more fulfilling life. Providing an inheritance directly to your disabled loved one can disqualify them from receiving some forms of government support and/or the need to reimburse the government for some of the provided services.
- A Special Needs Trust (“SNT”) should always be set up unequivocally BEFORE mom and dad pass, through a third-party SNT, rather than after the fact, which is called a first-party SNT.
- A first-party SNT is funded by property already owned by the person with special needs, i.e. a personal injury award, retirement plan, life insurance policy or inheritance. A first-party SNT is subject to the “payback” rules which require the State to be reimbursed for medical expenses from any funds remaining in the SNT after the person with special needs passes.
- A third-party SNT is funded by property not owned by the person with special needs or their spouse, i.e. money from mom/dad or other family member. There is no “payback” provision for a third-party SNT and you, the creator of the trust, can designate how any remaining funds will be disbursed upon the passing of the person with special needs.
- The important point to understand is that either SNT, if properly established, can allow an individual on SSI or Medi-Cal who has received a windfall (gift, inheritance, personal injury settlement, lottery winning, etc.) to continue receiving benefits, while also enjoying a life significantly improved by the resources of the special needs trust.
- It is equally important that families of people with a disability effectively communicate the benefits of establishing a third-party SNT to anyone thinking of providing for their loved one, such as aunts, uncles, and grandparents so what is meant to be an inheritance gift will not result in the loss of important benefits and a subsequent disqualification period.
PET TRUSTS
Why A Pet Trust?
It is estimated that over 100,000 pets are surrendered to animal shelters each year after their owners pass. If your companion animal is considered your family member, you can provide for their continued and uninterrupted care and comfort should you become incapable of caring for them.
What Is A Pet Trust?
California Probate Code § 15212, enacted in 2008, allows you to create a trust to provide for the care of an animal alive during the Creator’s lifetime.
- The law allows for the trust to terminate upon the death of your companion animal or upon the passing of the last surviving animal covered by the trust.
- A pet trust is a legally enforceable document that ensures the money you set aside for your pet will be used to provide for their care and comfort and that your directions will be followed.
- For example, the trust will require that payments be made on a regular basis to the designated caregiver; of if your dog only likes a particular type of food, requires daily visits to the local dog park, or you would like your pet to continue seeing their same veterinarian, this can be specified in the trust agreement. Essentially, you can provide instructions for the care of your animal(s) in the event you become incapacitated (sick, injured, comatose, etc.) or pass. You will describe the kind of care your pet should have and list the people who would be willing to provide that care.
- In addition, a pet trust serves to:
- Adequately identify your pet in order to prevent fraud, such as through photos, microchips, DNA samples;
- Describe in detail your pet’s standard of living and care;
- Require regular inspections of your pet by the trustee;
- Help you think about and determine the amount of funds needed to adequately cover the expenses for your pet’s care (generally, this amount cannot exceed what may reasonably be required given your pet’s standard of living) and specify how the funds should be distributed to the caregiver;
- Determine the amount of funds needed to adequately cover the expenses of administering the pet trust;
- Designate a remainder beneficiary in the event the funds in the pet trust are not exhausted;
- Provide instructions for the final disposition of your pet (for example, via burial or cremation).
- A pet trust offers owners a great deal of flexibility and peace of mind.