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9 Promising Reasons to Establish a Living Trust

Troy Werner and his family

Written by Troy Werner

Troy Werner has been an indispensable asset to The Werner Law Firm since joining in 2009, providing exceptional legal service to its clients.

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POSTED ON: August 12, 2019

There are things a living trust can and cannot do. While having a comprehensive estate plan is important, it’s also crucial to take note of the fact that a trust is not a form of magic, but a legal document with stringent rules determining how it may be used, and when it should be deployed. […]

There are things a living trust can and cannot do. While having a comprehensive estate plan is important, it’s also crucial to take note of the fact that a trust is not a form of magic, but a legal document with stringent rules determining how it may be used, and when it should be deployed.

Trusts can be pricey, complex, and time-consuming to set-up – but when developed properly and tailored specifically to your needs, a living trust can save you and your family thousands of dollars in legal fees and simplify the inheritance process.

The first and most crucial step is determining whether you need a trust to begin with. Not all estates do. Responsible estate planning experts will remind you that a good estate plan is only as big as you need it to be, and no bigger. However, there are many ways in which a living trust can make life – and the time after your life – much easier. Here are nine good reasons to establish a living trust.

1. To Better Finance Your Children

If you have minor children (underage children) and wish to ensure that a considerable part of your estate lands in their hands when they’re ready to deal with that part responsibly, then doing so through a will may not be in your best interest.

Should you die before your children grow up, then anything that is theirs either in a will or as per a probate court through intestacy law will be held by a special account until they are of-age.

But a living trust gives you the freedom to have more control over how your assets are distributed to minor children. This includes giving them their share of the estate piecemeal, perhaps every year or every five years after they turn 18.

2. To Reduce Estate Taxes With a Living Trust

The federal estate tax kicks in whenever an estate totals at over $11.4 million ($22.8 million for a married couple). While other states have their own inheritance or estate tax laws, California does not currently have an estate tax (other than the federal tax).

Proposed changes to estate taxes on the state level include Bill 378, which would lower the estate tax exemption to $3.5 million ($7 million for a married couple), meaning any estate above a total of $3.5 million in value will be taxed at a considerable rate (this state-only tax is phased out once an estate reaches federal tax exemption levels, to avoid double-taxation). So far, the bill has not reached the vote necessary to include it on the November 2020 ballot.

As such, only the federal estate tax applies. If your estate totals at over $11.4 million, then a living trust can be one way to reduce the size of your estate and thus cut down on estate taxes. Revocable living trusts do not affect the size of your estate for taxation purposes.

However, irrevocable living trusts, charitable trusts, and other similar trusts do affect the total size of your estate. Another tip is to make annual gifts and charitable donations to net further tax benefits and lower the total value of your estate.

3. To Help Financially Irresponsible Kin Keep Their Money

Living trusts can help lock assets for future distribution not only for minor children, but for fiscally irresponsible adult kin as well.

If your adult children or certain relatives have a streak of struggling with properly managing their wealth and finances, then you can set up a trust to hold and manage their wealth for them, incrementally distributing their portion of the estate over the years.

4. To Avoid the Probate Process

The California probate process can be lengthy, pricey, and stressful. Anything funded into a living trust bypasses said probate process. This can be used to drastically reduce the size of your estate in the eyes of the probate court, allowing you to expedite and partially bypass probate.

5. To Avoid the Public Record

One of the reasons to avoid probate is to maintain privacy. The probate process of any given estate is available to the public record and included in said record is a detailed listing of the contents of an estate. If you mean to keep such information confidential, it’s in your best interest to fund your assets into a living trust to bypass probate.

6. To Reduce the Sting of Divorce

Should your child marry and subsequently seek a divorce, their spouse may be entitled to half of everything – including parts of your child’s inheritance.

If you fear that your child may be getting themselves into a relationship that will potentially end badly, with or without a prenup (as prenups can be contested), then an irrevocable asset protection trust can help you ensure that your child has access to assets outside of the reach of their spouse, or potential creditors.

7. To Avoid a Conservatorship

Should you find yourself incapacitated, a court may appoint conservatorship to someone as a means to ensure that your financial matters are being taken care of. This may not always be in your best interest. Conservatorships are often given to people within the family, which may not be wise in some cases.

A trust lets you side-step this decision by appointing an experienced trustee, who will automatically assume control over your assets after you become permanently incapacitated, handling financial matters, and distributing your estate. A power of attorney is another way to avoid conservatorship.

Without a trust, the contents of an estate cannot be distributed following brain death or other forms of permanent incapacitation, because the probate process may only begin after a death certificate is presented.

8. To Benefit a Meaningful Charity

Charitable trusts are a way to ensure that a part of your estate goes towards supporting a charity or charities of your choosing.

In one example, a charitable trust can be set up to beneficiaries or yourself as a means to reduce the size of your estate by placing appreciable assets within an irrevocable trust, paying those assets out to designated beneficiaries (potentially including yourself) after a set amount of time, while the value said assets generated over that time goes to charity.

9. To Save Money

Perhaps the simplest and most straight-forward reason is to save money. This is where a little accounting and the help of an estate planning professional can come into use, because not everybody is going to save money when making use of a living trust. The simpler your estate, the better it might be to go with a simpler (trust-less) estate plan.

But while some might consider the estate planning process somewhat superfluous for most families, there are many hidden costs associated with the passing of a loved one and the subsequent probate process, from lengthy waiting times to attorney fees. The bigger and more complex the estate, the pricier the probate process.

If you do decide to utilize an estate plan, then a pre-made or non-tailored plan can sometimes lead to further costs down the road due to clerical errors and legal faux pas.

While the commitment to setting up a living trust can be considerable, the benefits may often outweigh the costs – provided you’ve weighed the pros and cons and consulted with an expert.

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