Last time we broke into the topic of wills vs. trusts. The last section focused on the former, this section will feature the latter.
A living trust insures that your assets (home, bank account, stocks and other assets) are safe during your lifetime and administered for your benefit upon your death. It may be amended or revoked at any time by the person or persons who created it as long as he, she, or they are still competent.
Your living trust agreement gives the trustee the legal right to manage and control the assets help in your trust (most people name themselves as the trustee, but one can name a person or institution as a successor trustee to manage the trust if one becomes unable or unwilling to do it oneself); instructs the trustee to manage the trust’s assets for your benefit during your lifetime; names the beneficiaries who are to receive your trust’s assets when you die; and gives guidance and certain powers and authority to the trustee to manage and distribute your trust’s assets.
If you are the trustee of your own living trust and you become incapacitated, your chosen successor trustee would manage the trust’s assets for you. If your assets were not in a living trust, however, someone else would have to manage them. How this would be accomplished might depend on whether your assets were separate or community property.
The assets held in your living trust could be managed by the trustee and distributed according to your directions without court supervision and involvement. And because the trust would not be under the direct management of the probate court, your assets and their value (as well as your beneficiaries’ identities) would not become a public record. Your heirs and beneficiaries would still have to be notified about the living trust and advised, among other things, of their right to obtain a copy of the trust.
But a living trust is not for everyone. The greater the value of your assets, the greater need for a living trust. Young, married couples without children who intend to leave their assets to each other upon death, people who do not have significant assets and have very simple estate plans or people who want court supervision over the administration of his or her estate would not benefit from a living trust.
Assets acquired during marriage or a registered domestic partnership while a resident of California are community property. On the other hand, any property that you owned before your marriage or registration of your partnership, or that you received as a gift or inheritance during the marriage or partnership, is probably separate property. Without planning, however, your separate property assets would be subject to a conservatorship – probate proceedings designed to help protect you at a time when you are vulnerable or incapable of managing your assets.
Assets omitted in the trust are subject to probate, which often takes more time to complete than the distribution of property held in a living trust. In addition, assets tied up in probate may not be as readily accessible to the beneficiaries as those held in a living trust. And the cost of a probate is often greater than the cost of managing and distributing comparable assets held in a living trust
Once your trust has been signed, you must fund the trust – transfer your assets to the trustee in order to avoid court-appointed conservatorship proceedings if you should become incapacitated.
Deeds to your real estate must be prepared and recorded. Bank accounts and stock and bond accounts or certificates must be transferred as well. These tasks are not necessarily expensive, but they are important and do require some paperwork.
Q. Will my trust help me avoid paying taxes?
A. No. While a living trust may contain provisions that can postpone, reduce or even eliminate estate taxes, similar provisions could be placed in a will to accomplish the same tax planning.
Q. Will I have to pay taxes during my lifetime?
A. No, not during your lifetime. The taxpayer identification number for accounts held in the trust is your Social Security number, and all income and deductions related to the trust’s assets are reportable on your individual income tax returns. After your death, the income taxation of the living trust is similar to a probate.
Karen Corbelli is a Redding-based legal document assistant armed with more than 20 years of legal experience. She can be reached at 515-5081 or kjparalegalservice@yahoo.com.
