This article will summarize and shed some light on what a living trust can and cannot accomplish. This article is constructed in terms of questions and answers. These are the common questions that I get in my estate planning and probate seminars.

  1. Will vs. Living Trust: What is best for me?

A Will may not be the best estate planning document. A Will is only valid when you are dead. Furthermore, Wills need to be probated in California. A California court will need to validate the Will. The court will appoint the executor to be in-charge of your estate through the probate process. However, a living trust does not go through probate. A living trust has all the applicable California Probate Codes built into it to avoid the messiness of the probate court's involvement.  In California, if you own a home and you want to avoid probate then a living trust is needed.

  1. What is a living trust?

A living trust is a legal document where the makers of the trust are called trustees (normally mom and dad), who hold legal title to the home for the beneficiaries (normally their children). In California, all trusts are revocable unless the trust document explicitly states it is irrevocable. The living trust avoids probate, provides provisions for dealing with any potential incapacity and carries out wishes that you may have. In a living trust, once mom and dad have passed away, then their son or daughter who is the successor trustee can sign your listing agreement to sell the house.

  1. Why is a probate so bad?

A probate is expensive: Court filing fees, probate referee fees, bond fees, and newspaper publication fees average about $2,000. The statutory attorney fees and personal representative fee for a house valued at $500,000 would be about $26,000. Therefore, the total cost to probate a $500,000 house would cost about $28,000.

No privacy: Probate is a court supervised process and like most court processes they are opened to the public (to the nosey neighbors who want to know what assets you left behind). Any interested party can probe and find out how much money your children are getting. This puts your children and loved ones at the mercy of predators, who prey on heirs who have recently inherited money.

It is time consuming: Most probates will take about 1 year to complete. Your children or loved ones cannot take any money that you left them because the court has frozen the assets until all assets are properly accounted for, all debts and taxes are paid, creditors are given sufficient time to file a creditor claim and all governmental agencies are notified; after all these steps are taken then the probate attorney needs to file a final accounting and petition the court to allow your children or loved one to access the assets you left them.

  1. Doesn't California Joint Tenancy With Right of Survivorship Escape Probate?

Yes, in the short term but with complications down the line. When a married couple buys a home, joint tenancy is the number one way of holding title. Most married couples choose joint tenancy as a way of vesting title in their homes. So what can be so wrong if nearly everybody else is doing it? When the first spouse dies, the house will not go into probate. However, when the surviving spouse dies then the house will go into probate. Some would take it a bit further and decide to add their children as joint tenant on the house to avoid probate. Yes, the children will inherit the house without going through probate BUT at a very steep price, they have to pay an unnecessary capital gains tax bill. When the surviving aged parent decides to add the children on the grant deed as joint tenants, the children do not get a step-up in basis. A lesson to be learned here is: Whenever you receive a house prior to someone's death, the donor's cost basis follows to the donee. Please do not give your house to your children while you are alive because your old cost basis follows to the children and when your children sell the house they have to pay an unnecessary capital gains taxes. A living trust solves this problem by giving the house to the children automatically without the hassle of probate when you die and the children will get a step-up cost basis and will not have to pay any capital gains taxes.

  1. Why would the California Court get involved at incapacity?

Most living trusts will have a durable power of attorney built in with the living trust. Because without the durable power of attorney and you become incapacitated due to a heart attack, stroke, alzheimer, demential, etc, the court will get involved and the process is known as a "probate conservatorship". The court needs to assign a conservator to sign any necessary financial documents on your behalf. In essence this is a probate while you are alive. The court appoints a conservator to take care of the conservatee because the conservatee cannot take care him or herself any longer. The process in selling a home in a probate conservatorship is always limited authority, where a "court confirmation" confirming the sale of the house is necessary. The steps and procedures for selling a house in a "probate conservatorship" are the same as selling a house in a regular probate with limited authority.

  1. How does a living trust avoid probate?

When you create a living trust, you would fund the living trust, which means you transfer and title all your assets in the name of the trust. If you own a home, you would create a trust transfer deed to own the house under the name of the trust. Therefore, you no longer own your home, but rather you as the trustee own the home. Your living trust would appoint a successor trustee, most likely your daughter or son. Upon your death, the successor would step in and claim the house without any court involvement, meaning without having to go to the probate court.