What is a Trust and Why Do You Need One?
No one likes to think about it, but we should all make a plan for what happens to our assets at the end of our lives. This is particularly true if you want to protect your spouse, children, or other potential heirs from probate, potential creditors and unwanted solicitors.
Generally, when you die, your estate (assets you own at death) will be subject to the probate process in court. Probate is the legal process in which a will is reviewed to determine whether it is valid and authentic. Probate also refers to the general administration of a deceased person’s estate. The court appoints either an executor named in the will (or an administrator if there is no will) to administer the process of collecting the assets of the deceased person, paying any liabilities remaining on the person’s estate and finally distributing the assets of the estate to beneficiaries named in the will or determined as such by the executor.
In California probate is lengthy and expensive. The average probate proceeding takes about 18 months, and if your estate must pass through probate it can mean that your beneficiaries and legal heirs will not receive any assets from your estate for 18 months or more. Further, during the probate proceeding your legal representative or executor only has limited authority to sell, refinance or transfer assets.
Establishing a revocable living trust is one way to avoid the probate process. Think of a trust as an invisible bucket where you own all your assets. You remain in control of your finances, and continue to make all decisions regarding your assets, but everything is owned by the trust. Upon your death, ownership and control of the trust assets is passed to the person or persons whom you previously designated. The assets owned by the trust will not subject to the probate process in court, saving your beneficiaries precious time and money.
If you choose to establish a trust, you should also have a last will and testament. However, a trust and a will are two very different estate-planning tools. A will is like your death instructions. A will provides directions for the probate court. A will specifies what you want to happen to all of your assets after your death in the absence of a trust. However, depending on the gross value of your assets at the time of you passing, the will must still be read by a judge and processed through the probate court process. A proper estate plan should include what is known as a “pour-over” will to give directions about any assets not contained within your trust.
A trust, on the other hand, is both your death and living instructions as it relates to your assets. At your death a trust gives control of its assets to the person or persons, known as the trustee, whom you designate at the time you establish the trust. Upon your death, the successor trustee automatically assumes control of any property contained within the trust.
Most estate planning trusts are created so that your trustee takes control of your assets if you are ever incapacitated or unable to make financial decisions. Therefore, a trust can protect not only your legal heirs and named beneficiaries after your death, but also protects you in the event of incapacity.
The procedure for establishing a trust can be complicated, but we have the resources and experience to answer all your questions, and help you establish the estate plan and trust that makes sense for you and your family.