A primary advantage to creating a living trust is that property left through the trust does not have to be administered through probate court before it reaches your desired beneficiaries.  If your trust is not up-to-date, your estate could be subject to probate or unnecessary taxes.  Or even worse, your assets could be distributed to persons who you no longer wish to be beneficiaries, or you may inadvertently leave out someone who you intended to include.

Avoiding Probate

What you want to avoid is probate, which is the court-supervised process of paying your debts, giving notice to potential claimants and creditors of your estate, and eventually distributing your property to beneficiaries as determined by the court.

The average probate drags on for several years before the beneficiaries receive anything. And by that time, there’s less for them to receive: in many cases, about 5-10% of the property has been eaten up by lawyer and court fees during the probate process.  When a will is probated, there must be a newspaper publication to give the world notice of the probate.  On the other hand, a living trust avoids probate and its terms are completely private and do not need to be made public.

Eliminate Taxes

Although a very simple, probate-avoidance living trust has no effect on taxes, a more sophisticated attorney-drafted living trust, however, can greatly reduce or even eliminate estate tax for people who would otherwise be subject to these taxes.  Since the individual estate tax exemption for 2016 is $5.45 million, most estates will not be subject to the 40% federal estate tax.  Of course, any assets you own, including life insurance, are included in the calculation of potential estate tax.

Occasionally, life insurance proceeds may bring the total value of an estate over the estate tax exemption.  Large policy holders should ensure their estate plan minimizes or eliminates unnecessary estate taxes on these insurance proceeds.  Proper planning can make a huge difference and can also help ensure capital gains taxes are eliminated on the inheritance of appreciated assets by receiving a full step-up in tax basis.

Living Trust Estate Plan

A customized living trust estate plan set up for you and your heirs will be of lifetime benefit to you, will avoid probate on all assets held by the trust, and may help to save taxes.  However, in order to allow the trust to work, you must fund it.  To keep your estate plan up to date, you must remember to fund the trust with any bank accounts, securities, partnership interests, and all other property owned now or acquired in the future.  And also make proper beneficiary designation changes on your retirement accounts and insurance.  Your attorney can assist you to make the correct designations.  Your estate plan should be reviewed every few years to be certain that the successor trustee(s) appointed, the plan of distribution, and other provisions are still appropriate.  Any modifications to your existing trust documents without professional help may not effectively carry out your desires and could easily invalidate the estate plan.

 

Michael K. Elson is an estate planning, wills and trusts attorney located in Encino, with a satellite office in Valencia.  He provides estate, business and asset protection planning, including trusts, LLCs, corporations, probate, and trust administration and may be reached at (818) 763-8831 or by visiting http://www.living-trust-attorney.com. This article is a broad overview of some estate planning options.  Since each person’s circumstances are unique, and there are many intricate exceptions in the law, the mere reading of the material herein does not create an attorney/client relationship between the author and the reader.