Written by Frank L. Bütts
The five main reasons you need a Living Trust can best be illustrated by this real-life story. I met a successful businessman several years ago and asked if he had performed any estate planning to protect his family. In order to conceal this gentleman’s real identity, we will call him Mr. Garcia for purposes of this story.
Mr. Garcia told me that he had a Will drafted up many years ago when he had first immigrated to the United States from Mexico and that his family was covered. At this point, given that I knew that Mr. Garcia owned a home and a business, I advised him, and much to his surprise, that his family was not actually protected unless he had a Living Trust.
It is important to tell you a little more about Mr. Garcia, because he is an American success story. Mr. Garcia emigrated from Mexico to the United States when he was a young man, primarily working as a laborer in the construction industry. After several years, he decided to start his own construction business which allowed him to purchase his first home and live the American Dream.
In Mr. Garcia’s case, although having a Will was better than not having one at all, he mistakenly believed that his loved ones would be protected when he passed away; however, what Mr. Garcia failed to realize is the gross value of his assets had grown over the years and exceeded the Small Estate Set-Aside under the California Probate Code; thus, requiring his family to settle his affairs in court upon his death.
At the time of this article, if the gross value of your assets is over $184,500 (2023), I would highly recommend that you have Living Trust. Included in this number is the value of your family home which is the most expensive asset the majority of us own. To give you some idea of what home prices are, in April of 2023 the median home price in California was $776,600, San Diego $880,000, Los Angeles $980,800, and in San Francisco $1,300,000.
For the reasons below, when your assets are more than $184,500 (2023), a Living Trust should be used for estate planning purposes in order to protect your family and loved ones.
Avoid Probate.
In California, regardless of whether you have a Will or not, if the total value of your assets is more than $184,500 (2023), your loved ones will be required to go to probate court to settle your Estate. Properly holding assets in a Trust, helps your family and loved ones avoid an expensive and lengthy probate court proceeding, because assets held in Trust lawfully remove them from probate court review and administration.
In the case of Mr. Garcia, if he had passed away without creating a Trust, his family would have had to pay $435 in court fees to open a probate matter with the court, attorney’s fees in the amount of $23,000 (because his assets were more than $800,000) and his family would have to have had to wait at least a year (average time) for the court to finalize his estate and approve the transfer of his assets to his family.
Privacy.
Another benefit of a Trust is privacy. Unlike probate court where your assets will become a matter of public record for the whole world to see, a Trust can only be reviewed by a limited number of named individuals; thus, protecting your assets from prying eyes.
In the case of Mr. Garcia, he was a very private man. If he had passed away without creating a Trust, all of his assets would have been made part of the court’s file and any individual who was interested therein would have had the opportunity to examine all of Mr. Garcia’s assets and financial affairs.
Reduce Taxes.
If set up properly, a Trust can reduce, and in many cases eliminate, estate taxes by transferring your assets into your Trust, which will allow you to reduce your taxable estate. Unlike a Will, Trusts almost always take tax planning into account to protect your family and loved ones.
In the case of Garcia, if he were to pass away this year (2023), his federal estate tax exemption and gift exemption would be $12.06 million. With proper Trust planning, he and his wife could transfer $24.12 million to their children or loved ones tax free. The tax exemption is also tied to inflation, so it expected to raise even higher in the future.
Name Someone to Manage Your Assets.
In the event that you are no longer mentally competent to manage your assets or affairs, a Trust will allow you to name a person that you trust to take care of you and manage your affairs for you. If you do not have a Trust, your loved ones would be forced to go through the expense of going to court to have a judge appoint someone to take care of your affairs on your behalf.
In the case of Mr. Garcia, had several children that he loved very much; however, one of his daughters was younger and less responsible than his other children. As such, he did not want this daughter to oversee his assets and affairs if he were to become mentally incapacitated especially given that Alzheimer’s ran in his family. By creating a Trust, Mr. Garcia with a Trust he was able to list his wife and those children he trusted most to run his affairs in lieu of having them go to court to be appointed conservator of his estate.
Control Over Your Assets.
A Trust provides you a level of control over your assets that Wills cannot. In a Trust, you can decide what, how and when your assets will be given to your loved ones. If you have young children or grandchildren, you can make sure that they do not receive their inheritances all at once. You can set up your Trust in such a way to allow your children and grandchildren to receive funds for college or receive their funds when they have reached a more matured age (e.g. 18, 21, 25, etc.).
In the case of Mr. Garcia, with respect with the one daughter who was younger and less responsible, he was able to insert provisions in to his Trust which stated that this daughter’s inheritance would be held in trust and paid to cover her college tuition first and that the balance of her inheritance be paid to her when she reached a more mature age, in this case 30 years old.
Conclusion.
Thank you for taking this journey with Mr. Garcia and I. As listed herein, I have briefly presented some of the most important reasons to set up a Trust in order to protect you and your loved ones; however, there are many more that I have been unable to touch upon given this limited forum (e.g. taking care of children with special needs, providing for pets, selling real estate, dividing up business ownership, etc.). I you have interest in protecting your family and loved ones by setting up your own Trust or have any questions, I would be happy to discuss your options with you free of charge. Please call me, Frank L. Bütts, Esq., at (760) 533.4303 or send me an email to [email protected]. Se habla español.
