Tag Archives: living trust

Should We Create a Living Trust?

houseDear Liza: We are a married couple in our early and mid 30s with a one year old son living in Southern California. I have been looking at setting up a trust and/or will for our little family but not sure what is needed in our scenario. My husband and I each own a home in our name (bought before we got married). 

 My husband and I plan to create a living trust for each of us and transfer the property in our respective name into the trust to avoid probate and create a will for everything else. Since both properties still have outstanding mortgage, how do we go about changing the title to a trust and will the lender allow this? Is the living trust the best way to go about with estate planning or do we need to look at another type of trust? Aside from the two properties, what else should be included in the trust? Do we need to create an ILIT for the life insurance policy to avoid estate tax and inheritance tax? What is the exemption limit in California? It sounds like you are thinking about all the right things (and on your way to owning a real estate empire). Yes, a living trust is a great idea for your family for these three reasons:
  1. A living trust will allow you to transfer your assets to your son without a probate proceeding.
  2. A living trust will allow you to set up a trust for your one-year old son so that an adult can manage his inheritance until your son is an adult.
  3. The transfer of your properties into a living trust will not affect your mortgage–there’s federal legislation that says such a transfer does not trigger any due on sale clause. Your lender doesn’t need to be notified, you just record a deed transferring your property to the trust.

You probably don’t need an insurance trust. That’s what people use to exclude the value of their insurance payouts from their taxable estate. But today’s exemption levels ($5.43 million in 2015) are so high, that most of us won’t have to pay any estate tax, even if our life insurance policies are included in our taxable estates.

Trusts and Pour Over Wills

Dear Liza,  My husband and I are having a disagreement about how to set up our living trust. (We are using online trust software.) He says that our will designates how to disperse the trust, after both of us die and the two designated trustees who are in charge of the trust will need to follow the will’s direction and that the trust is merely a holder of property and we don’t “need” to add all the beneficiaries to the trust document, that the will suffices. I say that we need to designate all the beneficiaries in the trust itself and clarify that all the property in the trust, unless specifically designated otherwise, will be inherited equally by our six children and that the will is for designating who gets the red pot or the carpet, etc., that sort of thing. Who’s right? So, one of the really nice things about being an estate planning attorney is that I hardly ever have to weigh in on marital disputes. On this one, though, I’m on your side. As a general rule, a living trust is designed to hold your property that would otherwise be subject to a probate proceeding at the death of the second of you–usually your house and your large brokerage and bank accounts. The assets in that trust pass by the terms of the trust itself. The ‘Trustees can’t follow the instructions in the Will, they have to follow what the trust says.

 The Will, in this scenario, is designed to transfer any assets that you owned at death that weren’t in the trust into the trust at that point. That’s why this Will is often called a ‘pour-over’ Will– like the saucer under a teacup, it picks up the property you’ve left outside of the trust and pours it into the trust (the cup) after your death. Often, too, your tangible personal property (jewelry, furniture, red pot, clothes, etc) are distributed under the terms of the Will, but sometimes these assets also pass into the trust to be distributed there.  So, make the trust the document that contains your wishes for the distribution of your estate, and let the Will just do the cleanup job for you.

How Much Should A Living Trust Cost?

Dear Liza: What is a reasonable amount to pay for a lawyer to do a living trust? Here’s my rule of thumb: you should probably start by assuming that the whole process will take about 10 hours of an attorney’s time. This should include a face-to-face initial meeting to thoroughly discuss your goals, your family situation, and your finanicial assets.  The lawyer should then draft your documents, you should review them, and there should be some back-and-forth over the drafts. Some lawyers do this in a second meeting, some do it by phone or by email. Ultimately, though, you should finalize the language and get back together to sign the documents. Included in my estimate, by the way, is that the attorney will also be preparing a Will, a Durable Power of Attorney for finance, a Health Care Directive, and assist you in transferring your real property into the trust. If you are single, you can reduce the estimate to 8 hours. Since lawyer’s rates vary a lot around the country, just take my ten hours and translate that into the going rate where you live: in Northern California, where I practice, you can spend between $3000 and $5000, but in other parts of the country in could be much less.

Of course, that’s my estimate for something rather straight forward. If you need to do any planning for a child with special needs, or for parents, or have a second marriage, or have complicated assets, it can take longer.