Why Create a Trust?
Traditionally, when a person dies, their assets are entered into probate, in anticipation of the distribution of those assets among those that are named in the person’s will. In probate, the court receives the will and designates an executor who liquidates or distributes the person’s assets. This process can take months. In the meantime, family members can challenge the “fairness” of the distribution and delay the final distribution. Sometimes the probate process can be lengthy and ugly.
When a person creates a Trust, the assets in question are owned by the Trust. In essence, the Trust’s assets don’t have to be liquidated, distributed, or sold. They can be owned and maintained by the trust for the beneficiaries of the trust, usually family members. In this way, the family does not suffer from the contentious process of probate.
California Revocable Trusts (Living Trust)
With the new tax law and some of the new estate tax provisions, many individuals may find themselves asking if they still need a revocable living trust.
One of the main reasons to have a trust as a part of your estate plan is to avoid probate. In California, if your estate is worth more than $150,000, your estate is subject to probate. If your estate is worth less than $150,000, there are simplified probate procedures.
A trust, that your attorney assists you to properly fund, can help you to avoid probate.
The estate tax exemption in 2018 is $11,180,000 per individual, and spouses can still elect portability. Portability allows a surviving spouse to use any unused part of the deceased spouse’s estate tax exemption. Accordingly, there is up to $22,360,000 of estate tax exemption available for married couples in 2018. While the estate tax exemption has gone up under the new tax laws, that does not mean an estate plan and trust are no longer helpful.
A trust gives directions to the trustee about how to allocate assets upon the death of the first spouse. For some married couples, leaving everything to the surviving spouse has potential income tax benefits. For other married couples, especially those with children from prior relationships, there may be good reasons to separate some assets into a separate trust on the death of the first spouse.
There is no one situation that is right for everyone. Your attorney can assist you in drafting a trust that is customized to your family’s needs.
Providing Guidance to Your Family
Lastly, a trust can help you to avoid chaos in your family upon your passing by giving your family members and beneficiaries and guidance about what to do with your estate.
Although initially meeting with an attorney and working through the process of obtaining a trust, can initially be time-consuming, it will give you peace of mind and help you successfully pass along your legacy to your loved ones.
California Irrevocable Trusts
Irrevocable trusts can help to provide long-term asset management. Although irrevocable trusts are not suitable for everyone, they can be an important estate planning tool for some.
While irrevocable trusts are by title inflexible, some states, including California, allow for modifications to an irrevocable trust in some situations.
Irrevocable trusts can be helpful for individuals with taxable estates, those who do not want additional personal income for tax reasons, and they also help to avoid probate.
Irrevocable trusts can also provide creditor protection. Once your assets are transferred to an irrevocable trust, they are no longer considered yours.
The ownership interest left to the beneficiary of the trust must be contingent on some future event or subject to the sole discretion of the trustee. Also, a “spendthrift” provision can be used which prevents creditors from making a claim against the beneficiary’s interest, as long as the assets remain in the trust.
But be warned, in March 2017, the California Supreme Court held that a bankruptcy trustee could seize the property of an irrevocable trust, notwithstanding a spendthrift provision, once “principal” becomes due and payable to the beneficiary/debtor. Carmack v. Reynolds, 2017 Cal. LEXIS 2429 (2017).
If you have concerns about creditor protection, it is important to speak with an estate planning attorney who is knowledgeable of the laws, including case law.
One type of irrevocable trust is a life insurance trust which can provide creditor protection and estate tax benefits. There are also other irrevocable trusts, split-interest trusts, like charitable remainder trusts – this type of trust pays an annuity to a beneficiary for a term of years and the remainder goes to a charity. This is only one type of split-interest trusts, and an estate planning attorney can discuss all your options with you.
Irrevocable trusts can be modified in California under certain circumstances. An estate planning attorney can discuss your options with you if you believe you may need to modify an already existing irrevocable trust.
Mendes Weed, LLP is here to help you if you have any questions.
When Is Your Trust Taxable in California?
Generally, a trust is taxable in California if a fiduciary or beneficiary (other than a contingent beneficiary) is a resident of California under California Revenue and Taxation Code 17742. This is true even if the original settlor was not a resident of California....
Why Won’t the Trustee Make a Distribution and Pay Me What I Am Entitled to?
Pursuant to Probate Code Section 16061.7, the trustee of a trust must distribute copies of the trust to all trust beneficiaries within 60 days. The Notice must identify: the settlor or settlors and the date of the trust instrument; the name, mailing address, and...
Is an Irrevocable Trust Really Irrevocable?
While irrevocable trusts tend to make some grantors uneasy, as they associate an irrevocable trust with words such as irreversible, final, and unalterable, the truth is, it is possible in some instances to revoke an irrevocable trust. Cases to Support an Irrevocable...
[Video] Modifying an Irrevocable Trust
https://youtu.be/wigBj9NLStc At the Mendes Weed, LLP we aim to provide answers to some of your more sought after questions. Our last video discussed how to modify a revocable living trust. Today, I’m going to cover a few ways that you might be able to modify a trust...
[Video] Revoking a California Will or Trust
https://www.youtube.com/watch?v=d3aO7hnIDZE In California, a will can be revoked by a new will that specifically revokes the old one, or by destroying the will by physical act. A physical act can include burning, tearing, canceling, obliterating or destroying the...
Estate Planning Tips: Sweetheart Trusts & Your Spouse’s Future
While exploring your options for estate planning, you may have heard the term Sweetheart Trust. The name has a nice ring to it, and these kinds of trusts are great for couples thinking about their own future in addition to their loved ones’ futures. Let’s take a quick...
Why Should I Update My Trust? Tips from the Estate-Planning Attorney
As a trusted Estate-Planning Attorney in Walnut Creek, I spend a lot of time talking to my clients about trusts. You worked very hard for your assets, and it’s crucial that you take the time to designate how you want your assets designated to your beneficiaries....
Estate Planning Tips: How to Modify an Irrevocable Trust
Trusts ensure a secure future for an individual’s family and loved ones. While trusts are geared toward building a secure future in the long term, sometimes laws change and a trust becomes less relevant to modern needs. In that case, trustees may need to modify the...
California Trust and Estate Law Specialist
Partner Christina Weed has years helping people with their estate plans and trusts. She is a licensed attorney with an LL.M. in Taxation from the University of San Diego and a Bachelor’s Degree in Accountancy. She serves as Chair of the Tax Section of the Contra Costa County Bar Association and is also a member of the Estate Planning Council Diablo Valley and the Tri-Valley Estate Planning Council.
Christina has been designated a Certified Specialist in Taxation by the State Bar of California.