Compelling Reasons Why Your California Estate Plan Should Include a Living Trust

Estate planning is a crucial aspect in ensuring that your assets are distributed according to your wishes after your passing (we hope that our beneficiaries and heirs don’t end up fighting in court anyway!). But estate planning also involves the important aspect of lifetime incapacity planning, too. In California, as in many other places in the US, a living trust is the “rock” of the estate plan, a powerful tool that can offer numerous advantages over a traditional will and California probate. A living trust (also known as a revocable living trust or RLT) allows you to manage your trust assets during your life and while you have capacity, and to designate a Successor Trustee to manage and distribute your assets without court involvement upon your passing, while providing privacy and tax flexibility. Here are a few quick reasons that demonstrate why establishing a living trust in California is a wise decision.

A (Funded) Living Trust Avoids California Probate

One of the primary reasons individuals in California opt for a living trust is to bypass the probate process. Probate is the legal procedure by which a court oversees the entire process of distributing to a deceased person’s proper heirs the deceased person’s assets. The process varies depending on whether the deceased individual had a will (dying “testate”) or not (dealing with an “intestate estate” under California “intestacy” law). 

California probate can take many months, and often more than a year. However, California allows varying types of probates, depending on the circumstances (i.e., a Spousal Property Petition, Petition to Determine Succession to Real Property, etc.).  Probate is often expensive, too: California law determines the executor’s fee and the probate attorney’s fee based on a flat percentage of the value of the probate assets.  In a $1,000,000 probate, the total fee to be paid to the executor (also referred to as a personal representative or administrator) and the probate attorney can near $50,000.  In many instances, the cost of creating a living trust and altogether avoiding probate is a much, much less expensive plan and allows you to pass on to your loved ones more of your property!

A key aspect of a living trust is to ensure that your assets (property) is transferred to, or titled to, your trust. Some folks fear that retitling their checking account to their living trust will “complicate” their taxes, confuse bankers, and “mess up” their life. That is false. 

Funding your trust is not the end of the world (not even close); this is what ensures that your property is no longer considered “probate property,” and is the main reason (or one of the main reasons) why you’re creating a living trust! Your tax return won’t change. You won’t have to give a copy of your trust to the credit card company or home utility company. 

As a result of funding your trust, your designated Successor Trustee can distribute these assets to your beneficiaries after your passing without the need for court approval. While the Successor Trustee will have work to do, the process is almost always faster than it would be in probate. Camarillo estate planning attorney Ryan J. Casson can walk you through the process of creating and funding your California revocable living trust.

Privacy Protection

In California, probate proceedings are a matter of public record. This means that anyone can access information regarding the types and amounts of your assets to be distributed, the identities of your beneficiaries, and the terms of your will. If you value privacy and wish to keep the details of your estate plan confidential, a living trust may be an ideal solution.

A living trust operates outside the probate court, offering a privacy wall for you and your beneficiaries. The trust document remains private, and the transfer of assets to beneficiaries occurs without the prying eyes of the public. This confidentiality can have particular importance for individuals with larger estates, business interests, or complex family dynamics. While it is true that a few of the “big banks” claim that their “policies” require you to give them a copy of the entire trust, this is not always the case; and in any event, even if you do have to give a copy of the trust to a bank or other financial institution, it is a far cry from having your will on file in the local courthouse where anyone can go and request a copy.

By maintaining the privacy of your estate plan, you protect your family from potential disputes and external interference. This added layer of confidentiality can also be advantageous in safeguarding the financial details of your beneficiaries, reducing the risk of identity theft or fraud.

Incapacity Planning

A comprehensive living trust will address not only postmortem matters but also lifetime incapacity planning: what is to happen if and when you become incapacitated.  Without a living trust that addresses incapacity (and appropriate powers of attorney for finances and health care), you run the risk of ending up in a “living probate!”

With a living trust, you can designate an incapacity trustee, who often is the Successor Death Trustee.  This means that the individual you appoint to handle your trust and affairs after your passing can also manage your trust in the event you become incapacitated, and will have a good handle on your affairs in the event that your incapacity results in death.

In California, if you become incapacitated without a living trust (or powers of attorney), the court may appoint a conservator to make decisions on your behalf. This process can be intrusive, lengthy, and expensive. With a living trust, though, the incapacity trustee (Successor Trustee) you appoint accepts his or her designated role and, in essence, becomes you: managing your trust assets, paying bills, and acting as a fiduciary in your best interests, without the need for court involvement.

Your living trust will outline your wishes during your incapacity, and after your passing, provides clear guidance to your loved ones during a time when they may find it challenging to make otherwise difficult financial choices for you. For instance, your living trust can provide that, if you become incapacitated, your trustee will not have any authority to make gifts to others. Your living trust will also define what it means to be incapacitated and who the next Successor Trustee will be in the event that your first choice  is unable to fulfill the role.

An important practical point is that, if all of your property is titled to your revocable living trust, your power of attorney may not need to do much of anything, as the trustee of your living trust will be handling all of your affairs. In many instances, the power of attorney lineup and the trustee lineup will be identical, but this does not have to be the case. You could designate a professional (corporate) Successor Trustee, too. These are questions that you will want to discuss with your California estate planning attorney.

Estate Tax Planning Flexibility

With married couples in California, potential estate tax planning can always be addressed in a thorough joint living trust (it is common practice to utilize a “joint” living trust (one trust document) for married California couples). While a full overview of federal estate tax planning is well beyond the purposes of this article, the point is that a married couple’s joint living trust can have estate tax planning flexibility built in to it.

One important decision that Camarillo estate planning attorney Ryan J. Casson can discuss with you is the crucial question of what is to happen when the first of the two of you passes away: will the deceased trustmaker’s 1/2 interest in the Community Property (and any Separate Property that they owned in the trust) pass to the remaining trustmaker in a revocable trust that the living trustmaker can amend and revoke, or an irrevocable trust that can provide for the living trustmaker during the remainder of their life, but cannot be altered? (This is often all addressed in one trust document, if you can believe it!)

Depending on your answer to that question (whether the first deceased trustmaker will exert "control from the grave"), the value of trust property can be included in or excluded from the value of the estate of the remaining trustmaker. If your combined estate nears the federal estate tax "coupon" limit (the threshold amount at which Uncle Sam imposes on the entirety of the decedent's estate a federal death tax), your choices regarding what is to happen when the first of you passes is, from a federal estate tax point of view, very important.

The estate tax planning world is fraught with acronyms and legalese (DSUE, QTIP, Credit Shelter Trust, and Marital Deduction, to name a few), but the California estate planning Law Office of Ryan J. Casson, located in Ventura County, will take the time to ensure you understand the gist of the “what” and “why,” and boil things down to clear, concise choices based on your individual circumstances.

And as tax law is always changing, it is always a good idea to have your California estate planning attorney review your trust and your current objectives every few years.

Interfamily Asset Protection Planning Opportunities

As noted above, when a married couple engages in the estate planning process, care must be given in determining whether the couple’s property is Community Property or whether part of the couple’s property may be the Separate Property of one or the other (i.e., property one acquires before a marriage or that one inherits during a marriage is, in general, that individual’s Separate Property). We noted that the couple's choice as to what is to occur when the first of them dies may carry estate tax consequences (by increasing or decreasing the value of the estate of the remaining trustmaker). There may be income tax issues, too.

However, the importance of navigating this thought process is all the more important in blended families. Intrafamily asset protection involves planning for what is to happen to one trustmaker's trust property (their 1/2 interest in the Community Property and any Separate Property that individual may own in the trust). Should it pass to the remaining trustmaker, with that individual retaining the authority to disinherit the predeceased trustmaker's children from a prior relationship? Some couples may find themselves facing this issue, while others may find it less important. 

What is important is that your California estate planning attorney take the time to help you think about this issue and related issues. The point is that, while it may not be prudent to let tax objectives wag the estate planning dog, tax objectives are related to ensuring that, in a blended family, the couple's assets go to the beneficiaries the respective owners desire, and in the desired amounts. Camarillo estate planning attorney Ryan J. Casson can help you navigate estate planning in the blended family context and this component of asset protection that can be called interfamily asset protection.

Interfamily asset protection may also involve considering your beneficiaries’ potential, future creditor problems. What if your child is a beneficiary of your trust and, after your passing, gets divorced or faces a lawsuit related to a car accident or professional negligence? As explained in this article, building into your living trust an Independent Trustee Discretionary Spendthrift Trust to hold the beneficiary's inheritance interest may provide the potential interfamily asset protection you’re looking for (maximizing the likelihood that your property does not end up in the hands of a beneficiary’s creditors) and may better protect and preserve your assets than if the beneficiary were permitted to act as their own trustee. At the Law Office of Ryan J. Casson, these concepts and any questions that you may have can be addressed in detail, and Camarillo estate planning attorney Ryan J. Casson can walk you through the pros and cons as they exist based on your circumstances.

Conclusion: A California Living Trust is Critical to a California Estate Plan

Establishing a living trust in California is an easy and prudent step toward ensuring the efficient, private transfer of your assets. By avoiding probate, protecting your privacy, planning for incapacity, and having the opportunity to build in estate tax flexibility and asset protection, a living trust offers a comprehensive solution to the complexities of estate planning. Yet there may be additional benefits that are not addressed in this article! As the legal landscape evolves, consulting with an experienced California estate planning attorney is crucial to crafting a living trust that aligns with your unique needs and circumstances. In the end, a living trust empowers you to have greater control over the distribution of your assets and provides peace of mind for both you and your loved ones.