This is a guest post by Nancy H. Rossi, an estate planning attorney at Nancy Rossi Law in San Mateo.
You do not have to be a Rockefeller or Getty to benefit from a revocable living trust. If you have a net worth of more than $100,000 (the threshold amount which requires a probate), if you own real property or if you have specific instructions on how you want your assets to pass to your children/heirs after you die, then you should consider a trust. So, if you’re a homeowner in the Burlingame, Hillsborough, or San Mateo areas, you might want to consider one. In addition, a husband and wife may use a trust to maximize both of their federal estate tax exemptions.
What is a trust?
A trust is a legal document that holds the title or ownership to your real property and other assets. Although the title is held in the trust, you maintain full control of the property during your lifetime and have the ability to revoke the trust or change any of your decisions at any time. You continue to pay taxes under your social security number and all income and deductions related to the trust assets are reported on your individual tax returns. A trust allows you to name a successor trustee to manage your assets if you become incapacitated or die. This means that if you are incapacitated, the successor trustee can step in and assist you without court supervision. It also means that upon your death, the successor trustee will immediately have the same powers that you had to buy, sell, borrow or transfer the property inside the trust. The trust becomes irrevocable on your death so the trustee cannot change your decisions; however, the trustee can distribute the trust assets in accordance with your instructions without the necessity of a probate.
A probate is the court procedure for taking the decedent’s name (the person who died) off of the title and transferring a clean title to the next owner. A probate can take anywhere from six months to two years and requires court supervision for the transfer of assets, whereas the trust administration can be completed without court involvement within a matter of months. In a probate, the attorneys’ fees and the administrators’ commission are based on a statutory fee schedule that is set by the court. Therefore, legal fees for probating an estate are usually much higher than the fees for administering a trust.
In addition, the probate fees for real property are based on the fair market value of the property on the date of death, rather than the decedent’s net equity in the property. For example, if a property is worth $1 million, but the decedent has a mortgage and only $1,000 in equity, the fees may still be imposed on the full $1 million. Probate fees may be as high as $50,000 for a $1 million property and a court can force a sale of the real property in order to pay the administration fees if there are not other assets available to pay the fees. On the other hand, trustee fees are typically charged on an hourly basis. Additionally, a trustee will have more flexibility to transfer the title to the property to the children/heirs subject to the loan or continue to hold the property for the benefit of the minors until they reach the legal age of majority. The flexibility allows the trustee to time the sale of real property with favorable markets and/or rent the property until a sale is necessary or optimal.
While the initial up-front cost to draft a revocable living trust may seem expensive, the costs are typically far less than the costs and fees associated with a probate. Moreover, the flexibility, greater options and ease of transferring the property without court supervision make the investment in a trust more attractive. If you own real property, consider talking to your attorney about the benefits you may derive from holding your real property in a trust.
This article is intended to provide general information and should not be relied upon as legal advice. You should consult with an attorney about your particular circumstances before taking any action.