Living Trusts are great tools to avoid probate in Los Angeles. Many people inadvertently refer to them as living wills. Living Wills are not the same as living trusts. Living Wills generally give instructions regarding a person’s wishes regarding life support. Living Trusts, on the other hand, give instructions as to how to manage and distribute the assets of the trust estate upon death, and in the event of incapacity.
Cost saving is the number one reason why people form trusts. Most people want their loved ones to avoid the heavy cost of probate. By setting up a living trust, the assets which are in the trust escape probate.
Not all assets go through probate. In California, the first $150,000 of assets does not require probate. Assets that pass by contract also are not required to be distributed via probate. Example of assets that pass solely by contract are: 1) Pay on Death accounts; 2) IRA accounts with beneficiaries; 3) Life insurances with beneficiary designations; and 4) Assets that are in a living trust.
A living trust is considered a contract for management and distribution of the assets. In fact, when the courts look to see if the creator of the trust (called grantor or trustor) had capacity to create the trust, they look at contractual capacity. Contractual capacity requires an understanding of the action and the consequences of the action or forming the contract or trust.
While most living trusts escape the court system, there are times when a living trust may end up in court. Some examples of when trusts go through the probate court are: 1) when there is a dispute about the interpretation of terms of the trust; 2) when there is a dispute about actions of the trustee; and 3) when there are disputes about the validity of the trust or an amendment to the trust; and 4) when there are disputes about whether a property belongs to the trust or to another individual.
Living Trusts are also intended to avoid conservatorship in most cases. As an alternative to conservatorship, a living trust is also a contract for management of the trust assets of the creator of the trust, if the grantor or creator of the trust becomes incapacitated or disabled to an extent that he or she cannot manage the trust estate assets. Most trusts include provisions as to how to determine if the trustee has become incapacitated, and set forth standards for determining the incapacity. For example, most trusts require that two doctors certify that the trustor or trustee is unable to manage the assets of the trust. The standard is pretty flexible, and the drafting attorney can make the standard more relaxed or more formalized.
How much money does a trust save for the families who have them? You can compare the cost of distributing a trust or the cost of probate by comparing the average statutory fees in probate of 3% v. the general cost of trust administration which can be about 1%. Of course the costs of administering trusts also vary depending on the complexity of the trust, and the percentages above do not take into consideration, any litigation.
Another benefit of having a living trust is the speed with which trust asset assets or trust estate can be distributed to the beneficiaries. In general, an average trust without litigation and without estate taxes can be distributed within 5 months. The average time to administer probate, on the other hand, in Los Angeles is about 12 months.
Call Living Trust expert Mina Sirkin at 818.340.4479 in Los Angeles County.