Many young couples that reach out to me about estate planning are looking for a will. “We don’t have much of an estate, and it’s pretty simple” they say. And so we go through this list of reasons they might actually be in the market for a living trust as part of their plan, or why not.
In general, you need a trust if any of the following are true: (1) You own assets valued over your state’s probate threshold amount, (2) you want to keep the details of your estate plan private, (3) you own real property in multiple states, (4) you own real property at all, or (5) you want to maintain control over your child’s inheritance.
You own assets over the probate threshold
Many people opt to execute a living trust in order to avoid probate, which is the long, often frustrating court process that occurs when someone dies and leaves an estate worth a certain amount of money- in California, $166,250 or more.
What is included in that $166,250? It’s not just anything you own. It only counts assets that are in your name and that don’t have a surviving owner or beneficiary. As such, the following won’t be included:
- jointly held accounts or real property with rights of survivorship, where the other joint owner(s) survives you
- any accounts that have a designated beneficiary that survives you, such as a POD (payable on death) bank account or a retirement account.
By the way, if your estate ends up smaller than $162,500 at your death, you don’t need a trust to avoid probate. Instead, your beneficiaries (as written in your will) or natural heirs (if there is no will) can complete and submit a document called a small estate affidavit to the various institutions where you held accounts in order to get any funds released.
If you do have more than $162,500, you can ensure your estate avoids probate by transferring your assets into a living trust so that your trust actually owns those assets instead of you individually. The trust document says who the successor trustee is in the event of your death and that person can access trust accounts and other assets without needing authorization from the court.
You want to keep the details of your estate private
If an estate goes through probate, most of the documents filed to the court become public record and can be viewed by anyone who cares to take a look. This includes the petition for probate and the will, if there is one, which states who gets what, and–most importantly to some people–the inventory of the estate. This is how journalists can easily “expose” the detail of certain celebrities’ estates when they die and don’t do proper estate planning.
While you might not be a celebrity, per se, you still might not want the details of your estate to be public knowledge or to be easily obtained by certain family members or friends.
One thing to note is that even if you do have a trust, your natural heirs are still legally entitled to see a copy of it (at least in California). Your natural heirs are defined under intestate succession, and start with your children, then grandchildren, then parents, then siblings, etc, until a living individual is found at any given level. So your children will be entitled to see a copy of your trust even if you “disinherit them” in it. Or let’s say you don’t have descendants or living parents–your estranged sister would be entitled to see a copy as your natural heir.
You own real property in multiple states
This is actually one of the best reasons to execute a living trust– so that it can hold all of your real property you have across state lines and help your loved ones avoid having to open probates in multiple places at once!
So, if you own a home in Los Angeles but you also have a vacation home in Las Vegas, you’ll want to create a trust so that when you die, your successor trustee can easily manage both properties and they won’t have to go out to Vegas to go to court or hire a Nevada attorney to open the ancillary probate in addition to the California one. In the end, having both properties in trust will save everyone a huge hassle, and will save the estate (and ultimately, your beneficiaries) a lot of money.
You own real property, period.
Even if you don’t own homes in multiple states, this is one of my own personal rules because by definition if you own real property in a state like California, or really anywhere else where your property will be above the probate threshold discussed above, you’ll need a trust to avoid probate.
Probate gets very expensive when real property is involved, especially since the court doesn’t look at any debt. What matters is the fair market value, not the decedent’s equity in the home. And probate fees that go to your attorney and to your court-appointed personal representative are based on a percentage of the fair market value of your estate.
You also really, really don’t want to have to go through probate when you have real property to manage. Besides the cost, another big downside to probate is the delay in access to estate assets. Sometimes it can take months for the personal representative to be granted the legal authority to act on behalf of the estate, and meanwhile there are mortgage payments, overdue utility bills, squatters, banks threatening foreclosure, etc. It’s a mess. Do yourself and your loved ones a huge favor and put your house in a trust.
You want to maintain control over your child’s inheritance
This is the one reason to have a trust that doesn’t have to do with avoiding probate, although it is about avoiding court involvement down the road.
To put it simply, if a minor child receives an inheritance outside of a trust, any adult can petition the court and be appointed as a legal guardian of that child’s estate to manage those funds until the minor turns eighteen, at which point the kid gets whatever is left outright. During the child’s minority, the guardian will have to submit an accounting every other year to the court and is subject to the court’s oversight. As soon as the child turns eighteen, the guardianship terminates and the money belongs to the child to do whatever they want with it.
Do you want to have a say in who manages your child’s money, what the money is used for, and at what age your child should get control of it? If so, you definitely want to consider establishing a trust for the benefit of that child instead of just leaving money for them without a proper plan.
The only caveat here is that you don’t actually need to establish a trust for the benefit of your child in your own trust, although that is usually recommended. You can actually establish what’s called a testamentary trust for the benefit of your child in a will, too. So if nothing else, even if you don’t create a living trust for yourself which includes trusts for your kids, make sure you have testamentary trusts for them in your will.
