If you’re a homeowner in California, regardless of the amount you might owe on your property, you need to make sure your home is in a trust. By creating a trust and properly funding it, you can ensure that your home isn’t tied up in probate upon your death and that your chosen trusted agents can efficiently and cost-effectively handle your affairs. In this article, we’ll discuss the top five reasons why having a trust in place for your California home is essential.
1. Avoiding Probate and Time Delays
One of the primary benefits of having a trust is to avoid the lengthy and often expensive probate process. Probate is a court-supervised process of distributing a deceased person’s assets, which can tie up your property for months or even years. By placing your home in a trust, you can bypass probate altogether, ensuring a smooth transfer of ownership to your chosen beneficiaries and saving them from the burden of navigating the complex legal system.
2. Cost Savings and Efficiency
Probate proceedings involve various expenses, including court fees, attorney fees, personal representative fees, publication and bond fees, and appraisal costs. Attorney and personal representative fees are based on a percentage of the estate’s value, and in California, they can be substantial depending on the market value of your estate:
Let’s calculate the probate fees on a $1,000,000 home:
4% of the first $100,000 = $4,000; plus
3% of the next $100,000 = $3,000; plus
2% of the next $800,000 = $16,000; plus
1% of the next $9,000,000 = $0.
$4,000 + $3,000 + $16,000 is a total of $23,000 going to your attorney, just for ordinary legal fees!
Also – it does not matter if you still have a substantial mortgage on your home. The calculation is based on the market value. So, if you have a million-dollar home but owe $900,000, guess what: You have a million-dollar home.
Your appointed personal representative (executor or administrator) is entitled to the same amount as your attorney. Which is a total of $46,000 in fees. Please note that although this might seem outrageous, probate really is a lot of work, for both the attorney and the personal representative, so they really do earn that fee.
By contrast, establishing a trust incurs upfront costs, but these are often significantly lower than the expenses associated with probate. Moreover, the efficiency of trust administration allows for a quicker distribution of assets, saving your loved ones time and reducing overall costs.
3. Control and Flexibility
A trust allows you to retain control over your property while defining specific instructions for its management and distribution after your passing. You can designate a trusted individual or institution as the trustee, who will handle the trust’s affairs according to your wishes. This intentionality and flexibility enables you to provide for your spouse and children, safeguarding their financial security and ensuring that your property is protected from potential creditors, divorces, or mismanagement. At the end of the day, if you don’t make a distribution plan in your trust (or even in a will), California law controls who gets what, and the unintended consequences might be devastating to your spouse or children.
4. Privacy and Confidentiality
Probate proceedings are a matter of public record, meaning that anyone can access information about your estate, beneficiaries, and assets. By establishing a trust, you can maintain privacy and confidentiality since trust documents are generally not made public. This added layer of discretion can be particularly important for individuals concerned about their family’s safety, reputation, or those who value their privacy. One misconception, however, is that your trust can be kept from your legal heirs – this isn’t true. So just know that if you decide to disinherit a child, that child will definitely be seeing a copy of it.
5. Incapacity Planning
A trust can also provide protection and guidance in the event of your incapacity. By setting up a revocable living trust, you can name a successor trustee who will take over the management of your property if you become unable to do so yourself. This ensures that your affairs are managed efficiently, reducing the likelihood of court-appointed conservatorships and associated costs.
Owning a home in California warrants serious consideration of establishing a trust. If you are interested in setting up a trust for your family and peace of mind, feel free to reach out to me at kaitlin@sunset.legal or book a call at www.sunset.legal to find out more about my estate planning process for legal clients. I’m happy to find a referral for you if you are in a different state!
