Presentation on theme: "Revocable Living Trusts"— Presentation transcript:
1 Revocable Living Trusts Law Office of David Sarazen879 W. 190th Street, Suite 400Gardena, California 90248(310)Revocable Living TrustsLegal Disclaimer: The following is an educational presentation, not intended to be legal advice. Contact me to discuss your specific estate planning needs
2 Overview Why Establish a Revocable Living Trust How a Trust Works Avoid Probate, Save Taxes, Efficient DistributionHow a Trust WorksThe “Settlor” establishes their Declaration of TrustThe Office of TrusteePower of the Trustee over the Trust EstateDistribution of Trust Assets During Life of the SettlorDistribution of Trust Assets After Death of the SettlorOther Provisions:Spendthrift and Special Needs TrustsEducation FundsDetermination of CapacityNo Contest Clause
3 Why Establish a Revocable Living Trust Avoid Probate!Probate is a court proceeding that the settles the estate of a deceased person. Claims are resolved, debts are paid, and property is distributed to Beneficiaries or HeirsIn California, probate is triggered if you leave an estate exceeding $150,000Probate can be very expensive and time consumingAttorney and Executor fees can run into thousands of dollarsProbate can easily take a year or more to completeAssets owned by a Trust, in Joint Tenancy, or having named Beneficiaries usually avoid probate
4 How a Trust Works You, as the “Settlor,” establish your Trust The Settlor is the Beneficiary of the Trust and has the power to Amend or Revoke the Trust while they are livingNext, you create the “Office of Trustee”You name yourself as the “Initial Trustee”The Trustee is the day-to-day “Manager” of the Trust and has Power, or Control, over Trust assetsYou name the people you trust to be your “Successor Trustee(s)”Your Successor Trustee “steps-up” and takes over control of your Trust ONLY IF you “Fail or Cease to Act,” e.g., Death, Incapacity, or ResignationYou can appoint one Successor who acts alone, or you can appoint two or more that must act together.
5 Powers of the TrusteeThe Trustee has Power granted by the Trust and by lawOpen and close bank accounts; buy or sell securities; purchase or sell real property; deal with insurance companies; incur debts, refinance real property, prepare tax returns, employ advisers, etc.The Trust Estate consists of assets “Owned by the Trust”Realize that when you create and fund a Living Trust, you, as an individual, no longer own those assets – your Trust owns the assets – you avoid probate because you don’t own anything when you die – your Trust owns it all! It’s just that simpleYou control Trust assets for the benefit of the Settlor – which is yourselfIf you become incapacitated, your Successor Trustee controls the trust assets for the benefit of the Settlor. That’s why it’s vitally important that you Trust you Successor Trustee!
6 Distribution During Life of the Settlor The Settlor is the Present Beneficiary of the TrustThe Trustees “job” is to manage the assets owned by the trust for the benefit of the SettlorDistribute Community Property to the SettlorsDistribute Separate Property to the Settlor who contributed such property to the TrustIf the Settlor is incapacitated, the Successor Trustee manages Trust assets for the benefit of the SettlorAgain, make sure you trust your successor trustee!
7 Disclaimer TrustsCommunity property trusts MAY be divided upon the death of the First SettlorDivision of the trust is to avoid or minimize Federal Estate TaxesThe Surviving Settlor “disclaims,” (rather than claims) the deceased Settlors’ share of community property and funds another TrustEach Settlor has an Estate Tax Exemption (Exclusion) amount2011 and 2012 is $5.0 MillionFor example, if the community property estate equaled $6.0 million, the surviving spouse could retain $5.0 million in the Family Trust, and place $1.0 million in the Deceased Spouses “Disclaimer Trust”If the assets of both trusts exceed the exemption, taxes will be assessedIf the total Community Property is less than the estate tax exemptionThere is no need to split the one trust into twoThe entire trust remains REVOCABLE by the Surviving Settlor
8 “A-B” Trusts“A-B” Community property Trusts MUST be divided upon the death of the First SettlorThe “A” Trust remains revocable by the Surviving SettlorThe ”B” Trust becomes IRREVOCABLE – can’t change the terms or beneficiaries but can change the character of assets“A-B” Trusts can be used by “Blended Families” to avoid disinheritanceFor example, where in a second marriage and each spouse has children, the surviving spouse cannot amend, or change, the deceased spouses’ beneficiariesNote that Separate Property trusts may work better in the case of Blended FamiliesThe “B” or “Exemption” Trust is exempt from Federal Estate Taxes up to the Exclusion amount ($5M in 2011 and 2012)
9 Distribution After Death of the Settlor Upon the death of the Settlor (or surviving Settlor), the Trust(s) becomes IrrevocableThe Successor Trustee steps up, or “succeeds” the initial trustee, taking control of all Trust assetsPays debts, taxes, and expenses of Trust administrationDistributes gifts of personal effects if the Settlor left signed and dated instructions (jewelry, automobiles, paintings, etc.)Distributes any Specific Gifts, such as real estate, cash, insurance policiesDistributes the “Residue” of the Trust Estate – whatever is left after all of the above is distributedThe Residue is typically distributed as a percentageYou don’t know when you are going to die, so you don’t know what you will own when you die
10 Contingent Beneficiaries If the Primary Beneficiary is not living upon the death of the Settlor, who inherits?If the primary beneficiary died leaving children, do the children inherit their parent’s share?Or do you want the primary beneficiary’s share to be divided between the remaining “residue” beneficiaries?Maybe you want the deceased beneficiary’s share to go to a church or charity?It’s your decision, not theirsIf all your named beneficiaries are not living when you die, your “Heirs at Law” could become the beneficiaries according to the laws of Intestate Succession
11 Administration and Distribution WHEN do you want your beneficiaries to receive their share?Specify a certain age, such as 21, or make a staged distribution20% upon your death, 20% at age 25, balance at age 30Establish an Education FundIf they don’t go to school they don’t receive any moneyEstablish a Spendthrift TrustIf your beneficiary cannot manage their own financial affairs you can appoint a trustee to manage their affairs for themEstablish a Special Needs TrustFund a Special Needs trust to hold money that supplements, but doesn’t replace, government assistance
12 Other Provisions Determination of Capacity No Contest Clause Most trusts stipulate that only a court of law or licensed physician can determine incapacityIn California, a trustee or Health Care agent, may be able to review your health records for the sole purpose of determining your capacityNo Contest ClauseA no contest clause is used to prevent someone from challenging your expressed wishesIf they attempt to nullify the trust, remove the trustee for acts performed in good faith, object to interpretation, make unsubstantiated claims, etc., they risk being disinherited
13 Other Estate Planning Documents Last Will and Testament (Pour-Over)The beneficiary of your will is your Living TrustIf assets outside of your trust exceed $100,000, they may be subject to probate, after which, you will “pours over” the assets to your trust for distributionDurable Power of AttorneyAppoints an agent to manage assets not owned by your trust if you become incapacitated401K, IRAs and Deferred Compensation Plans cannot be owned by your trustAdvanced Healthcare DirectiveAppoints an agent to make health care decisions for you if you cannotThey have “end-of-life” decision powers
14 Have Questions?Contact me with your specific questions or to set up an appointment to review your estate plan(310)