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Why should you consider a living trust?

Written by Judy Lei Li, Esq.

As a well-recognized wealth transfer planning tool, living trusts have been popular in the United States for decades, and have substituted traditional wills in many aspects. Especially in California, whether you are a middle-class family or a high-net-worth individual, it is always appropriate or even necessary to have a living trust for your family.

First, a living trust can avoid the probate in court. If you do not have a trust, your heirs would have to go to the California probate court before they inherit your estate, even if you have a will. Currently, the probate process in California could take two years to complete. In addition, the probate costs can be very high, probably accounting for 3-5% of the gross value of your assets (not net value). For example, if you have a house at the fair market value of $1 million with a mortgage of $800,000, then the probate costs including the attorney’s fees could be added up to $20,000-$30,000, because the probate attorney’s fee is calculated based on the fair market value of the property, and the mortgage amount will NOT be deducted. This is the statutory fee standard, and all law firms charge the same fees. During the probate, your heirs could not utilize your assets at their will, and all the activities are supervised by the court. Further, all your family assets will be disclosed to the court and become public records. It might attract financial predators to target your heirs.

Secondly, a living trust is relatively safer than a will in terms of wealth transfer. The trust documents do not need to be registered with the government and would not be made public. Your trust will take effect after you sign it, and you can transfer your property into your trust accordingly. By doing that, your house is owned by your trust and the trust’s name will appear on the grant deeds. Likewise, your financial accounts such as bank accounts, stocks or bonds accounts can also be owned by the trust. Hence, although people might not know the specific content of your trust documents, the fact that the trust already exists cannot be hidden. Moreover, after the property is funded into the revocable trust, you can manage the trust property on your own. The act of managing the trust itself could also indicate that creation of the living trust is your true intent, so it is very difficult for others to deny the existence of the trust in court during your incapacity or after your death. Your trust is still effective after your death and the distribution of the assets will be carried out according to the terms of the trust without court intervention. By creating your living trust, you can keep control of your estate even after your death. This is the power of the living trusts.

A will, on the contrary, is a testamentary document which will be only effective after your death. You could not do anything to control the execution of your will after your death. Your will may be lost, deliberately concealed or tampered if someone is not happy with the terms of your will. How California courts interpret the contents of your will is also uncertain. This would incur many problems to your wealth transfer.

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