Do I need a living trust in California? My partner Jay came across an article in Kiplinger’s personal finance magazine entitled “Why You Don’t Need a Living Trust”. After reading the article I sent an email to the appropriate department lambasting them for writing such an irresponsible and misrepresented piece.
The most shocking part was the writer relied on information from a project advisor with the AARP. Seriously? A project advisor. Who the heck is that? A non-attorney, non-qualified and untrained person providing information on very detailed, complex, questions of estate tax law, estate planning and financial planning. Why not just do brain surgery with a mallet. In our industry parlance, we call that practicing law without a license. That’s illegal.
So what’s the scoop for those now questioning: Well, do I really need a trust? The short answer is yes, unless you like probate, taxes, families torn apart and litigation.
If you own real property in California you cannot transfer that real property after death without going through probate unless you have a trust. Now an exception of course is joint tenancy. This means that at death your real estate will automatically pass to the person you named as a joint tenant. I know what you are thinking. What’s wrong with that? How about taxes. In joint tenancy when you go to sell the property one person can get stuck paying taxes. How about unequal distribution of wealth in unintended ways? What happens if one of several joint tenants passes away. Their ownership is lost completely. How about the failure of heirs to agree regarding the sale of the real estate. One wants to keep it. Another wants to sell it. What about rents. That’s a recipe for disaster. All that you have worked for and wanted in life can be ruined because of one simple failure in writing on a deed. A Trust gives you the opportunity to be clear on what you want and it also provides the Trustee, who is the person managing the assets of the Trust to make decisions such as whether to sell the property and distribute the cash instead or even facilitate a buy-out by other family members.
Another problem with not having a Trust are assets such as bank accounts or even life insurance. Many times clients will go into the bank and the bank teller says, why don’t you just make this a pay on death account meaning it pays to a beneficiary after your death. Ooops. Practicing law without a license. Let’s say in your Trust you decided that your children should only receive some of your property and at different ages. That doesn’t happen with a pay on death account or life insurance or even IRA’s. In fact, that money will go directly to the person you put on the account, Do Not Pass Go, Do Not Go according to the Trust. So now, you have one set of instructions in one place and another set of instructions in another place which are inconsistent because untrained people want to give advice. They shouldn’t.
Estate Planning even with the 5 million dollar protection form estate tax is more complicated than ever because we are dealing with family dynamics and relationships. Feelings, emotions and rivalries over a long period of time like the genie in the bottle just waiting to explode. And they do. When the glue i.e. the parents pass away and no planning, vision and purpose is communicated by the family to the family ahead of time the long festering sibling rivalries use the stage of the courtroom to play out their deep seated anger.
There may be some situations where a Trust is not truly warranted but those situations are rare in our experience. At the very least it requires proper understanding and planning with a trained professional i.e. the estate planning attorney to make sure that there is consistency in the plan and proper legal documents to make sure the plan will work. The next time you hear it from a friend who heard it from a neighbor please take the time and even the money to contact a good estate planning attorney who can guide you correctly. As they say, an ounce of prevention for a pound of cure or as the old automobile commercial, pay me now or pay me later. Either way.
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