Defined as a legal document that protects loved ones in the event of your incapacity or even death, a trust is created to avoid probate, appoint an individual to manage your assets, and identify who (beneficiaries) will receive those assets upon your death.
Trusts can be a complicated subject to understand. Below is a guide that outlines what a trust provides, the different kinds of trusts, how to set one up, along with some insight into why you need to hire a trust attorney.
What Does a Trust Provide?
Trusts are one of the most important documents in an estate plan as a trust allows you to maintain control over the distribution of the inheritance left to your loved ones and in most cases, allows you to avoid court intervention. This is critical, especially if you have children who are minors, special needs family members, loved ones receiving public benefits, have an elderly parent, or a relative struggling with substance abuse.
Furthermore, creating a trust allows you to create subtrusts that to manage a beneficiaries inheritance subject to the rules set by a Grantor. A typical rule limits distributions to health, education, maintenance, and support. A subtrust can even prohibit an individual from receiving cash directly. Setting up a trust and/or subtrust(s) will help you protect your loved ones when you are not here to do so.
What are the Different Kinds of Trusts a Grantor can Set Up?
A Grantor of a trust is an individual(s) who owns and transfers the assets into a trust that will ultimately be managed by a trustee.
The most common trusts a Grantor can set up are revocable living trusts, which provide the Grantor complete control and flexibility during life and capacity. Below are four of the major types of trusts:
Revocable Living Trust
Typically, revocable trusts are the most common types of trusts. Also referred to as inter vivos trusts, this type of trust is created while you’re alive and easily allows the Grantor to manage (add and remove) assets in the trust throughout his/her lifetime. Setting up a revocable living trust allows you to designate an individual to manage your estate upon your incapacity and death, including designating who will receive your property and how.
This living trust is especially flexible as it can be amended who will receive what assets as circumstances or wishes change. The Grantor retains management of all assets. In setting this trust up, the Grantor will transfer legal titles to homes and bank accounts to the name of the trust. While still maintaining control, the major difference you’ll see is the title of the assets have changed. For example, the bank statement might reflect “John Smith, Trustee of the Smith Family Trust”, instead of “John Smith”.
Unlike revocable living trusts, an irrevocable trust cannot be changed once it has been set up as the Grantor loses control of the assets in order to receive the full tax benefits. There are some circumstances under which irrevocable trusts can be modified but modifications can be difficult and costly in a way that revocable trusts are not. Irrevocable trusts can either be drafted as irrevocable (usually to achieve favorable tax benefits), or are revocable living trusts that have become irrevocable due to the death or incapacity of the Grantor.
Irrevocable trusts are often created to move assets out of the Grantor’s estate, where they have taxable estates. Currently, an individual can leave approximately $11.2MM tax free (and it goes up each year to account for inflation) and can leave an unlimited amount to a spouse, tax free. Anything left above the $11.2MM, not left to a spouse, will be subject to a 40% federal estate tax. Some states also have an additional estate tax, however, California does not.
Revocable trusts become irrevocable upon the death or incapacity of a Grantor. For married couples, the revocable trust can be drafted in different ways. Some provide that on death of the first spouse, a certain portion of money goes into an irrevocable trust. Others provide that the trust is revocable until the second spouse becomes incapacitated or passes away. A trust attorney will make recommendations based on your unique family details.
Unlike living trusts, testamentary trusts don’t go into effect until the death of the Grantor, which means they cannot protect an individual in the event of incapacity. Testamentary trusts are uncommon in California. They are typically made within a will, and the Grantor is able to make changes up until his/her death.
How to Set Up a Trust
The first thing you need to do is meet with an experienced trust attorney. Those with trust litigation experience generally draft better trusts. The attorney will help you determine what type of trust you need. To prepare for your meeting you should:
- Catalog your assets. This includes real estate, financial accounts, and tangible property;
- Select your initial trustee(s), the person in charge of managing the trust. If you’re setting up a revocable trust, this is usually you. If you are elderly or have trouble getting out of the house to manage your finances, you can name a family member or professional fiduciary;
- Select successor trustees. These individuals are named to manage your trust assets and distribute property when you become either incapacitated or pass away. Typically, this person is a spouse, close friend, adult child, or a licensed professional fiduciary. If you have young children, you can specifically list a trustee who can manage their inheritance until they are of an age you choose;
- Identify the beneficiaries and/or heirs who will inherit the trust.
Once the above is established, your trust attorney will go through designing your trust. Once that legal document is finalized, it must be notarized. After that the assets need to be transferred into the trust. That process can include:
- Recording deeds for all real estate property (typically the attorney will prepare the deeds);
- Opening or renaming financial accounts in the name of the trust. Each institution has its own procedures.
Understanding trusts and setting them up is no easy undertaking. Working with a good trust attorney means you can be confident that your trust has been accurately prepared, all assets will go to the right individuals, and it will hold up in court should there be a trust dispute.
What Exactly is a Trust Attorney?
A trust attorney drafts trusts and can aid in that process by giving impartial third-party advice. Your job is to tell the attorney what you want to happen upon your incapacity and death. It is the trust attorney’s job to advise you on the best way to achieve your goal, and to identify potential issues with your wishes. This person can also provide legal help to your successor trustee, though they will need to separately retain the attorney. In some cases, trust attorneys and professional fiduciaries can be appointed to the trustee role. This can be very useful if your estate is large and complex.
Trust attorney is the same as an estate attorney. Their main responsibilities include handling all matters related to probate, incapacity, death, trusts, and estates. These attorneys are generally also familiar with family law, tax law, and business law, in addition to estate planning, but you should ask if you have a particular need for those areas of focus.
Trust attorneys can also draft a will, a legal document outlining your last wishes, financial powers of attorney appointing someone to manage assets outside of your trust in the event of your incapacity, and medical powers of attorneys outlining your wishes during incapacity.
Do You Need a Trust Attorney?
Trusts can be set up for different motivations and purposes. Here are some reasons why you should hire a trust attorney:
1. Would You Like Your Family to Go Through Probate?
No. Probate is a lengthy and costly process. Additionally, probate is a public process where anyone willing to travel to the courthouse can obtain copies of your will and any associated documents. This will only add additional stress for your loved ones during an already challenging time.
2. Do You Want to Set Out Who Will Manage your Assets in the Event of your Incapacity?
Yes. While it might be tough to think about this situation, choosing a trusted individual to carry out your final wishes will give you peace of mind. A trust can ensure that this person is in place and will adhere to your wishes. Failing to appoint an individual can lead to family complications and conflict.
It also results in the need for a conservatorship where family members will petition for appointment but it may not end up being the person you would have chosen. Furthermore, the cost of a conservatorship can be two to ten times as expensive (sometimes more depending on how hard family members want to fight). Conservatorship litigation is never a pleasant experience for any party involved. Do your best to avoid putting your family in that situation.
3. Would You Like to Have Subtrusts to Manage a Beneficiary’s Inheritance?
Probably. Sub-trusts are created to limit distributions. This could be set up for a variety of reasons but the main reason to create subtrust is to protect a beneficiary. This allows you to write the rules for how the money can be spent, who manages it, and at what age the beneficiary can manage it on their own (if ever).
4. Would You Like to Identify Your Beneficiaries and When They Will Receive Inheritance?
Yes. Similar to number three above, a trust is the sacred document that will list out your beneficiaries, what they will receive, when, and how. This allows you to plan the future of your assets along with protecting your beneficiaries from themselves and creditors.
5. Do You Want to Protect Your Family and Your Legacy?
Yes. Setting up a trust is the best way to do so. Without one, your loved ones will jump through hoops to make sure your assets are properly distributed and will receive their inheritance without any of the rules or limitations you might otherwise set for them.
Additionally, a trust can address potential tax implications. While there are no estate taxes in California, there are 40% federal estate taxes if an estate is over $11.2 million.
If any of the above answers resonate with you, we encourage you to meet with a trust attorney in San Diego to guarantee that the right type of trust is set up.
How Much a Does a Trust Attorney Charge?
The fee will depend upon a variety of factors including where you live, how complicated your family situation is, financial circumstances, services provided by the trust attorney, and their experience level. You can also be charged at either an hourly rate or flat fee, it will depend upon the attorney. If you’re looking for a free consultation, contact Kam Law Firm and one of their trust attorneys can assist you.
Plan Ahead With the Best Trust Attorney in California
There’s no time like the present to plan ahead and meet with a trust attorney in San Diego. Creating a trust now will provide an incredibly valuable tool to protect you and your family. Hiring a knowledgeable trust attorney means that you have someone on your side who can guide you through the process, advise you on the intricacies of the law, and draft an effective trust.
In order to find the best trust lawyers in California, we recommend that you do your due diligence and research and interview a few different law firms. In doing so, you’ll find the best lawyer to work with. Be weary of trust mills (they often do radio and tv ads), that take on such high volume of work they don’t have the time to do much customization to your estate plan. This may be cheap up front, but it will cost your family several times over when you become incapacitated or pass away with poorly drafted trust.
Setting up trusts can be complicated, and staying up-to-date on trust law can be time consuming. Knowing what a trust attorney is and how they can help you in this process can be your saving grace. Having many years of experience in trusts and resolving trust disputes, Kam Law Firm will work tirelessly to ensure that you and your family are well protected for the future. For more information about what Kam Law Firm’s trust attorneys can do for you, please call 619-535-1405.