So what is a trust, do I need one, and any other questions related to that. That’s what we’re going to talk about in this video right now.
Hi again. I’m Pantea Fozouni with Palm Desert Law Group, and last week we talked about the basics of estate planning in terms of what are the documents that every adult needs. Just to recap, we talked about advanced healthcare directives, we talked about powers of attorney, and we talked about a basic will. But I also mentioned that if you have any type of assets, if you have a house, if you have retirement accounts, bank accounts, any significant assets, then it’s actually important not just to have just those bare basic documents, but also to consider whether or not you need to create a trust as well.
What is a Trust?
Trusts are great things. The primary benefit of a trust is to avoid probate. Now, some people know what probate is, a lot of people don’t. A lot of people, all they know about it is that it’s bad and we want to avoid it. I have to say for most people, I totally agree. I want to tell you quickly about probate. Then we’ll go back into trust, because you have to understand why we want to avoid probate so you understand what the benefits of the trust are.
Now basically, probate is the legal process your assets have to go through when you die with those assets still titled in your name. Now, during our lifetimes, it’s super easy to transfer property, right? If we’re selling a house, we have a grant deed, we sign, it belongs to someone else. If we’re selling our car, it’s the same thing. We sign on the pink slip, we transfer it. Other, we can give items away, we can donate, we can burn, we can do whatever we want during our lifetimes, but once we die, we no longer have that ability. So instead, over many years, a couple of hundreds of years, lawyers have come up with a very complicated system and way to make sure that we can pass on our assets. That system is really designed to protect creditors. It’s not about protecting your beneficiaries.
Three Things I Hate About Probate
1. Probe processes are slow
The first is that it is really slow. Here in California, it takes a minimum of about 12 to 16 months to go through the probate system. That’s when it’s easy peasy, no conflict, no issues, at all. Of course, you can imagine, if there’s any type of conflict that could easily stretch out to years.
2. Probate processes are expensive
The second thing is that it’s really expensive. Now, it’s not as bad as a lot of people think. Some people think it’s 50% or 40% of your estate just goes. It’s not that bad, but we estimate it’s about 5% of your probate estate. Okay, so 5%, it’s not that bad, definitely not compared to 50 or whatever. But if you think about it, if you a million dollar estate, that could be as simple as a house that’s 500,000, by the way, it doesn’t matter if it’s been paid off or not. It’s the fair market value of the house. You can have some bank accounts, you can have some investment accounts, couple cars, vehicles. It’s very easy to get to that number. If we’re talking a million dollars, we’re talking about $50,000 in costs alone, and those costs are things that are set by law. It’s statutory attorney’s fees that are non negotiable, it’s fees for executors, court costs, appraiser’s fees, bond fees, so on. If we’re talking $500,000 estate, which is super easy, we’re talking $25,000 in costs that’s voluntary. Why? Because you are choosing to go through it by not doing any other type of planning.
3. probate processes are public processes
The third is that probate is a completely public process. People can find out what you owned when you died, who’s going to inherit from you, when they’re going to inherit from you, what they’re going to inherit from you, and unfortunately there are people out there who, really, that’s what they do. They look for vulnerable people. Who are the vulnerable people? Those who are really, really old and those who are really, really young. Our parents who are going to be inheriting, our grandparents, our kids, those are the really vulnerable populations. If you’ve got minor kids and something happens to you while they’re still minors, the moment they become 18, they’re going to get their entire inheritance from you outright without any type of supervision. I don’t know about you, but the idea of my 10-year-old inheriting everything my husband and I own the second she turns 18, terrifies me. Again, it’s really, really easy to avoid.
Now that we know a probate is, you’ve got a little taste of that and why it’s awful. Now we can talk about What is a trust.
What is a Trust?
With trust, the beautiful thing about it is that you can avoid all of those bad things. It can go as fast or as slow as the person you pick wants it to go. Instead of it costing 5%, so whatever that 5% is for your estate, it’s typically a few thousand dollars for a foundational estate plan that includes a trust but saves your family tens, if not hundreds, of thousands as well as the time and everything else we talked about. And instead of it being completely public, it can be settled in the privacy of your attorney’s office. If you’ve got a really, really good CPA, but I definitely recommended attorney. It can be done that way.
The Reason I LOVE Trusts
Those are the reasons why I love trusts. There’s also a lot of really great wrinkles we can do. We can make sure that your beneficiaries don’t inherit everything when they’re 18. We can pick different ages for them to start inheriting pieces of their inheritance. Plus, we can do something that’s even better. We can make sure that they get their inheritance in a way that’s protected from their creditors, their lawsuits, any future ex-spouses that they may have, since we’re in California. It’s a community property state. Anyways, I love trusts. I think they’re great vehicles, and I think most of us need them. So there you go with that.
This article is a service of Pantea I. Fozouni, Family Business Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. Go online today to schedule a Family Wealth Planning Session and find out how to get this $750 session at no charge.