1. I have a Will. Why would I need a Trust?

When you die, your Will must be “probated.” Probate is a formal public procedure of the Superior Court. Most probates take about two years. During this time your estate will be frozen. Plus, anyone can pull your probate file and find out all about you. They can read your Will and see what you own, what you owe, and to whom you have left your estate since this is all part of the public record.

Probate is expensive. Probate fees are paid to the attorney who does the probate. These fees are set by state law. In California, these fees are a percentage of the gross amount of the estate, not the net. For instance, if all you owned was a home valued at $275,000.00 with a $200,000.00 mortgage, the minimum fees an attorney would be awarded to probate your will would be about $12,000.00. The administrator would get the same amount, so the cost to probate your will would be about $24,000!

Trusts do not go through probate, therefore you need a trust.

2. Now that the exemption from the Federal Estate Tax (Death Tax) has been increased from $5,000,000 to $10,000,000 (as of 2018) why would I need a trust?

Please see the answer to #1 above. The “Probate Fees” are paid to an attorney. They are not a tax. They are not paid to the government. The increased exemption from the “Death Tax” has nothing at all to do with “Probate Fees!”

3. If a trust avoids ‘”Probate Fees,” (as much as I would like to do that), is there any way to reduce or avoid the ‘Death Tax?’

Yes. There is no “Death Tax” in California. The Federal estate or “death” tax applies only to individuals whose estates are worth more than $11,180,000 (as of 2018) at death. While most people will not have large enough estates for it to matter, if you are worth enough the best way to avoid the estate tax is through a trust. For example, a married couple can create a trust that doubles the $11,180,000 exemption, yet few people take advantage of this method. This is a special kind of trust. We would be happy to answer any questions you may have about this subject.

4. I have everything, my home, bank accounts, etc., in “Joint Tenancy” with my spouse. If I die my spouse will get everything, without probate. If she died, I will get everything, without probate. So what is the big thing with probate? It looks like we avoid it with “Joint Tenancy” right?

Wrong! If you die, your spouse will own everything you own in “Joint Tenancy” with her/him, and without probate. If she/he dies the same will be true for you. The problem is that when the last of you die, there will be a probate. “Joint Tenancy” does not avoid probate, it just puts it off.

A Trust is the only way to avoid probate.

5. Given what you have told me about Joint Tenancy, why not just put our children’s names on our home, bank accounts, etc., as “Joint Tenants”, along with my wife and me?

Never do this. If you put your children’s’ names on your home and accounts as “Joint Tenants” you have made a gift to them of a proportional share of each asset. If you make a gift of over $14,000.00 per person per year you will have Gift Tax problems. You have also given the “gift” of your “basis” in those assets when you make the gift.

For example, if you purchased a stock for $100.00 and leave them the stock when it is worth $10,000.00, they will pay taxes on the difference between their proportional basis in the $100.00 and the sales price. If you left the same stock to them in your Trust their basis would be the value of the stock on the date of your death. They would pay far less, perhaps zero Capital Gains Tax, if you left the same stock to them using your Trust.

As if that were not enough, if your children have a problem with creditors, the IRS, the California State Franchise Tax Board etc., those creditors could seize the asset! If the kids file Bankruptcy the Trustee in Bankruptcy could own a portion of your accounts, home, and anything else that has that child’s name on it. If the child gets divorced, you may have another problem.

If you put your children’s names on the deed, you could be in a real mess. When the children grow up and move away, you may want to sell the house. When you do, you will find you have a nasty surprise. You and your spouse will have a $500,000 exemption from Capital Gains Tax on your home. Your kids will have a zero exemption. They will have to pay the Capital Gains Tax!

To make matters worse, they will also have to sign the deed in order for you to sell the home. What if they don’t want to pay the tax and refuse to sign the deed? There are many other reasons not to do this, but again, the best way to handle this is to have a Trust.

6. If my spouse and I put our children’s names on our accounts as “POD” beneficiaries they will get those assets when both of us die. What is wrong with that?

Of course, things might work out right if you do that, but they might not. If your children are under 18 years of age when both of you die, the money will be held for them in a court blocked account until their 18th birthday. Your children getting money on their 18th birthday is very likely not a good thing.

Plus, what if one of your children dies before you? Would you want the asset to go to your other children, or to the children of the child that died? This kind of account is at best a gamble. If you leave your children assets in your Trust, you can have a Successor Trustee of your choice hold the assets for them until they reach an “age of reason.” This is usually NOT 18! During the time it is held, the Trustee can use the money for the support and education of the children.

7. I have heard that every time you take something out of your trust or buy anything, you have to go to your attorney and have your trust changed. Why would I want to do that?

Some attorney’s do set up trusts that require you to go to them each time you buy or sell anything, or write trusts that require constant updating. The Law Offices of David M. Zeligs does not do that. Property may usually be added or taken out of your trust without the need to revise the Trust or consult with us. However, if you are adding or taking out real property to or from your trust, we recommend you consult with us prior to the transaction.

8. I have heard that if I have a trust I lose control over my assets. Why would I want to do that?

This is not true. Some people choose to have a bank, a brokerage house, or a similar entity be the Trustee (the person or company in charge of a trust). There are additional costs involved in this so most people choose not to do this. You are the Trustee of your own trust and you pick the Successor Trustee.

9. I have been married before. I have two children from that marriage. When I die, I want to leave something to my kids, but I want to take care of my current spouse. If I leave everything to my spouse, she could leave it all to her new husband. On the other hand, if I leave it to my kids, my spouse will not have enough to take care of her in her old age. Is there any way I can take care of my current spouse and take care of my kids?

Yes. There are many ways you can set up your trust to take care of this. There are many different kinds of trusts. We will show you all of your available options before we prepare your estate plan.

10. What if I have a trust, but things change and I want to change the trust?

This is not a problem. A Revocable Living Trust can be amended, or revoked. You can change it as often as you want. However, remember that putting new assets in your trust, or taking them out, is not an amendment to your trust, at least the way we do them. Usually, the reason people amend their trusts is because they want to change who is in charge of their assets after they die, or who they want to leave their assets to.