Single people who buy a home and apply for a mortgage almost always take title to the property as sole owner. Married people almost automatically take the title as joint tenants. Yet, with a little thought and the help of an attorney or financial planner, single people and married couples can reap huge financial benefits by taking title to their home by using a revocable living trust. It is the best way for just about anybody to hold title to real estate.
There are two basic types of trusts:
People are most familiar with “testamentary trusts”, the type of trust that’s created upon the death of someone who has already written a will. A “living trust” is created while you are still alive. Most living trusts are “revocable,” meaning you can amend or revoke the trust whenever you wish.
To create the trust, you deed your house and any other assets you wish to yourself as trustee. If you are married, both you and your spouse would typically be named trustees. At the same time, you name an alternate trustee, usually your adult child, an investment adviser or someone else, who would take control of the trust should you become incapacitated or die. A “trust agreement” or “declaration of trust” which is much like a will, must also be drawn up. Since you’re the initial beneficiary of the trust as well as its initial trustee, you retain complete control of the property as if a trust was not involved.
Holding title to the property as a living trust provides several advantages:
First, your heirs will avoid thousands of dollars and save lots of time because your estate can avoid probate court when you die. Instead, your alternate trustee will simply take over control of the estate’s assets after you die.
California and most other states allow probate attorneys to charge statutory fees based on the estate’s value. Depending on the state, these fees can range from 5% to more than 20%. The typical probate fee on a California estate valued at $300,000 is $14,300. Then the probate court has the power to grant additional or “extraordinary” fees if the lawyer or executor has to sell a lot of assets, prepare the federal estate tax return, manage the deceased’s business or do something else that is out of the ordinary. That can add thousands more to the probate bill.
Another advantage to living trusts is that you minimize the chance that your family will have to ask the court for a conservator or guardian if you become incapable of running your affairs. Again, the alternate trustee would automatically take over and you would save thousands of dollars in legal costs.
A living trust can also protect the privacy of both you and your heirs after your death. That’s because your assets won’t be listed in probate court records, which are open to public inspection. One of the biggest problems with setting up a living trust is its costs. “It can generally cost between $2,000 and $3,500, depending on how much work and property is involved. But still, that’s a drop in the bucket compared to what your estate might have to pay in probate fees after you die.
Another potential drawback is all the paperwork that can be involved. Forming a trust is a relatively simple task if you have only a few properties and just a few bank and brokerage accounts, but it can be a nightmare if you’ve got dozens of different investments.
California law allows estates worth $150,000 or less to be passed to heirs after a waiting period of at least 40 days. The catch is that, in most instances, the summary process considers the value of the home before allowing for the mortgage or other liens on the property. So, even if you owed $200,000 on a home that was worth $300,000 when you died, you might not be able to use the summary procedure because the estate would be valued at $300,000.
If setting up a living trust sounds like it might make good sense, please contact the Law Offices of David M. Zeligs for more details. Our law firm’s contact numbers are shown below.