Lawyer Monthly - November 2022

Estate planning for individuals who have assets (referred to as a person’s ‘estate’) that are collectively worth more than $184,200 in the state of California typically involves a ‘revocable trust’. A revocable trust is also commonly known as a living trust or family trust. The beauty of this document is that it can be changed throughout the lifetime of the individual(s) who created it (referred to as the ‘settlor’ or ‘trustor’) so long as they have the mental capacity. There is a common misperception that a revocable trust will protect you from legal liability if you are sued. This is not the case with a revocable trust, because this type of trust is not considered to be a separate entity from the individual who creates it, as it is able to be changed at any time and does not have a fixed amount of assets in it. However, the similarly named ‘irrevocable trust’ can potentially protect you from certain legal liabilities because it is considered a separate entity, with the downside that the creator of this type of trust loses most if not all their ability to change the trust document itself or the assets held within it. On the other hand, a revocable trust allows for an individual to create a probate law-based instruction manual containing their wishes for those who are left behind regarding what is to happen to the estate after their death. It is similar to a ‘last will’ in the regard that it contains one’s after-life wishes. However, unlike a last will, no matter the size or value of the estate contained in a trust, it avoids a lengthy and costly court process called probate. A simple probate case typically lasts for around 12-18 months and involves the court overseeing the entire process from appointing the estate representative to approving the final distribution of the decedent’s estate. The only true means of avoiding probate and making sure your wishes are followed – and not whatever the law dictates – is with a revocable trust. This is true for anyone who has assets that are valued at $184,200 and homeowners in the state of California. People generally want to avoid spending the money that it takes to create a trust, but it is a long-term investment that can potentially save your family time and thousands on attorney and court fees. In fact, attorney fees for a probate are set out in California Probate Code Section 10810, which states that the attorney is to receive a percentage of the gross value of the estate by using the following breakdown: 4% of the first $100,000; 3% of the next $100,000; 2% of the next $800,000; 1% of the next $9,000,000; and 0.5% of the next $15,000,000. This means that, for an estate valued at $550,000, regardless of any mortgages or outstanding debts, the attorney will be paid $14,000. There are other methods of avoiding probate other than a trust, but they are potentially not as successful in achieving their goals as they have their own pitfalls. These methods may include holding an account as a joint tenant or having beneficiaries named directly on ‘payable upon death’ accounts or on a ‘transfer on death’ deed, but each of these have their own pitfalls that a trust would avoid altogether. A ‘joint tenancy’ refers to when the individuals’ names on the title both have equal ownership and there is a right of survivorship where the property automatically passes to the survivor. The trouble with a right of survivorship comes when both of the individuals pass away at the same time or the survivor passes away with no one else on the title to whom it could automatically transfer. If there is no one left on the title who has a right of survivorship, then the asset (more than likely a house) will have to go through probate. Another method is to list beneficiaries directly on money accounts such as bank accounts, annuities, life insurance, stock, etc. These are called ‘payable upon death’ accounts, because as soon as the original owner passes away, the assets in the account belong to the beneficiaries named directly to that account as described in California Probate Code Section 5142. With payable upon death accounts, there is a high likelihood that the person you would want the asset to go to is blocked because it is limited only to those specifically named on the account. For instance, you may have both of your 14 LAWYERMONTHLYNOVEMBER 2022

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