Subject: Living Trust
Using a little foresight, let's say, you've written a will to
distribute your assets to your children after your death and now you're
feeling pretty secure that you've safeguarded your children's inheritance.
But this may be a false peace of mind. You may be leaving for your
children months, even years, of agony in probate court, whopping attorney's
fees, hassles with court officials and emotional anxiety of waiting for
their inheritances. Surprisingly, there's a simple solution to this
problem and a growing number of people are taking advantage of it.
Revocable Living Trust
Like many Americans, Jane learned the value of a revocable living
trust firsthand, but paid a heavy price for it. When her father died four
years ago, he left his business, family residence, a vacation home in
Arizona and other assets to her. Fortunately, he had left a will and at
first it seemed everything would go smoothly. But the problems started
cropping up almost immediately. Although Jane, an accountant by
profession, was named the executor and sole beneficiary of the estate, she
had to hire an attorney to probate the will. She was fairly familiar with
her father's financial affairs but, when it came to probate, there was very
little she could do to expedite the process. It seemed like the court and
attorneys were getting involved in every decision. Finally, the probate
was over more than two years later, but took a heavy financial and
emotional toll on Jane. The once-thriving business was pretty much ruined.
After this experience, it did not take much to persuade Jane and her
husband to set up a revocable living trust. All of their assets were
transferred to the trust, with both of them acting as trustees. Because
the trust is revocable, they can change its terms, or even can-
cel it at any time. When one of them dies, the surviving spouse will
continue to act as trustee and control and manage their assets. In the
event of incapacity or incompetence, the living trust will allow them to
avoid lengthy and costly guardianship and conservator- ship court
proceedings. As Jane put it, "I want everything to be as easy as possible
for my kids, if something happened to me. I wouldn't want them to go
through what I did with my father's estate."
The beauty of a revocable living trust is its flexibility. In setting
up the trust, you transfer legal ownership of the assets to the trust, but
you name yourself as trustee of the trust. Thus, although you've
relinquished the nominal ownership of the assets, you continue to be the
beneficial owner; you can manage, sell, mortgage or give away your assets
as you please and the trust won't interfere. If at some point in time you
wish to change terms of the trust, including designation of beneficiaries,
or even revoke it in entirety, you can do so.
Advantages Over Will
Many estate planners swear by living trust; their advantages over
wills are many. The problem with a will is that it must be proved valid in
probate court. To probate a will, you'll definitely need to hire an
attorney and attorney's fees can run into thousands of dollars. There may
be executor's commissions and other court costs.
California's probate fees - set by law -are about average among
states. For an estate of $500,000 (by no means a small or uncommon estate
where home prices start around $200,000), the cost of probate in terms of
attorney's fees and executor's commissions would range around $22,300.
This is a big chunk out of your children's inheritance.
Worse than the financial blow, probate can exact an emotional toll on
the surviving family. Your heirs may have to wait several months and
sometimes years to collect their inheritances, depending upon the
efficiency of the executor, attorney and probate court.
Delays of eighteen months to two years are not at all unusual.
Probate records are public records and are available to all kinds of
lous or otherwise. Many a widow has been persuaded to make unwise or
vestments under pressure from fast-talking huckster.
Living trusts, on the other hand, require no court proceedings; a
successor trustee (who may also be a beneficiary) simply distributes the
assets according to the trust's instructions and dissolves the trust. "The
process is much quicker, cheaper and more private than settling a will, and
it may save on taxes, too," according to a well-known authority on trusts
According to most estate planners, revocable living trusts have few
disadvantages. Inertia may be the biggest foe in most cases. Most trust
instruments are relatively simple to prepare, and you'd need to formally
transfer the title of various assets to the trust. This requires some
paperwork and you'd need to contact your banks, brokers, insurance agents,
etc. In most cases, they are familiar with revocable living trusts and
you'd get excellent cooperation from them. Once this paperwork is
completed, trust will not affect the way in which you control or manage you
Along these lines, your setting up a revocable living trust will have
no effect on your income tax situation. If you act as trustee of your own
trust, as is normally the case, you wouldn't need a separate taxpayer
identification number. You would continue to report all trust income,
losses and deductions on your individual income tax return under your own
Can Save Taxes, Too
Living trusts can, with proper planning, save on federal estate taxes.
If a couple has a so-called "A-B" living trust, with separate trust for
husband and wife, they can pass on up to $1.2 million tax-free to their
children, trust attorneys say. Under this method, each trust can make the
maximum utilization of the $600,000 federal estate tax exemption.
The surviving spouse can draw the trust income for life, and also have the
right to invade the principal of the other trust, if there be a need. When
the second spouse dies, both trusts go to the children. Without the A-B
plan, the children would pay $235,000 in federal taxes on the $1.2 million
estate, says a tax attorney.
Trusts Hard to Contest
When a will is probated, the executor of the estate is generally
required to notify all potential heirs - whether they are named in the will
as beneficiaries or not - that the will is in probate. A disgruntled heir,
rightfully or wrongfully denied his share of the estate, can
rock the boat at this time by alleging undue influence or lack of mental
capacity. In many instances, he may not even need to hire an attorney to
start such a will contest. Facing the prospect of a long, drawn-out court
battle, often times the executor or the other heirs will settle with the
disgruntled heir by giving in to the "blackmail."
This is exactly what happened when J. Seward Johnson, 87, of Johnson
and Johnson fortune died leaving the entire estate worth $500 million to
his third wife, Basia, then 46.
Johnson's six children, disinherited by their father, contested the will.
In a settlement, the children and a charity got $169 million. The wife got
to keep the remaining fortune and the attorneys reaped a $24 million
Living trusts, on the other hand, are extremely hard to penetrate. A
living trust is set up during your lifetime and, presumably, you've been
administering the trust for several years. It would be difficult to
challenge your competency to set up the trust under these
Upon your death, the trust estate is distributed to the named
beneficiaries almost im-
mediately, without the intervention of a probate court. Anyone wishing to
contest the trust would have to sue each and every beneficiary - after
they've received the assets, ruling out the possibility of blackmail.
Remember, the trust is an entirely private affair and no one, other
than the beneficiaries, needs to know the contents of the instrument. This
precludes disgruntled heirs from using the threat of a court battle to tie
up the estate in years of litigation.
Joint Tenancy Not a Solution
Most married couple (and often, a parent and a child) hold title to a
property in joint tenancy with the right of survivorship. Upon the death
of one joint tenant, the surviving joint tenant inherits the asset without
going through probate.
So far so good. But when the second spouse dies, unless he or she has
placed the property in joint tenancy with someone else, that property will
be probated. A living trust is one sure way to avoid that problem.
Most estate planners advise against joint tenancy for a variety of
reasons. For some persons, in certain situations, joint tenancy may be a
wise decision. However, in a vast majority of cases, joint tenancy spells
For instance, say you own your home and care in joint tenancy with
your son. If the son gets into an accident, and the injured person files a
lawsuit, you'd be named a defendant along with your son. If an adverse
judgment is rendered, your personal assets are at risk.
Or take this scenario. You and your wife own all assets in joint
tenancy witha view to avoid probate when one of you dies. But your wife
has to be put into a nursing home due to Alzheimer's disease. Now you
would need to go to probate court before being able to do anything with the
jointly-owned assets. In this case, joint tenancy actually turned out to
be a curse.
Living trusts are well-suited to handle just such a contingency. A
growing number of Americans are putting their assets into living trusts
because they want to avoid being placed under a court-appointed guardian,
if they become physically or mentally disabled and are unable to manage
their affairs. "With a living trust, you can designate the person
(generally the successor trustee) who'll take over your affairs in the
event you become in-
competent," says an estate planner who advises senior citizens on a regular
basis. This avoids the cost and public embarrassment of a court
conservatorship or guardianship pro-
Why Aren't Living Trusts Better Known?
If living trusts are such a wonderful device for passing on your
inheirtance to your children, why aren't they better known?
Well, the truth is they are getting increasingly more popular, more so
in certain parts of the country than others. You'll regularly find
articles on living trusts in most major personal finance or money magazines
and also in newspaper columns. These articles universally laud the
benefits of living trusts against wills, or the scarier option of dying
without a will.
This does not mean that every attorney in your town knows about living
trusts, or is willing to help you set up a living trust. Many simply do
not enough about living trusts, and there are some who would rather you
didn't know anything about them. These attorneys drive a substantial
portion of their income from our probate system and they are not about to
kill the "cash-cow." These attorneys are building a "will file"; each will
they write, they hope, will ripen into a probate estate.
Then there are some attorneys who've seen the writing on the wall and
have decided to join the bandwagon. They have discovered that helping
people set up a living trust can be just as lucrative as probating an
estate, especially if you can charge $595, $895 or $1,500 to set up a
simple revocable living trust. They advertise free seminars in local
newspapers and sign up clients just for such a service.
While doing it, they can portray themselves as heroes. A law firm in
Southern California, in its free - seminar advertisement for a living
trust, touts itself as "defying the system by placing principle above
profit." It is "willing to forego million of dollars in probate fees in
favor of preparing a one-time, foolproof, affordable plan." This just
proves the point I've been trying to make here: Probate is a multi-million
dollars business and, like the ad says, "you should avoid it like the
For further information, contact:
Bob Johnson @ New Day Marketing
522 S. Citron St.
Anaheim, CA 92805
Want a FREE catalog with information about living trusts?
Listen to a 30 secound message @ (714)490-4557
If you have questions contact Bob Johnson