Page 8 June 14, 2018 EL SEGUNDO HERALD
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THE BENEFITS OF
THE REVOCABLE
LIVING TRUST
Brian R. Brandlin*
BURKLEY BRANDLIN SWATIK &
KEESEY LLPT
21515 Hawthorne Blvd., Suite 820
Torrance, CA 90503
(310) 540-6000
(310) 540-5976 (fax)
brian@bbsklaw.com
* Certified Specialist in Estate Planning,
Trust and Probate LawT
State Bar of California Board of Legal
Specialization
* Designated as a Southern California Super
Lawyer for 2007, 2009, 2010, 2011, 2012,
2013, 2014, 2015, 2016, 2017 and 2018.
BENEFITS OF THE REVOCABLE LIVING
TRUST
Living trusts are nothing new as they
originated during the 1500’s and have been
very popular in Europe for hundreds of years.
There are many different types of revocable
living trusts which a person could establish for
themselves and their family, with each such
trust having different attributes and benefits
which are dependent upon the needs, goals
and financial net worth of the trust owner
(no Aone size fits all@). Although there are
many benefits to establishing a revocable
living trust, this article will summarize some
of the most common benefits associated with
revocable living trusts.
AVOIDANCE OF PROBATE AND MAINTAINING
PRIVACY
Following someone=s death, a revocable
living trust can help the decedent=s assets
from having to undergo a very lengthy and
expensive legal proceeding called Aprobate@.
Many people have heard the term Aprobate@,
but yet few people know what probate
actually is, although they have heard that
probate is something which should be avoided
following someone=s death.
Probate involves the formal administration
of a decedent=s estate through the court
system. Unfortunately, probate is a Apublic
proceeding@ so that all of the information
concerning a decedent=s estate is open to the
general public who can review the decedent=s
entire probate file at any given time (even
many years after the probate has concluded).
Probate is also a very time consuming and
expensive process.
During a probate administration, the probate
court supervises the payment of the
decedent’s debts, taxes and probate fees, and
ultimately supervises the eventual distribution
of the estate assets to the decedent’s heirs.
As a result of some of the necessary time
constraints involved in a probate (such as
the four (4) month creditor claim period)
the probate process can quite often be very
lengthy, often lasting more than 18 months.
In addition to being time consuming, probate
can also be very expensive as both the
estate=s attorney and the estate=s personal
representative (i.e. the executor or administrator)
are paid the exact same fee for their
services, which is computed by the court as
a flat percentage of the Afair market value@
of the estate assets. Their combined fees
can sometimes equal 6% to 8% of the fair
market value of the estate=s assets.
As an example, the combined statutory
attorney fees and executor’s commission
in probating an average home in Southern
California worth $1,000,000 is approximately
$50,000 (and these are the legal fees in probating
just the home, so if the decedent also
owned other assets such as bank accounts,
stocks, bonds, mutual funds..., the anticipated
legal fees could be much, much more).
Furthermore, the above legal fees are not
affected by any mortgage or lien recorded
against the property (so if the $1,000,000
home has an $850,000 mortgage recorded
against it, the legal fees would still be
roughly $50,000 as they are calculated on
the Afair market value@ of the home, not
the decedent=s Aequity@ in the home).
In addition to their Aordinary fees@, in
a probate proceeding the estate=s attorney
and personal representative might also be
entitled to collect Aextraordinary fees@ for
services not normally included in the ordinary
probate fee (such as if the estate sold
a parcel of real property during the probate
proceeding, which is very common). Lastly,
in addition to legal fees, there are also other
expenses involved in a probate, such as court
filing fees, appraisal fees, fiduciary bonds
and newspaper publication fees.
As you can see, probate is something
which most people would like to avoid following
a death. However, for those people
who have not taken the time to prepare any
estate planning documents for themselves
(which is referred to as dying Aintestate@),
their estate will usually go through probate.
Surprising to some people, even for those
people who have taken the time to write a
simple Last Will and Testament, their estate
will still usually go through probate.
However for people who have created a
revocable living trust and who have titled their
assets in the name of their living trust, their
estate can completely avoid probate as trust
assets are specifically exempt from probate.
Trusts are administered privately by a
trustee selected by the trust owner (commonly
a family member or friend), without
court intervention, which saves the estate a
significant amount of legal fees and time,
as well as avoiding the public nature of a
probate proceeding.
Once established, a revocable living trust
can be amended as many times as the trust
owner desires, or completely revoked by the
trust owner at any time prior to their death.
For people who like to maintain their
privacy, trusts can also be structured to hide
their identity in those documents which are
publicly recorded (i.e. such as the deeds to
their real property).
REDUCTION OR ELIMINATION OF
ESTATE TAX
Another advantage of certain revocable
living trusts is the possible reduction or
elimination of federal estate tax for married
couples whose gross estates are close to, or
exceeding, the exemption from federal estate
tax (which for the year 2018 is $11,200,000
per taxpayer), while also providing some
income tax benefits as a result of receiving
a Astepped up@ income tax basis which can
be afforded to trust assets at the time of each
trust owner=s death (resulting in less income
tax whenever those trust assets are ultimately
sold following the trust owner=s death).
Although the current exemption from federal
estate tax ($11,200,000 per taxpayer) is quite
generous, this amount can change at any
time with a simple vote by Congress (which
Congress recently did this past January) so
even though a taxpayer may not currently
have any potential estate tax liabilities, that
could possibly change in the future in the
event the taxpayer acquires more assets, or
their assets appreciate in value, or the federal
estate tax exemption is reduced by Congress.
ADMINISTERING BENEFITS FOR MINORS
OR DISABLED BENEFICIARIES
Revocable living trusts can also provide
some significant benefits whenever the trust
involves beneficiaries who are minors, or
beneficiaries who are adults who suffer from
a disability/condition which would make it
difficult (or impractical) to distribute the
beneficiary=s inheritance to them immediately
following the trust owner=s death.
Unlike Wills, with a revocable living
trust the trust owner may direct the acting
trustee to Ahold in trust@ any trust assets
which are allocated to a minor child until
that child eventually attains some designated
age in which the trust owner feels the beneficiary
will hopefully be mature enough
to adequately deal with their inheritance
(without squandering it). Until that beneficiary
reaches that designated age, the trust
owner could instruct the trustee to pay for
that child=s expenses which relate to their
health, education, maintenance, and support.
Similarly if a beneficiary is suffering from
a disability or some other condition which
makes it unwise to distribute all of their trust
share to them upon the trust owner=s death,
the trust can also be structured to retain that
beneficiary=s trust share, in trust, for a certain
period of time (up to the beneficiary=s entire
lifetime) while requiring the acting trustee to
pay that beneficiary=s expenses from their
trust share, on an Aas needed@ basis.
AVOIDING CONSERVATORSHIP OF
THE ESTATE
During a person=s lifetime, if they previously
created and funded a revocable living
trust and they later became incapacitated (i.e.
they later suffer from some form of dementia...),
then the successor trustee named in
their living trust can immediately manage
their trust for the benefit of the incapacitated
trust owner during their remaining lifetime.
The successor trustee will be able to pay the
incapacitated trust owner=s bills, file their
tax returns, invest and reinvest the trust assets,
and even sell trust assets, if necessary,
in order to maintain the trust owner=s accustomed
manner of living, all without the
need to obtain any Conservatorship over the
incapacitated trust owner.
Conversely, if that same incapacitated
person did not previously establish and fund
a revocable living trust, then someone would
need to petition the probate court to become
appointed as that person=s AConservator@.
Similar to probate, a Conservatorship is
an expensive and time consuming process
which will usually require the retention
of an attorney, the posting of a fiduciary
bond and the preparation and filing of at
least bi-annual accountings with the court.
The incapacitated person could also end up
having a Conservator appointed for them
(by the court) who might not necessarily
be the same person whom the incapacitated
person would have chosen to take care of
his or her affairs.
SUMMARY
This article is only intended to provide a
brief summation of some of the many benefits
of the revocable living trust. Like anything
else in life, the more time and thought you
and your attorney expend in creating your
own living trust, the more benefit you and
your family will ultimately receive from it,
while making sure your goals have been
achieved in the most cost effective and efficient
manner.