When you start looking into estate planning in California, you’re likely to hear a lot about revocable living trusts. So, why is that? Why do so many Californians form trusts?
The short answer is that they often save families valuable time and money. They’re a bit more complicated than wills on the front end, but they can be shrewd investments for the long run. And this owes to the longer answer, which relates to how trusts can bypass probate.
There are advantages to bypassing probate
After people die, their family members, heirs and creditors usually go to probate court. The court helps these interested parties divide the estate. If there’s a will, the court will check to make sure it’s valid. A valid will may speed up the probate process, but it won’t keep the family out of court.
This is important because, as Barron’s noted in a recent article, the probate process can be both lengthy and expensive. There’s a lot for the executor and his or her attorney to do, and their efforts may carve a healthy chunk out of the estate.
As the California Courts note, the executor must:
- Gather all the estate’s assets
- Determine the estate’s net worth
- Pay all the estate’s bills and taxes
- Manage the estate’s finances
- Oversee the sale of assets like homes, as necessary
These chores take time. Often months. With larger and more complex estates, they may even take years. And for all this work, the executor gets to claim a percentage of the estate’s value. This percentage changes with the size of the estate, but it comes before the bills, taxes and creditors eat into that net value.
In other words, if the estate includes a house worth $1 million, the executor can charge against a percentage of that $1 million, even if there’s still $600,000 on the mortgage. And the executor’s attorney gets to do the same. The result is that the bills add up, and the heirs may see the estate’s value shrink. Their inheritance could simply disappear.
On the other hand, a living trust typically costs more than a will to draft and maintain. But living wills can help families skip the probate process altogether. They tend to save money in the long run.
Is a living trust right for you?
If you own a home in California, your estate will likely find its way to probate court. A will may simplify and speed up the probate process, but it won’t bypass it altogether.
An experienced estate planning attorney can help you review your goals and situation to decide whether a revocable living trust makes sense for you.