Basic Trust Questions

1. Question:  What is a revocable living trust?

Answer:  A Revocable Living Trust is a living legal entity which is capable of holding title to assets. Trust Law has been part of our evolving common law and judicial system since the early 1300's. The purpose of the creation of a Trust has historically been to protect and administer various lands or assets in particular ways for certain purposes during the lifetime of the creator of the Trust and after the creator's lifetime.

Elements of a trust:: A legally binding trust has several distinct elements: a Trustor, a trustee, a beneficiary, corpus or assets, and the creators must have a legal intent or legal purpose for creating the trust, as well as they must have the capacity to create a trust.

A Living Trust is created when the testator is alive and will exist even after the testator has passed away. Once the testator has died, the subsequent trustee(s) hold legal title and begin to administer the trust assets for the benefit of the beneficiaries of the trust according to the terms of the trust as they were drafted by the original testator. In most cases assets are to be distributed immediately to the beneficiaries. Quite often, some assets, or the shares, or inheritances for certain beneficiaries, are to remain in the trust, even after testator's death, until the beneficiary reaches a certain age.

2. Question:  How is a trust terminated?

Answer:  A Revocable Trust can be terminated by any of the creators of the trust during their lifetimes. Usually the trust remains in existence until after the deaths of the testators, or creators, and then automatically terminates when the assets are fully distributed to the final beneficiaries. Once the assets are distributed to the beneficiaries the trust no longer has corpus (assets), and without that legal element, the trust ceases to exist.

3. Question:  Is there more than one kind of revocable trust?

Answer:  The most common type of Revocable Trust is the Intervivos Trust (Living Trust), which is created while the testator is alive, and which holds the testator's assets during the testator's lifetime. The Testamentary Trust is a Trust which is written into a Will and does not come into being until after the death of the testator. Testamentary Trusts are not functional or funded with the testator's assets until after the Will goes through probate. For this reason Testamentary Trusts are not commonly used.

4. Question:  What is probate?

Answer:  Probate is the court-supervised process where a probate judge analyzes and proves the validity of the decedent's Will, appraises the value of the estate, and administers the decedent's estate for the benefit of the beneficiaries.

5. Question:  How does a living trust avoid probate?

Answer:  The Living Revocable Trust (Intervivos Trust) avoids probate by transferring title, by operation of law, to the trustee of the trust. Title to all trust assets is passed to the trustee automatically, without any court involvement. The trustee is then obligated, under fiduciary responsibility, to transfer assets or administer assets for the benefit of the trust beneficiaries.

6. Question:  What are the primary advantages of having a living trust?

Answer:  The main advantage of having a Living Revocable Trust is that, after the death of the testator, it instantly transfers title to assets to the successor trustee(s) by operation of law, without the intervention of the probate court. A properly drafted Living Trust is also valid throughout the United States of America in all fifty states. The Living Trust is also private and does not need to be recorded with the county recorder or with the government. It is valid and binding if it possesses the basic attributes of a trust and has a Trustor, trustee, beneficiary, and corpus (assets). A Living Trust has also been endowed with certain advantages under the tax law. The trust can be especially effective in allowing a married couple to preserve their rights to individual Federal Estate and Gift Tax exemptions. Unlike a Will, a trust also provides for estate administration during periods where the testator may be incapacitated and unable to administer trust assets without assistance.

7. Question:  Does a living trust protect assets from creditors?

Answer:  The Living Trust is not a liability shield. The Trust may afford the creators additional privacy and may make it more difficult for creditors to locate, but assets owned by the creators as trustees of their own trust are still subject to the creators' creditors.

8. Question:  Will I lose control of my assets if I transfer them to a living trust?

Answer:  A Trust can be drafted to limit the control of the trustee over trust assets. However, in the vast majority of cases where a single individual or a married couple create a Living Revocable Trust they grant to themselves, as trustees of their own trust, all the powers and authorities that an absolute owner would have over their own assets. As a result, the previous owner of the assets becomes the trustee, Trustor, and initial beneficiary of the assets with all the same full rights of the ownership and enjoyment.

9. Question:  Which assets must be titled in the name of a trust?

Answer:  All assets which are not exempt from probate according to the probate code should be transferred into the trust. This includes real estate, bank accounts, certificates of deposit, money market funds, mutual funds, stocks, bonds, limited partnerships, corporations, sole proprietorships, and all personal property, except IRA's, 401K's, insurance policies, automobiles, and qualified retirement plans. IRA'S for example, do not have to be transferred into the trust because the IRA account already has a named beneficiary. It is recommended, however, that the trust be named as a secondary beneficiary even for assets that already have a primary beneficiary named, such as IRA'S and insurance policies.

10. Question:  Can I take assets out of the trust once they are put into the trust?

Answer:  Yes! The creator of the trust is able to take any asset out of the trust or put any asset into the trust. For example, if the creator of a trust had opened up a savings account at a bank and had titled the account in the name of the trust, the settlor may still, at any future date, during his or her lifetime, completely close that account or take any amount of funds from the trust account, and may instead choose to invest them in stocks, bonds, or mutual funds which are titled in any other name. The creator of the trust has absolute control to determine how title to assets is held, or whether assets are in or out of the trust.

11. Question:  If I purchase a new house do I have to change my trust?

Answer:  Absolutely not. The creator of the trust can and should continue to invest in a variety of different assets to achieve a secure and somewhat diversified portfolio. As the creator continues to buy and sell properties and assets, the trust document itself will never have to be changed. However, the creator must make sure that title to the new asset is correctly worded so that the asset will be considered trust property, owned by the creator, and would be able to flow through the trust to the ultimate beneficiaries.

12. Question:  How do I correctly title trust assets?

Answer:  The most complete and thorough way to title a trust asset will include the name of the trustee(s), the name of the trust, and the date the trust was created. For example, JOHN DOE AND MARY DOE, TRUSTEES OF THE DOE FAMILY TRUST, DATED JULY 4, 2008.

13. Question:  How do I make changes in my trust?

Answer:  An amendment can be made to effectuate a change in a trust document. The amendment may revoke or eliminate an existing term or it may add an additional term. A valid amendment will revoke that portion of the trust that is unwanted or conflicting with the present intent, it will state the addition that the creator wants to make, and lastly it will reinstate the entire remaining trust document as it stands without any changes. Most amendments need to be signed by all of the creators of a trust and the signatures should be notarized.

14. Question:  If a bank or financial instituting want to see my trust, what should I tell them?

Answer:  The trust is a completely private document and you are under no obligation to show the bank your trust instrument. However, if you are transferring an existing account into the trust, or opening a new account and the bank asks to see a copy of the trust, they are doing this in order to verify that the trust is properly constructed and is capable of holding title to a bank account or investment. The bank may want to see the signature page of the trust, or the title page (the first page), or they may want to see the portion of the trust that designates who the trustees are, (the individuals who actually hold legal title to all trust assets). And while it is very rare, there are still a few institutions which ask for a copy of the entire trust document for their private records. It is contrary to law for the institution not to accept the Certification of Trust in lieu of the trust document. The Certification of Trust which can be found at the end of your trust in Tab 1 of your trust book is all that the bank or brokerage house is entitled to see.

For More information about trusts see our Trust Glossary

What area does Hornstein Law Offices serve?

Hornstein Law Office serves the following counties:

Los Angeles County, Ventura County, Orange County, Riverside County, San Bernardino County, Kern County, Madera County, Marin County, Mono County, Fresno County, San Diego County, Sacramento County, Imperial County, Santa Barbara County, Alameda County, Sonoma County and Santa Clara County.

Hornstein Law Office serves the following cities and towns in the Los Angeles Area:

Agoura, Altadena, Anaheim, Bel Air, Bell Canyon, Beverly Hills, Brentwood, Burbank, Calabasas, Canoga Park, Century City, Chatsworth, Claremont, Covina, Culver City, Diamond Bar, Encino, Glendale, Granada Hills, Hermosa Beach, Hidden Hills, Hollywood, Huntington Beach, Inglewood, Irvine, La Brea, Laguna Beach, Long Beach, Los Angeles, Malibu, Manhattan Beach, Mar Vista, Marina Del Rey, Mission Hills, Newport Beach, North Hills, North Hollywood, Northridge, Pacific Palisades, Panorama City, Pasadena, Porter Ranch, Redondo Beach, Reseda, San Diego, San Fernando, San Pedro, Santa Barbara, Santa Clarita, Santa Monica, Sepulveda, Sherman Oaks, Silver Lake, Simi Valley, South Pasadena, Studio City, Sun Valley, Sunland, Sylmar, Tarzana, Temecula, Thousand Oaks, Topanga Canyon, Universal City, Valencia, Van Nuys, Ventura, West Covina, West Hills, West Hollywood, West Los Angeles, Westwood, Winnetka, Woodland Hills.

Hornstein Law Office serves the following cities and towns in the San Bernardino, Riverside and Orange County areas:

Apple Valley, Bakersfield, Barstow, Brea, Chino, Chino Hills, Diamond Bar, East San Bernardino, Fontana, Fullerton, Glendora, Huntington Beach, Monrovia, Montclair, Ontario, Pomona, Rancho, San Dimas, Upland, Upland, Upland, Verne, Victorville.

Hornstein Law Office serves the following cities and towns in Northern California.

Alameda, Auburn, Eldorado, Eldorado Hills, Elk Grove, Folsom, Lodi, Petaluma, Placerville, Rio Vista, Rocklin, Sacramento, San Francisco, Santa Clara, Santa Cruz, Stockton and West Sacramento.

Basic Estate Questions

What Is Estate Planning?  It is arranging to have everything you own, whether it be in your Estate or your Living Trust, pass to your heirs or beneficiaries of your choice as easily and inexpensively and with as little legal and bureaucratic delays as possible. 

What Is a Will?  A Will is a basic legal document that tells your family and friends what you want done with your possessions, everything from your stocks and bonds, to your home, to your Baseball Card or Beanie Baby collection.  It also can specify who will be the guardian of your minor children.  In your Will you also appoint someone to carry out your wishes, usually a family member or close friend.  This person is called an Executor.

 If your house is worth more than $20,000 or everything else you own is worth more than $100,000, California will require that your Will be probated, that is, go through a thorough judicial review through a Court Probate proceeding. 

What Is Probate?  After you pass on, your executor hires a lawyer to file the Will with the Superior Court.  The judge decides if your Will is legal and proper, and instructs the Executor in how and when to distribute your property, hopefully, in accordance with your instructions in the Will.  Not only must creditors be notified of the Probate proceeding, but the date of the hearing must be published in a newspaper to be sure that all creditors and interested persons have an opportunity to learn of the hearing.  The Court wants to be sure that creditors have an opportunity to request that they be paid any debts that they may be owed by your Estate.

 Even with a properly drafted Will, during this process the judge “controls” the disposition of the property.  Nothing can be given to your heirs without the judge’s permission.  In California, the process typically takes anywhere from one month to two years to complete.

How much does Probate cost?  The State of California decides.  California is a “statutory state,” which means that the State Legislature sets a fee schedule for the attorney and the executor of a probated will.  Currently, the schedule provides that the fee is 4% of the first $100,000 in gross value of property, 3% of the next $100,000, 2% of the next $800,000, and a sliding scale starting at 1% of the amount over $1 million of gross value. 

 For example, if you leave your house valued at $400,000 to your children they will pay $4,000 for the first $100,000, $3,000 for the second $100,000, and $4,000 for the next $200,000, for a total of $11,000 to the attorney and an additional $11,000 to the executor of your Will.  They will also have to pay costs such as court filing fees, fees to the newspaper to publish the date of the hearing, and a bond fee (insurance) if the Court requires it.  These additional costs may be in the hundreds or even thousands of dollars.  Your executor may choose to waive his or her fee if also a beneficiary.  I wouldn’t count on your attorney waiving his or her fee because it is a lot of work.    The Court may even allow for extraordinary fees on top of the statutory fee if the attorney can show that additional work was required for which additional compensation is appropriate.

But wait, it gets worse.  If you have an outstanding mortgage of $200,000 on the house, your children still pay fees based on the $400,000 value of the house, not the $200,000 equity you had in the house.  If your house and investments are worth $800,000, the statutory fees alone are $38,000, that is, 19,000 to the attorney and $19,000 to the executor!        

 If some long lost former husband or wife or anyone else learns of the probate of the Will in the newspaper, he or she can show up at the hearing with an attorney to challenge the Will and try to  claim a share.  And then the real fun begins.

How can I avoid having to go through Probate and all of the extra cost and bureaucracy this entails?  If you do not want your children to go through this, the best alternative is to plan ahead with a Revocable Living Trust.  It is much less expensive, as it does not have to go through a Court process to settle the Trust and distribute assets to beneficiaries, thereby avoiding thousands of dollars in Probate Fees.  Also, the process can be private, as no public notice through publication in a newspaper is required. 

But a Trust must be expensive.  No, a typical Revocable Living Trust for a couple at Hornstein Law Offices generally costs approximately $1,850, plus notary and recording fees (to record with the county recorder deeds of real property, your house, for example, to your Trust).   

If you already have a Trust, but know someone who does not, please contact my assistant, Evan Press, at 818.887.9401 or by Email at evan@hornsteinlawoffices.com

In fact, if you have any questions about your estate, tax or financial situation, please contact us. Also, if you know someone who could benefit from our services, for example, a friend or family member who has yet to do any estate planning or your son or daughter, who should start saving for retirement, please contact us. We would love an introduction.

We are a full-service financial firm, with experts in estate planning, taxes and financial strategy, and offer a free initial consultation.