The only two certainties in life, are death and taxes. While most people avoid these uncomfortable topics altogether, proactive estate planning allows you to meet the challenges of these two inevitabilities head-on.
There are typically two general types of estate plans: (1) a “will-based” estate plan, and (2) a “trust-based” estate plan.
In the absence of an estate plan, your assets will likely have to go through probate. Under California law, if you own real estate or personal property, upon your death, your property will go through the probate process. Probate can vary in two main respects:
- If you had will, probate is the legal and administrative process whereby your will is “proved” in a court of law and accepted as a valid public document that is your true last testament.
- If you had no will (you died intestate), probate is the legal and administrative process whereby your estate is settled according to California’s laws of intestacy. Under these laws, your estate will be administered and distributed to descendants and heirs according to law. If no descendants or heirs can be found, your property will escheat (go to) the state.
Probate involves high costs, higher legal fees, stress, and time; all unpleasant things that your family dealing with your loss would prefer to avoid. For these reasons, having a comprehensive, well-drafted estate plan can benefit many people by ensuring that probate is avoided and by making a difficult time, such as your death, more manageable to your loved ones.
You may have heard of a last will and testament. Although a will may be the most well-known estate planning document, it may not necessarily the best and most efficient way to administer your estate. There are many common misconceptions that surround wills, primarily that wills are a way to avoid probate. In fact, a will is a document that is subject to probate and must be determined by a court as valid. For this reason, you may be better served with a trust-based estate plan. Depending on your situation and what your needs are, a trust is likely a better option.
The origins of the laws governing trusts date back to the 12th century and the Crusades. During the late-middle ages and renaissance periods, trusts developed into a mechanism for nobility to keep property within their family and to control the use and ownership of their property well after their death. Today, due to modern legal reforms and increased awareness, trusts are no longer reserved for the wealthiest among us, and have become an accessible and practical method for many people to plan their estate and establish a legacy for their family.
Of the various kinds of trusts you can establish, often the easiest and most beneficial is the revocable living trust. With a revocable living trust, you (the “trustor(s)”) can retain control over the trust, and use and enjoy the property during your life. You also name the individual or individuals that will administer the trust after your death. Thus, you can choose trusted individuals, whether it be friends or family, to administer your trust and distribute trust property according to the terms you established. Additionally, a trust enables you to place conditions on trust distributions to provide incentives for beneficiaries to accomplish certain goals (such as graduating college or first buying a home).
The main advantages of a well-drafted revocable living trust include:
- avoiding probate (and the associated costs, fees, stress, and time)
- tax benefits (stepped-up tax basis that minimizes capital gains tax)
- changeability and flexibility (a living trust allows you to make amendments to the trust document while you are still alive, at your own discretion)
- ease of administration (trustee administers and distributes trust property according to the terms of the trust, the terms that YOU create)
- effectuate your wishes and desires (maintain control of your trust’s property)
- privacy (wills involve probate, which is a court process that becomes public record)
In sum, if you are looking to do most of the work involving your estate plan upfront and seek more control, flexibility, and privacy over your asset distribution, a revocable living trust is likely a better estate planning option than a will.
Here, at JRL, we want to help educate and expand awareness regarding estate planning. If you are considering creating an estate plan and have questions or concerns, please feel free to give us a call for a free consultation.