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Legal Articles
By Sarah Philips
What is a Trust? Do You have a Trust? Do Your Parents?
The basic estate planning trust is a revocable living trust. The trust instrument, a document which you sign before a notary, creates a new legal entity known as the trust. You are the trustor (also known as Grantor or Settlor). The trustor "funds the trust," which means you give property to trust. You also serve as the trustee. The trustee has full management power over the property in the trust. The trust is revocable which means that the Trustor can terminate the trust or can amend it at any time. In the trust you designate who serves as successor trustee if you are incapacitated or die. That person may step into your shoes and take care of your affairs for you if you are unable to do so.
The trust also designates to whom your property is distributed when you die. When you die, the successor trustee will administer the trust which means she will follow the directions in your trust regarding distribution of your property to the beneficiaries whom you’ve designated. With a revocable living trust, you give your property to the trust while you are living and since the property is then owned by the trust, it is not part of your probate estate when you die and therefore it does not need to be probated.
The IRS does not recognize the revocable trust as a separate legal entity. You will continue to pay income taxes and capital gains taxes under the same Social Security number. When you transfer your real estate to the trust, the county does not charge transfer tax and does not reassess your property. Putting property in the trust does not shelter it from third-party creditors.
The trust provides an opportunity for many devices to manage your estate and avoid taxation. Each has advantages and disadvantages. You should discuss these options with your lawyer and make sure your trust meets your needs and that you understand the terms of the trust and how to implement it.
What are the advantages of a Trust?
With a trust, you avoid probate, may be able to shelter some of your property from taxation upon your death, can designate a person to manage your affairs if you become incapacitated, will have confidential distribution of your estate upon your death, will be able to protect the inheritance of siblings in blended families while at the same time providing for a surviving spouse.
When is it a Good Idea to Have a Trust?
In general, when real estate is involved it’s a good idea to have a trust. You cannot designate a beneficiary for real estate the way you can with bank accounts. If you own property in joint tenancy or with right of survivorship, the property will pass to the surviving title-holder outside of probate after your death. There are advantages and disadvantages to joint tenancy. It’s important to discuss these with your lawyer.
The higher the value of your property, the more important it is to have a trust. If you have a large estate, the IRS will take a big bite out of it after you die. A lawyer will explain the many devices that are available with a trust to help shelter your estate from taxation.
In summation, it’s a good idea to consult with a lawyer about estate planning. It’s usually a good idea to get a trust, and if you or your parents have real estate or a large estate, it’s very important.
Sarah J. Phillips is a licensed attorney in the State of California with a private practice in Sonoma, Napa, and Marin Counties. She has been a member of the California Bar since 1985. She is an expert in general practice serving individuals and small businesses with an emphasis in elder law, estate planning and administration, elder abuse litigation, and personal injury litigation. She has BA cum laude in Spanish from Beloit College in Wisconsin and a JD from Franklin Pierce Law Center in New Hampshire. She has taught high school Spanish, raised three sons, and served as a board director for various schools and nonprofits.
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