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How Do Succession Planning Trusts Work?

In most estate plans we prepare for married couples, we create a revocable living trust for the husband and wife and they fund the trust with their community and separate property assets that would otherwise require probate administration. That generally includes all assets other than retirement plans, IRAs, 401K plans, annuities and life insurance, because those assets have beneficiary designations that eliminate the need for probate administration.

For other assets not held in a trust, it is necessary to go to court and go through a probate proceeding to determine who inherits that asset. Probate typically takes longer and is more expensive than trust administration. The revocable living trust that is created for the husband and wife continues for their benefit during the remainder of their joint lives and for the life of the surviving spouse. The trust then either passes to separate trusts for the children or in some instances the grandchildren or the trust simply terminates and it’s assets distributed out to the adult children who then set up their own estate plans and their own trusts.

What Other Documents Are Included in an Estate Plan?

Also included in a typical trust based estate planning is a “pour-over will”, which addresses the situation where, for instance, a person fails to include an asset in his trust that should have been included. A pour-over will simply states that if an asset needs to be probated, the probate court will ultimately order it to be funded into the trust and distributed as part of the trust. Durable powers of attorney for asset management are also prepared. Those documents are effective during the lives of the creators. Husband and wife each have separate durable powers of attorney. They are “springing” since they only become effective if and when the creator becomes incapacitated during his or her lifetime. They are designed to permit third party management of assets that are not in the trust such as insurance policies, retirement plans, IRAs, annuities and social security benefits. Between the trust and the durable power of attorney for asset management, the estate of the couple will be set up in a plan for management that will avoid in many circumstances, the need to establish a conservatorship of the estate for either of them during their lives.

We also prepare an advanced healthcare directive for both husband and wife that designate the person to make medical care decisions for the creator. We also prepare other documents that are necessary for a fully formed estate plan such as trust certifications and deeds and transfer documents for real estate. We also assist the creators in getting their bank and investment accounts transferred into the trust as well. This procedure has to take place at the bank or the stock brokerage firm using the internal forms.

A standard estate plan is designed to avoid probate and the need for a conservatorship of the estate upon incapacity.

Are Trusts Only for the Wealthy?

Commonly people think that trusts are only useful if a person is wealthy. That is not the case. Even if their only asset is a home that is completely mortgaged and with little equity, a trust is still useful because without a trust that property will have to be probated and the cost will be greater than it will in a trust administration. Trusts are very common devices even for people with assets of moderate value because the requirement for probate in California is that if a person has assets requiring probate administration with a gross value over $150,000, they have to go to probate.

For instance, if someone owns a home worth $200,000 that has a $175,000 mortgage on it and an equity of only $25,000, that asset will still have to be probated in California if not in a trust because it has a gross value in excess of $150,000. A trust would be merited in that situation because it would allow the passage of the title to that property more quickly and more cheaply than if the survivors have to go to the court on a probate. There are a lot of misconceptions about who needs a trust and it is in fact the case that people of even moderate estates can benefit from a trust. If the assets have a value of less than $150,000 we can use an affidavit procedure to avoid probate.

For more information on Common Succession Planning Trusts, a free initial consultation is your next best step. Get the information and legal answers you’re seeking by
calling (916) 635-0302 today.

California’s Estate Planning Essentials