All of us need an estate plan, regardless of our net worth. The only difference between one with greater wealth is the complexity of the documents. Estate Planning protects our health, welfare and families in the event of incapacity or death.
Without an Estate Plan, the State of California, through the Probate Courts, will decide who gets our assets when we die, and how those assets are distributed. Further, the probate process in California may take years, and is expensive, with probate fees up to 8% of the gross value of the assets, or more. There are also additional out-of-pocket costs associated without probate, including publication fees, court filing fees, court appraisal fees, etc.
Further, if incapacitated without an Estate Plan, our loved ones, including our spouses, must go through the burden and expense of court (referred to as Conservatorship over the Estate) in order to act for them with regard to our financial affairs. This includes the ability to access and manage financial accounts, pay bills, file tax returns, manage real estate, etc. For example, assume a married couple’s only asset is their jointly titled home, and one spouse becomes incapacitated without an estate plan, the other spouse will now be forced to go to probate court to initiate a conservatorship should they later need sell the home, re-finance the home, or otherwise manage the property. The problem is compounded for financial accounts and other assets titled exclusively in our names.
Similarly, if incapacitated without an Estate Plan, our loved ones must go through the additional burden and expense of going to court in order to make important medical decisions (referred to as Conservatorship over the Person). Otherwise, while a hospital may talk and generally consult with our family members, ultimately a stranger at the hospital will make these personal medical decisions for us.
Finally, if we have minor children without an Estate Plan and we become incapacitated or deceased, additional expense, disruption and uncertainty occurs to our minor children.
A revocable living trust is a legal document, often set-up as an Agreement between you and your Successor Trustee, to ensure our chosen Successor Trustee can step in (without any delay and without court expense) to manage our financial affairs per our instructions if we become incapacitated, and to ensure the chosen Successor Trustee can step in (without any delay and without court expense) upon our death to distribute our assets to our designated beneficiaries per our instructions. Revocable Living Trusts are set-up to avoid Probate Court and it’s expense and delay, if we are incapacitated or deceased. Revocable Living Trusts may also be set-up to avoid taxes, to obtain creditor protection for our beneficiaries, to ensure a minor or young beneficiaries assets are managed responsibly, and to protect/preserve eligibility for a beneficiary’s Special Needs or Long Term Care/Med-Cal.
There are three roles under a revocable living trust:
The person who makes the trust. They might be called the Settlor, Grantor, or Trustor.
The person who makes decisions about the money or property in the revocable living trust. They are called the trustee. In general, during the life of the Settlor (you), the Settlor is their own trustee. A trustee can be an individual or a financial institution. If there is more than one, they are co-trustees. A successor trustee may also be named but can only act if a trustee can no longer fulfill their role. A trustee is also a fiduciary.
The people who receive money or property from the revocable living trust. They are called beneficiaries. The person who makes the revocable living trust may be the only beneficiary while they are alive, or they may name co-beneficiaries (e.g. the grantor and their spouse) who receive some money or property from the revocable living trust before they die. The people who receive money or benefits from the revocable living trust after the person dies are called residuary beneficiaries.
The trustee has authority only over property once it’s transferred to the revocable living trust and only after the grantor has lost the capacity to manage their property. When you’re acting as a trustee, you will have the legal authority to spend and invest the money and property in the revocable living trust for the benefit of the grantor and any other beneficiaries according to the instructions set forth in the living trust.