Living Trusts

Need something on Living trusts here to discuss why All-In-One Financial is the right place to go, rather than say an attorney that specializes in Wills, Estates and Trusts (ala Kathryn's firm in Carlsbad)

Something about what is to follow

Living Trusts can provide multiple blah blah blah....

Some Trust Purposes (Why have a Trust?)


  • To avoid Probate in a manner that does not lose the tax benefits of a step-up in tax basis on the death of the first spouse.  The use of Joint tenancy for ownership of property, can cause a loss of this tax benefit to the surviving spouse.


  • To avoid the 9 month to 2 year or more delay of Probate.


  • To avoid the costs of Probate fees, attorney fees and unnecessary taxes.


  • To preserve the value of my estate by avoidance of forced sale of assets (and the financial losses of this) to pay for probate fees, taxes and other costs.


  • To provide privacy to myself and my heirs.


  • To allow the full "step-up in basis" tax advantages of community property status (where it applies) by having in place a property agreement which identifies the nature (whether community or separate) of the property owned.  


  • To avoid the payment of unnecessary estate taxes by use of the credit shelter trust (A-B Trust) and the unlimited marital deduction.


  • To distribute my estate in the manner I desire. 


  • To protect minor beneficiaries, and any beneficiaries who have "Special Needs" through the use of other Trusts within my Living Trust.  Beneficiaries with other problems such as alcohol or drugs, can be helped and motivated to make changes from their harmful habits with the wise use of provisions and the flexibility of my Living Trust.  A "No Strings" inheritance would provide the means to indulge their bad habits and they would be harmed rather than helped.


  • To be able to make posthumous gifts, and include anyone I wish. 


  • To have the power to disinherit anyone I wish.


  • To have in place the Living Trust documentation to protect the surviving spouse against gigilos (or floozies) acting like a pre-nuptial agreement for the surviving spouse, and creating separate property of the estate while not require that the other person sign anything.




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Ten Advantages of a Living Trust


A revocable living trust has a number of advantages and disadvantages when compared with a will requiring probate.


Advantage 1:

Management Uninterrupted by Incapacity

If a bank or an experienced person is selected as trustee of a revocable living trust, and a large part or all of the Trustee’s assets are placed in a trust during the Trustee’s lifetime, the revocable trust can afford continuous experienced management of the trust assets regardless of the Trustee’s physical or mental incapacity. This avoids the necessity of a court declaration of incompetence and the management of the assets by a court-appointed guardian or conservator. If the Trustee of the trust desires to retain investment control of the trust assets, the trust agreement can provide that while the Trustee is alive and remains competent, the Trustee will serve as trustee. If someone other than the Trustee is serving as trustee, the trust can provide that no purchases or sales of the trust assets or any other important actions can be made without the Trustee’s approval. Should the Trustee become unable to manage assets and financial affairs, either through mental or physical disabilities, the revocable trust is the ideal instrument for continuing proper management.


In contrast, a power of attorney given to another person to manage the Trustee’s affairs will be automatically revoked upon the Trustee’s mental incapacity unless the power of attorney is a “durable power of attorney,” which means that it specifically provides that it is to survive the incapacity of the person making it. Proceedings for the appointment of a guardian or conservator for the property of a person upon becoming senile or incompetent, potentially large legal and bond fees, severe restrictions on investments, and much red tape.


The revocable living trust is an answer to these problems. The trustee can perform all the necessary management of the trust assets, including the collection of income, the purchase and the sale of trust assets, and the management of a closely held business or real estate. In addition, the trustee can make payment of hospital, nursing and doctor bills, and other expenses of the Trustee. When the period of temporary crisis ends, the trust can be revoked by the Trustee if so desired, or the Trustee may again take up active management of the trust assets. If the Trustee dies, the trust can act as a substitute for the Trustee’s will, insofar as the distribution of the assets of the trust is concerned.


Advantage 2:

Time Management for the Busy Executive or Professional

A revocable trust is a valuable aid to the busy executive or professional person who does not have time to study the stock market or to do the many other things that are involved in managing the investment of valuable trust assets. A bank or other qualified trustee can supply experienced investment guidance and free a busy executive or professional person from worries that might interfere with the pursuit of such person’s business or profession, while at the same time assuring the continuous expert investment management of the trust assets.


Advantage 3:

Segregation of Assets

A revocable trust also has the advantage of preventing certain properties from becoming commingled with other property. For example, if a wife has inherited property from her parents, and she desires that the property be kept separate from the property of her husband, she can place her separate property in a revocable trust. The trustee, which can be the wife, can then maintain adequate records to keep that property segregated from the husband’s assets.


Advantage 4:

Trial Run for the Trustee

The revocable living trust allows the Trustee to observe the operation of the bank or person that the Trustee desires to manage the estate upon the Trustee’s death. The Trustee can then be satisfied as to the manner in which the assets will be managed and administered after death. This will also allow the surviving spouse to become familiar with the Trustee’s trust officer and lawyer, so that old friends, instead of strangers, will be there to take care of the surviving spouse and children at death. If the surviving spouse or a surviving child is to become the trustee upon the death of the Trustee, the spouse or child will be able to familiarize himself or herself with the operation of the trust while the Trustee is available to assist the trustee.


Advantage 5:


Another advantage of the revocable trust is the privacy afforded the Trustee for the disposition of the estate at death. Assets placed in a revocable living trust do not become a matter of public court record as may be the case with a probated will. New probate laws are moving toward more privacy.


Advantage 6:

Less Expensive, with Fewer Delays, than Probate

A revocable living trust will result in the reduction of probate expenses. Executors’ commissions, attorneys’ fees, accounting fees, appraisers’ fees, and other charges arising from the administration of a deceased person’s estate are required by statute to be reasonable (although in some states they are still determined by percentage fee schedules), but to a certain extent such fees are based on the value of the assets passing under the decedent’s will. Keeping property out of the probate or testamentary estate of the Trustee can reduce such charges. If all a Trustee’s assets are in a revocable trust at the time of death, it will not be necessary to go through probate at all. However, if a banker or nonfamily member is the trustee, this reduction may be offset to some degree by the cost of administering the trust assets during the Trustee’s lifetime. When the Trustee owns property in more than one state, the avoidance of multiple probates can save substantial fees that would be duplicated in each state where property was located. More important than costs to some people is the delay that results from probate. During the period of court administration, that may last several months or several years, there may be substantial restrictions on the access to assets of the decedent’s estate. The living trust avoids this delay.


Advantage 7:

Less Vulnerable to Attack than a Will

A revocable trust is less vulnerable to attack by disgruntled heirs than is a will. It is rather easy for a relative to attack the probate of a will, even when the attack is based on flimsy reasons. It is quite expensive and time consuming for the executor to win a total victory in such a contest.


An attack can be made on a revocable living trust on the same grounds used to contest a will, for example, lack of capacity or undue influence. However, such a contest does not tie up the trust assets in the same manner as a will contest ties up the probate assets. The burden of proof seems to lie more heavily with the trust contestor, as the attacks are more often successful with wills than with living trusts. The reason for this is that a will is merely a piece of paper until the testator’s death. Nothing in a will has any effect or substance until after the will has been admitted to probate by a formal court order, and all assets are tied up until the will is settled. By contrast, a trust is in full force and effect from the time it is executed during the Trustee’s lifetime, and if there is a contest of the trust, the trustee has assets at hand with which to pay for a defense of the trust.


Advantage 8:

Uninterrupted Management at Death

A revocable living trust provides a means for avoiding any interruption in the management of the trust assets upon the death of the Trustee. Stocks, securities, real estate, and so on can continue to be managed, and debts, expenses of last illness, funeral bills, taxes, and so on can be paid without interruption. Further, there is no delay incurred in providing for the Trustee’s family immediately after death. This elimination of delay is especially important when the trust property consists of assets that require day-to-day handling to avoid loss, or when the family has immediate financial requirements upon the death of the Trustee.


Advantage 9:

Avoidance of Probate in Other States

If the Trustee owns property physically located in different states, it is possible to avoid expensive and time-consuming probate proceedings in these states by conveying the property to a trustee during the Trustee’s lifetime. However, if real estate in other states is to be placed in a revocable living trust, it is important to make sure that the laws of the state where the property is located allow a trustee from another state to act within that state.


Advantage 10:

Tax Treatment of the Revocable Trust

Assets in a revocable living trust are taxable under the federal income tax, estate tax, and gift tax laws in much the same manner as property owned outright by the Trustee. No gift tax is payable when a Trustee creates a revocable living trust and transfers property to it. During the Trustee’s lifetime, all the income of the trust is taxed to the Trustee. At death, all the property in the trust is included in the Trustee’s estate for federal estate tax purposes. After death, the trust becomes irrevocable, and the same tax advantages available to a probate estate are available to the trust. These include the use of the unlimited marital deduction, the avoidance of a second federal estate tax upon the spouse’s estate, and the advantage of providing different tax entities for federal income tax purposes. At the election of the trustee and executor, a decedent’s probate estate and living trust may be combined for income tax reporting purposes. Both trusts and estates are able to make elections to treat distributions made in the first 65 days of a taxable year as if they were made in the previous year.


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