Three Reasons Not to Create a Living Trust
In recent years, the living trust has become the go-to estate planning tool to avoid probate. But the Probate Code provides a number of ways to avoid probate without the expense or complexity of a establishing a trust. Consider the following before deciding to undertake to create a revocable living trust.
(1) You do not own any real estate.
If you do not own any "real estate"--meaning a house, commercial building, or land--then estate planning methods other than a trust may be able to help you manage your estate without a probate.
With respect to accounts--including checking, savings, brokerage, retirement, wealth management, and other accounts--your financial institution should allow you to name account "beneficiaries." Beneficiaries inherit accounts immediately upon the death of the account owner, without any need for probate or other administrative process. Generally, beneficiaries must be equal. But some financial institutions, especially those managing retirement accounts, will allow you to name beneficiaries in unequal proportions. Many institutions will allow you to name an initial beneficiary and a contingent beneficiary. In the event that your initial beneficiary predeceases you, the contingent beneficiary would inherit the initial beneficiary's share. This can be especially helpful if your spouse is your initial beneficiary and you want to name your children as contingent beneficiaries. If you do not see an option to name contingent beneficiaries in your online account menu, call your financial institution to request the appropriate forms.
With respect to other personal property, like your household possessions and vehicles, if the total value of such property does not exceed $184,500 (as of 2024), and all of your accounts have designated beneficiaries, then a simple will can pass such property without the need for a probate. In California, an estate worth less than $184,500 does not require a probate administration and can be distributed based on a signed affidavit of the person or persons entitled to inherit the property. If you have not real estate, your accounts all have designated beneficiaries, and your remaining personal property is worth less than this "small estate affidavit" limit (as occasionally adjusted or inflation), then your remaining personal property can be distributed by your named executor without having a file anything in probate court.
(2) The only real estate you own is your home.
If you are lucky enough to own your own home but are no real estate baron, then a "Transfer on Death Deed" can be used to transfer your property without the need to use a living trust. In California, the beneficiaries of a Revocable Transfer on Death Deed, or "TOD Deed", obtain equal ownership of a decedent's property without having to file a probate or any formal administrative or court proceedings. A TOD deed must be signed by the current owner and two witnesses (neither of whom may not also be named as beneficiaries), notarized, and recorded. The TOD Deed may identify one or several beneficiaries all of whom take equal ownership of the property upon the death of the current owner.
One key pitfall of a TOD Deed is that the beneficiaries can only receive the property "in-kind", meaning in equal ownership in their own names. If the resulting equal co-owners cannot agree on how to manage the property, any of them might try to force a sale of the property in a "Partition" action. Partition actions inevitably come at considerable expense to the beneficiaries. If you can envision any intractable conflict between your potential beneficiaries, you may elect to create a trust instead, so that you can name a successor trustee to gather and sell your property without permission or consent of the beneficiaries.
TOD deeds are great trust alternative for parents looking to leave their residence equally to their children, who generally get along and will not need to use the residence for their own housing.
(3) You would prefer to have the oversight of a court administered probate.
Most conversations with a estate planning attorney being with the horrors of the probate system. And the stories are true. Probate is a lengthy and expensive process. Distribution of assets can be held up for any number of reasons. In counties with particularly impacted schedules, simple orders and petitions can take 6 months or more to process. But, because it is overseen by elected judicial officers, the probate system is basically incorruptible. It functions the same for all estates, big and small, and provides predictability.
Despite its many disadvantages, probate might be a good option for people who believe that there may be conflict between beneficiaries or that an appointed successor trustee may feel pressure corrupt the intent of a trust. For example, if you want to disinherit one of your three siblings, you may prefer to have your estate pass through the probate system, which will enforce the disinheritance in his order for final distribution. In contrast, a successor trustee, especially if they are one of the favored siblings, might feel pressure to re-allocate trust property to compensate the disfavored siblings. Without any court oversight, that task might be easily accomplished.
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Without a doubt, a living trust is a useful estate planning tool for many people. but it is worth considering all options. The Law Office of Ravi Patel can help you understand what estate planning strategies are best for you.
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Contact Law Office of Ravi Patel if you need assistance with estate planning. Book an appointment below or call 510-443-0443. Serving all of the Bay Area, including Oakland, San Francisco, San Jose, San Mateo, Contra Costa, Richmond, Marin, Mendocino, Napa, and Sonoma.
