4 Ways to Pass Property at Death (part 4)

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Welcome back, to the fourth and final of this four-part series about passing property at death. I'm Greg with The Ashcraft Firm.

Last Time…

In the first week talked about passing property through your estate, then we talked about passing property by contract. Last week we talked about passing property by joint tenancy. This week we are going to talk about the pros and cons of passing property by trust.

Revocable Living Trust

So what is a trust? There are actually a lot of terms for the type of trust I am talking about here. some people call it a living trust, some people call it s revocable trust and some people call it a revocable living trust. What I am talking about here is a trust that you can change as life changes. This is usually the basis of an estate plan. What does it really mean to have a trust? A trust is essentially a bucket.

This is your trust bucket and let's imagine that you own a piece of real property in the name of you and your spouse. If you are both listed on that piece of real property the surviving spouse is probably not going to have a problem with going to probate. But when the surviving spouse dies, where does that property go? If you created a will, remember from the prior videos, your property will go to probate court. Remember that a will is essentially a letter to the probate judge telling him how you want your property distributed. A trust doesn’t have to go through any of that because the trust is the owner of the property.

You actually transfer your property into the name of the trust. You are the boss of that trust. You are the trustee (as the boss is called). You hold the bucket handle. You control the property within that trust bucket. You also include terms within the trust document that tell the successor bosses of that trust, the successor trustees what you want to happen to your property when you can no longer control those assets because of incapacity. That’s one of the big differences between a will and a trust. This trust exists while you are living and the will only controls after death.

Cons of Passing Through a Trust

If you have been watching these videos, you will notice that I have switched the order. In all of the other videos, I have been starting with the Pros and ending with the cons, but this time I switched the order because there are so many upsides to passing property in this method, I wanted to talk about those last.

1. The cons to creating a trust include the upfront expense associated with creating a trust. There are real costs to set up a living trust correctly. NOTE: I want to take a second to warn you against trying to cut corners here. There are ways out there, whether it is through a legal document assistant or through online sources to create your trust more cheaply. I have to warn you against taking this route. These methods may be cheaper in the short term, but cost big in the long run in both the strain on your family and the money that it costs from your expense. Trust litigation is one of the fastest-growing areas of law and it is in large part due to these cheap fast methods of creating a trust. It is too intricate of a process to be done correctly through these methods that try to cut corners.
2. Also, there’s the up-front time expended in properly setting up your trust. When we talked about passing your property through your estate. It doesn’t happen like that with a trust, it doesn’t just happen. You have to make it happen You have to be proactive, you have to make it pass through the trust.

Pros of Passing Property Through a Trust

If you have watched the previous videos, you will see that the pros match up with a lot of the downsides that accompany the other methods of passing property.

1. One of the pros is that it avoids probate. There is a lot of expense and time and you lose a lot of control and privacy when you pass property through probate. In a trust, it is not public record, no one knows of the terms of the trust except those that you have appointed to be in positions of power.
2. Another pro about passing property by trust is that you have full control over who gets the property. If you remember from weeks past, when we were speaking about contracts, we talked about how sometimes it is hard to control who gets the property because you are not in full control over the terms of the contract on the beneficiary designation or transfer on death designation. With a trust you are in full control over the terms of the trust and, therefore, full control over who gets the property. You can give to groups, etc.
3. Another pro of creating a trust, is that you can also control how the beneficiaries get the property. You can leave money to them in staged distributions or contingent upon certain circumstances, which you are not able to do in any other method except through will.
4. Another pro of passing property through a trust is asset protection. You can actually set up your trust in a way that will protect the gifts that you are going to pass to your beneficiaries. If they go through divorce or bankruptcy, or if they get into a car accident and are sued, you can leave the funds here in a way that is protected from those circumstances.
5. Fifth, you can do tax planning, really flexible tax planning that you cannot do in another method of passing property. Most people these days do not have to deal with death tax, also known as estate tax, but there are other taxes, such as capital gains tax that can be avoided with the planning we do in trusts.
6. Sixth, you can take the opportunity while you are creating your trust to organize your finances. Yes, there is the up-front time expended on creating a trust, but you can use that time to fully organize your finances.
7. Finally, we have lifetime planning in a trust. A trust exists while you are alive. If something happens to you and you are no longer able to take care of your finances, you can include terms in your trust that will allow your successor trustees to take care of your finances in the manner that you would want them to even when you cannot take care of your own finances.

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Nothing said in this post should be misconstrued as legal advice. The information is situational. You should seek legal counsel as to whether the strategies and consequences apply in your situation. Also, the very basic information given here is based on California law and may not apply in other states.