Trusts vs. Wills
A trust, sometimes known as a "living trust," is a legal document enabling you to make gifts of money and/or property, often free of court supervision, after
your death. A trust and will drafted to work together can have advantages over a will alone. If there is someone you completely trust to manage your assets in case you
become incapacitated or pass away, you should consider the advantages
of a living trust compared to a simple will.
Three primary advantages of living trusts are:
1) A trust can often transfer assets to the next generation without court involvement. In many cases, especially for transfers other than between spouses, a California probate action may be required if a will or state inheritance law becomes the means of transferring more than $150,000 in savings or $50,000 worth of real property.
2) For married couples, a trust may make federal estate taxes less likely to apply to larger estates. In 2016, the federal estate tax takes effect only on assets of $5,450,000, or more. In 2017, the federal estate tax takes effect only on assets of $5,490,000, or more.
3) A trust can manage assets over the long term for family members who cannot handle their own finances, or who would lose needed benefits if they received assets directly. For example, parents can specify how they want young children to be provided for in case of family disaster.
Please click here for more about living trust processes, alternative methods of estate planning, the costs of probate
proceedings, and taxes imposed after a death.
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Trusts for Married People
Trusts for married people can now be drafted more flexibly than in the old "A-B" or "bypass" trusts that became popular as of the 1980s (also known as "credit shelter trusts" or "credit shelter exemption trusts"). Until 2001, the bypass trust was an effective way for married couples with assets greater than $600,000 to avoid or reduce estate taxes. However, the bypass trust operated inflexibly: it divided a married couple's estate into sub-trusts in fixed amounts or proportions as of the first spouse's death, usually limiting the surviving spouse's control over half the couple's shared assets.
Bypass trusts made sense only so long as the estate tax threshold remained constant over time. Since 2001, the asset threshold for federal estate taxes has changed every year or two. For now we have the high estate tax threshold of $5,450,000 per person for 2016, and $5,490,000 per person for 2017, but in time we may return to older, stricter taxation standards.
Flexible mechanisms such as disclaimer options for surviving spouses can be built into trusts as precautions against changing tax laws.
The differences between bypass and disclaimer trusts can be important to married people who had trusts drafted before 2001, or who are thinking about creating a trust for the first time.
Please click here for a detailed explanation of bypass trusts and
disclaimer trusts.
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Medi-Cal Trusts
Some optional provisions in trusts can ease
application for Medi-Cal assistance. Not many lawyers provide this option for their clients.
Our documents can take into consideration the hurdles involved in obtaining Medi-Cal assistance, especially to
pay for long-term nursing home care.
Please click here for a detailed explanation of these Medi-Cal trusts.
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Other Types of Trusts
Specialized trusts are available to address
various specific needs. These can include irrevocable (unchangeable)
trusts that help people reduce the sizes of their estates to minimize
potential federal estate taxes. Examples include: life insurance trusts
(for large life insurance policies); charitable remainder trusts (for
donations to charities); and qualified personal residence trusts (for the primary
residence and one vacation home for a single person). Other trusts enable people to care
for dependents, such as trusts for minors and special needs trusts.
Please click here for a description of specialized trusts.
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Additional Estate Planning Documents
In addition to the trust, we include several
other documents in our estate planning packages. Among these are:
• Pour-over Wills
• Durable Powers of Attorney for Finances and/or Personal Care
• Advance Health Care Directives
• Deeds
• Trust Funding Letters
• Certifications of Trust
Please click here for an introduction to these types of estate planning documents.
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