As part of your estate planning, the documents in a living trust help to distribute your estate to your heirs upon your incapacitation or death. It is called a “living” trust because it is established while you are alive. A living trust is a legal document that protects an individual’s business and financial interests upon their death or in the case of incapacity.

A living trust allows your estate to be settled without probate and specifically assigns who inherits which assets upon your death. The great thing about a living trust versus a will is that in most cases, it avoids court intervention.

This written agreement is also often “revocable,” meaning that you can change terms and conditions of it as long as you are mentally competent.

Establishes beneficiaries

A living trust documents who should receive your assets if you are unable to use them, because of illness, injury, death, or some other condition. To best protect you, your assets, and the beneficiaries, the living trust also puts in place a neutral third party. This "third party" is someone you choose to act on your behalf to make decisions about your estate if you can't.

Establishes trustee(s)

This third-person – the “trustee” – is the person you choose to manage your estate and your affairs if you are unable to do so. You can name any mentally competent adult to act as your estate’s trustee. And, you can choose multiple trustees who have to work together to agree on actions with assets inside the trust. A trustee can buy, sell, mortgage, or give away assets within the trust – they can fully manage the assets as if they were the owners.

In case of illness, injury, or mental incapacity, you may not be able to manage your own affairs. You may not be in the proper condition to maintain, sell, buy, or divvy up your properties according to their best interests, and you may not be in a position to even choose someone on your behalf to do so.

When you’re planning your long-term estate management, a living trust is one of the best things you can do. Assure that no matter the situation you are in personally, your assets will be well-looked-after by someone you trust. A living trust can simplify the probate process on your death with plans to take care o your assets under every circumstance.

First and foremost, consider how you are going to “fund” your estate. Your estate can be comprised of assets that already exist, such as your home, and it doesn’t need to have an ongoing cost associated with it. Once the paperwork is in place and the trustee(s) are set up, the assets that are listed do not need to be added to unless you see a reason to do so in the future.

The costs for establishing a living revocable trust varies, depending on laws, and can also be affected by the size of the estate.

The national average cost for a basic living trust for an individual is $2,000-3,50000 USD. The national average cost for a basic living trust for a married couple is $2,500-4,000 USD.

Part of the reason for this range in prices is the range of services that are available from various estate planning attorneys. Different attorneys may offer different protection or different documentation. Make sure that when you’re shopping for an attorney that you don’t consider cost as the most important factor.

The bottom line: Attorneys set up the best living trusts

The most important thing in establishing your living trust? Get the help of an estate planning attorney. Yes, you can download template documents yourself from some website, and yes, you could discuss the details with un-trained, un-professional friends or relatives, but why risk it?

It’s your estate. Your assets. Everything you’ve worked hard for throughout your life. Don’t risk its protection with shoddy, incomplete, or incorrect paperwork. Hire an estate planning attorney who makes you ask more than simply “how much does a living trust cost?” Instead, hire an attorney who makes you ask, “What is the value of my living trust?”

One of the top excuses people give for not setting up a living trust is that they’re afraid it will be too expensive. The truth is it’s very likely that creating a living trust will actually save you money. This is not a choice you should make by price shopping. When it comes to a living trust, you really do get what you pay for. It’s best to spend several thousand dollars upfront the to leave your loved ones with the state making your decisions for them costing tens of thousands later.

A living trust can be very valuable to you as the grantor and to your heirs and beneficiaries. Setting up your living trust properly is imperative and it’s important to seek the advice of a living trust attorney to do so.

1. The Living Trust Avoids Probate

One of the biggest benefits of a living trust over a will is that it avoids probate. Probate is a legal proceeding that inventories and appraises property and pays debts and taxes. This can be a lengthy and costly process. With a living trust, your family can transfer assets without going to court.

2. It Will Make Sure that Your Directions and Wishes Will Be Followed After Your Death.

If you become incapacitated or die, your chosen successor trustee will manage your affairs as you’ve set out in your living trust. Because you’ve noted all your wishes in the living trust, there’s no need for court intervention or the cost of legal proceedings.

3. The Trust Saves Your Family’s Time and Energy.

Unlike a will, a trust allows your property, bank accounts, stocks, bonds, and other assets to be transferred to your heirs upon your death without court intervention. The living trust is managed by and your wishes carried out by your chosen successor trustee. This process is much more efficient and less costly than a will. A living trust is also private while a will is part of the public record.

4. Your Legacy Will Be Protected in the Way You Expect.

A living trust gives you peace of mind. You can know that upon your death, your wishes will be followed and that your family will be provided for in a timely manner. A living trust also ensures that minors’ inheritances will remain in the trust until you want them to manage the assets. The living trust also prevents the assets from court control.

5. Potentially Reduce Estate Taxes.

Many people also choose a trust for their assets as it may lower the cost of estate taxes that beneficiaries must pay. This is especially beneficial for those who have substantial assets.

A Living Trust Helps Avoid Probate Fees.

There’s a good reason many Californians create a living trust to avoid probate: because probate is expensive! Let’s say you die with only a will (no trust) or with no Estate Plan at all. Let’s say your estate is worth more than $166,250 in non-real property or $55,425 in real property. That means your estate will need to go to the Probate Court in order for your heirs to receive their inheritance.

The Probate Court charges filing and other fees and also designates a statutory fee for the attorney and executor/administrator for their efforts. All of these costs add up to be quite expensive.

So how much does a probate cost? It depends on the size of your estate. Let’s take a look at some examples.

Example #1:

Let’s say the total size of your estate is $500,000. That includes your home, your investments, retirement, life insurance, bank accounts, and anything else you might own. The statutory probate fees on your estate will be $26,000 – and that is just to pay the attorney and the personal representative. There are additional filing fees and other associated costs on top of that, so let’s round that up to $27,000.

Now let’s compare the cost of a living trust-based Estate Plan, which is appropriate for most California homeowners. For a married couple, you’re looking at about $2,000-2,500 for a complete estate plan, including a Living Trust, Pour-Over Wills, Advance Healthcare Directive, Powers of Attorney, and other supporting documents. After death, an average Trust Administration costs around $5,000, although the cost can vary.

Ask yourself: Is it a smarter financial decision for this estate to use a revocable trust (total estate cost of approximately $7000-7500) or go through probate (total estate cost of approximately $27,000)? The answer is clear: a trust-based Estate Plan will save this estate a lot of money.

Example #2:

What if your estate isn’t that large? What if it’s only worth $200,000 in non-real property? Your estate will still need to be probated because this amount is higher than the $166,250 limit. In this scenario, the statutory probate fees for your estate will still be over $14,000.

Even factoring in the cost to administer the trust after death, a trust would still likely be a smart choice and save the estate thousands of dollars – not to mention time. In California, the average probate process lasts 9-18 months; a typical Trust administration lasts just 3-6 months.

A Living Trust Helps Avoid Taxes.

Now let’s talk about how a living trust can help you save money by avoiding taxes.

Capital Gains Tax:

A trust offers significant tax savings for Capital Gains compared with joint tenancy.

Let’s say you and your spouse purchase a home together in 1970 for $25,000. By the time both of you pass away in 2021, the house has appreciated in value and is now worth $350,000. Since you’re both gone now, it’s time for your Successor Trustee to sell the property. Capital Gains taxes will be owed based on how much the value of the property has increased since you purchased it.

If the title to the house was held as “Joint Tenants in Common”, your home would receive a half step-up in basis for Capital Gains taxes. That means the estate will owe Capital Gains tax on $187,500, totaling tens of thousands of dollars.

If, on the other hand, your home was titled as you and your spouse as Trustees of your Trust, you will receive a full step-up in basis. Your Successor Trustee can sell your house and owe $0 in Capital Gains taxes! Having a Trust can save your estate from having to pay Capital Gains taxes when you both pass away.

Federal Estate Tax:

Federal Estate Tax isn’t as relevant for most of our clients as it used to be. In years past, estates that were around $1 million often used an A/B Trust to help avoid Federal Estate Tax. Today, the amount now sits at $11.4 million, which means that very few of our clients have to worry about this tax.

Still, if you’re married and your estate is valued at over $11.4 million, an A/B Trust continues to offer a shield against tax liability. Between probate fees and taxes, an A/B Trust could help you save over $5 million on an estate of up to $23.16 million in 2020. That’s an idea worth talking about!

A Living Trust Helps Prevent Litigation.

Having a correctly drafted living trust can also save your estate money by preventing future litigation. Many times, wills or trusts may end up in litigation for one of two reasons: a badly drafted will or trust or a client who tried to change their documents without the assistance of a knowledgeable attorney.

These issues can both be avoided by choosing an attorney who you trust to create or update your will and or trust. Never attempt to alter your will or trust on your own, as this can invalidate your documents, create ambiguity, and lead to litigation.

How does avoiding litigation save your estate money? Consider that when a trust or estate is litigated, the attorney’s fees can cost your estate $10,000, $15,000, or much more. It’s possible for your entire estate to be eaten up with attorneys’ fees when a Trustee and beneficiaries go to court to fight over a Settlor’s intentions.

As you can see, it is well worth the money to hire an experienced attorney you trust to set up or update your will and trust.

Creating a living trust can be a complicated and emotional process. An experienced living trust attorney can be a major asset to making the process smooth.

Gather Asset Information

Before you begin working with a living trust attorney, it’s important to know what assets you have, where they are located, all paperwork associated with those assets, and the value of the assets. The more information you can gather, the easier it will be to create your living trust.

Designate Trustee(s) and Those Who Benefit

The second step in building your living trust is to choose your successor trustee. Your trustee is the person who will manage the living trust and distribute assets if the grantor becomes incapacitated or after death.

Find a Trust Attorney

Once you’ve gathered information about your assets and have an idea of who you’d like to designate as your successor trustee, it’s time to find the best living trust attorney to help you put together a legal and enforceable living trust.

If you’re ready to put together a living trust to make the transfer of assets efficient, painless, and cost-effective for your family if you become incapacitated or when you pass away, contact a living trust attorney today.