A common misconception that many Orange County residents have is that when someone with a living trust passes away, nothing needs to be done. Although it is true that living trusts can go a long way toward avoiding probate, that does not mean nothing needs to be done when the person who created the living trust dies. Our Orange County trust attorneys can help you take the first steps when this happens.
What is a living trust?
A “living trust” is a specific type of trust that will become effective during the lifetime of the person who created it. Most other types of trusts do not go into effect after death. However, like other trusts, the property being held in a living trust is managed by a trustee until the trust property is transferred to your beneficiaries. With a living trust, that would be the trustor, the person who executed the trust. When the initial trustor dies, the successor trustee named in the trust agreement will take over.
What needs to be done after the trustor’s death?
The exact steps that need to be taken are not always the same, as everyone’s trust terms or trust property are not exactly the same. Nevertheless, there are a few steps that are usually required by the successor trustee. Those steps include the following:
- Acquire a taxpayer identification number from the IRS
- Request an appraisal of all trust assets
- Send notice to Medi-Cal, if applicable
- Create an inventory of the estate’s assets
- Fund any sub-trusts as required by the terms of the living trust
- Prepare notices to beneficiaries
- File the final income tax return for the deceased
Remember, though, that this is not an exhaustive list. So, as successor trustee, you should consult with one of our Orange County trust attorneys to make sure you have performed everything you may be legally required to do.
Understanding how a living trust is created
Creating a revocable living trust requires a few straightforward steps and one of our Orange County trust attorneys can help you get started. In fact, the first important step is to let our attorneys determine what your particular needs are with regard to the trust. That way, your attorney can draft the trust agreement which will contain all of the necessary provisions of the trust. Once the trust agreement has been drafted, the property to be included in the trust must be transferred or “funded” to the trust. It can be that simple with the help of one of our experienced Orange County trust attorneys.
Recognizing some of the disadvantages of living trusts
Even with all of its benefits, there are a few disadvantages to using living trusts, as opposed to other types of trusts. One disadvantage to using a living trust is that is generally more limited in its coverage than a last will and testament. That is because a living trust refers only to specific property – the property that was funded to the trust.
One disadvantage of a living trust
As with most things, a living trust also has its disadvantages. In many cases, simply having a living trust by itself is not sufficient. Many people select themselves as trustee of their living trust, so they can retain control over their property during their lifetime. Yet, the successor trustee you select, the person who takes over after your death, may not have the authority to manage any property that you did not include in the living trust before your death. In order to include those assets, you would likely need a power of attorney, as well.
Living trusts cannot provide estate tax avoidance
Since living trusts are revocable, they cannot provide the benefit of reducing or eliminating estate tax liability. The reason is that a living trust you can be changed anytime, the property technically still belongs to you instead of the trust. So, it remains a part of your estate. Living trusts do not provide asset protection for this same reason.
Consult with a living trust attorney
Before deciding whether a living trust is right for you, consult with a living trust attorney to discuss your options. Though creating a living trust basically requires transferring the title or ownership of your assets to the trust, the provisions of the trust agreement need to be properly drafted. For that reason, it is best for you to seek legal advice.
If you have questions regarding living trusts, or any other estate planning needs, please contact the Orange County trust attorneys at the Schomer Law Group for a consultation, either online or by calling us at (310) 337-7696.