Many property owners in the San Francisco East Bay take possession of their home through a living trust. It can be used in a way that allows several people - sometimes different generations of a family - to transfer wealth in an estate in the event of a grantor’s death. The trust dictates how the assets are distributed to beneficiaries, bypassing probate, which is a court-supervised process that can be time-consuming, expensive, and public.

 

You might think of a living trust as a secure container for one's material accumulations, ensuring they reach the intended hands without delay or complication.

 

Both living trusts and wills are essential estate planning tools, but they function differently. A trust is a legal document that allows the grantor to transfer ownership of their assets. A will simply provides instructions on how you want your assets distributed upon your death. Typically, if someone passes away and leaves only a will, their assets are subject to probate review.

 

While a living trust bypasses probate for assets titled in the trust's name, it doesn't automatically cover assets you forgot to transfer. That's where a "pour over will" comes in. This type of will directs any remaining assets not titled in the trust to be transferred to the trust, ensuring your entire estate is handled according to your wishes. It can also be used to name guardians and make financial provisions for your children or to designate memorial arrangements.

 

In California, inheriting assets from a living trust does not trigger any additional income taxes for the beneficiaries. The assets retain their original basis, meaning any appreciation in value is taxed when the beneficiaries subsequently sell the assets. However, it's crucial to consult with a tax advisor to navigate specific circumstances. Depending on the size of the estate, federal taxes may apply.

 

• Gather Information: Make a list of your assets and liabilities. Include any real estate you own, investment accounts, insurance policies and personal property. This will help determine what needs to be included in the trust.

• Choose a Trustee: This is the person responsible for managing the trust according to your wishes. You can choose yourself, a trusted family member, or a professional trustee. If you choose yourself, you’ll also want to name a successor trustee to take over after you die or in case you can no longer manage your own affairs.

• Create the Trust Document: It’s possible to create it yourself, but since it’s so important, most people use a qualified attorney. When complete, it should be signed and notarized. 

• Fund the Trust: Transfer ownership of your assets to the trust. It may not be advisable to transfer retirement accounts, health savings accounts, assets held outside the U.S., and vehicles. An attorney or financial advisor can help with this.

• Review and Update: Regularly review your trust document to ensure it reflects your current wishes and any changes in your life. A living trust is “revocable,” which means you can change or cancel the trust at any point as long as you’re competent.

California is a community property state, so if you’re married it may affect how the trust is set up. You’ll first need to decide whether you want a single or joint trust. A joint trust will allow you to include property that each spouse owns separately as well as joint property.This is another area where good legal advice will help.

 

The agents at Red Oak are familiar with transactions involving inherited property, whether mired in probate or held in a living trust. If you’d like some excellent resources to help with your estate plan, reach out.