Living Trusts

Comprehensive living trusts accomplish at least three fundamental estate planning objectives for parents of young children. A well constructed living trust will:

<     Protect the estate from unnecessary taxes.

A living trust allows parents to pass up to $5 million to their children without incurring estate taxes and will create structures to reduce taxes on estates with assets of more than $10 million. Given the current uncertainty in estate tax law (the current law extends only to 2013), we advise long-term planning in this area.

<     Preserve capital and provide income for the children.

A living trust for families with young children should establish a trust that allows a trustee to manage property left behind, defray the costs of raising the children, provide for their education and ultimately distribute the assets to the children in a responsible way.

<     Preclude probate costs.

A living trust allows parents to pass their estate directly in trust to their children, thus avoiding the expense and delay of probate.

Living trusts created by Finch Montgomery Wright effectively address these issues. (The final critical issue — guardianship — is addressed in a simple will that we prepare together with the trust.) While tax savings and asset management for children can be easily accomplished through a will, a will is subject to probate. In most situations, the safest and most effective way to avoid probate in California is to establish a living trust. Probate is time consuming and expensive. In most metropolitan areas in California it takes a relatively uncomplicated estate 6 to 18 months to move through the probate gauntlet. All of this delay creates additional expense. California probate proceedings typically consume 3% to 6% or more of the gross value of the probate estate. A living trust can be settled in a matter of weeks at a fraction of the cost.

The mechanics of a living trust during the lifetime of people who establish a trust (the "Grantors") are straightforward. Property is transferred into the trust which then holds the property. Since the Grantors are the trustees, the Grantors are free to invest, spend or move the assets into and out of the trust at will. As beneficiaries, they are able to use trust principal or income for themselves as they choose. Finally, during their lifetimes, the Grantors can alter, add to or even revoke their living trust at any time for any reason.

In addition to the advantage of avoiding probate, living trusts provide some additional benefits. Because there are no public filings in probate court, family members are less likely to be subject to solicitations and the finances of the estate are not made public. Living trusts also allow a trusted family member, friend or advisor to manage trust property if the settlors are incapacitated. In addition, if a trust holds out of state property, there will be no need to open another probate proceeding in the state where the property is located. Finally, a living trust is usually more difficult to contest than a will.

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