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Consider a Revocable Living Trust,

A Revocable Living Trust (“RLT”) is a legal document created during your lifetime that allows you to leave your real and personal property to beneficiaries of your choice. A RLT is very much like a Will with one BIG exception: there is no Probate with a RLT. This means that your RLT and the property in it will not be made public or subject to court supervision.

Given the high cost of probate proceedings in California which can easily be 4-6% of the fair market value of the assets irrespective of the debt against the assets, this is reason enough especially if you own any real property. In most cases, the cost of transfer of title with a RLT is few hundred dollars. Also, there is a minimal time delay incurred in transferring assets to beneficiaries with a RLT because no court approval is required. In a probate, it can take years to transfer title.   

RLTs are called “living” because they are created while you are alive and you legally transfer your property to the trust when you create it. RLTs are “revocable” because you may at any time prior to your death, revoke or change them. In fact, as there are changes in your life including getting married, divorced, a beneficiary dies or your financial or property situation changes, you should have the RLT reviewed by an attorney in order to ensure the changes are properly reflected in the Trust.

While you are alive, you still own all of your property that has been transferred to the RLT. You can still sell the property in the trust, borrow against it, spend it or give it away. Assets in a RLT are treated much the same as direct ownership of property for income tax purposes. There are no additional taxes, tax returns or any necessity for separate tax payer identification.

Sometimes people say they are not concerned about probate fees because they are not going to be here. However, a RLT can be very important to you when you are alive because if you become incompetent due to an accident or illness, a conservatorship will be necessary if you do not have a RLT. However, if you a RLT, there can be an easy transfer of management of your property and affairs without the necessity of a court appointed conservator if there is a period of incapacity.

Sometimes people are worried that RLT will cost a lot of money and take a lot of time to set up and maintain. For most people, an Estate Plan including a RLT and all of the ancillary documents including a Power of Attorney and Healthcare Directive should not be a costly process. However, depending on your specific circumstances, it may be more costly.  Most attorneys allow people to make payments over time for the work. If you have separate property from a prior marriage or business interests that need to be included, it may be more, but then it is even more important that you properly plan for distribution of your assets in accordance with your wishes without the prying eyes of the public and court system. 

If you have real property in the state of California or elsewhere, you should carefully consider how you are currently holding title to the property and whether a RLT may be a better idea for you. I see people every day for a FREE 30 minute consultation in Walnut Creek and Brentwood.

This article provides only general legal information, and not specific legal advice. Information contained is not a substitute for a personal consultation with an attorney.  LAW OFFICE OF JOAN M. GRIMES, PHONE (925) 939-1680 1600 S. Main Street, Suite 100, Walnut Creek, CA 94513  © 2015 Joan Grimes

Incapacity Planning

Jim Hendrix was right when he said: “Life is pleasant. Death is peaceful.  It’s the transition that’s troublesome.” As baby boomers are moving into retirement at the rate of 10,000 per day many are for the first time thinking about their own mortality and the need to make arrangements for themselves if they cannot handle their own affairs prior to their death.

The first order of business in planning for incapacity is making sure you have an estate plan. For most individuals and couple with real property, a simple estate plan will include wills, a revocable trust, durable power of attorneys (“DPOA”)  and health care directives.

The revocable trust will include real property and any other substantial assets. However, a revocable trust will not eliminate the need for a power of attorney. A power of attorney is a written instrument in which one person (the “principal”) designates another person (the “agent”) to act on the principal’s behalf.  Like a revocable trust, a power of attorney allows a principal to entrust the management of his financial affairs to another. If the power of attorney is made “durable,” it remains in effect even when the principal later loses capacity. To be a durable power of attorney, it must include the magic words of “This power of attorney shall not be affected by subsequent incapacity of the principal” or similar language.

The advantages of a DPOA are that it is the simplest and least expensive to prepare. There is also no transfer of title to assets required, court supervision is unnecessary and administrative requirements are minimal.

A DPOA can also be very flexible. The powers granted to the agent can be very broad or as narrow as the principal wishes. Sometimes a DPOA is used if a principal is going to be out of the country or is having surgery.

The disadvantageous of a DPOA is that some third parties are still unwilling to do business with an agent despite statutory provision protecting the third parties. The most common problems arise in the sale of real estate or securities. On the other hand, third parties usually have little objection to dealing with a trustee acting under a revocable trust. Another problem of the DPOA is that they are only effective during the principal’s life. If there is a trust in addition to DPOA, the trustee can immediately exercise all necessary powers to settle the affairs of the trust after the death of the principal.

In conclusion, it is my hope for myself and for you that our transition from life to death is not too troublesome. To the extent that we plan for the transition, I know it will be easier. If you do not have an estate plan which includes a durable power of attorney, I recommend that you put it on your list of things to do in the coming year. If you don’t make a plan for yourself, someone else will and it may not be what you would have wanted. I see people for a FREE 30 minute consultation at my offices locate in Walnut Creek and Brentwood.

This article provides only general legal information, and not specific legal advice. Information contained is not a substitute for a personal consultation with an attorney.  LAW OFFICE OF JOAN M. GRIMES, PHONE (925) 939-1680 1600 S. Main Street, Suite 100, Walnut Creek, CA 94513  © 2015 Joan Grimes