In California, one of the best methods for any real estate owner to avoid probate is to create a revocable living trust. A revocable living trust, if properly drafted and funded (more on that later), allows a person creating the trust to still maintain control and authority over property during his or her life. A trust also allows for the potential to name a trustee that would be in charge if the person creating the trust (the “settlor”) becomes incapacitated or otherwise incapable of managing his or her property. Although during your lifetime, the revocable living trust actually owns your property, you still have total control over it.
Why Do You Want to Avoid Probate?
You will often hear that a revocable living trust is a great method to avoid probate, but you may be asking yourself why is probate bad? Probate is a court process that distributes the assets of a person who has died (the “decedent”). It is often a time consuming and expensive process. In a previous blog post, I have written about how expensive probate can be. Attorneys’ fees, executor costs and fees can often eat into 10% of the total gross estate. It is important to note that when determining the gross estate, the value of real estate is determined regardless of any mortgage held on the property. For example, a $500,000 home with a $400,000 mortgage would still be valued at $500,000 for probate purposes.
Although after the settlor dies there will some costs associated with distributing trust assets to beneficiaries, the costs are often less than probate costs and can be negotiated. Distributing assets from a trust often times goes quicker than distributing assets through probate.
Funding a Trust
Even if you currently have a revocable living trust, it is important to determine whether or not assets are owned by the trust. Real estate, and all other property, must be owned by the revocable living trust in order for the revocable living trust to avoid probate and distribute assets to beneficiaries. In real estate, a grant deed would transfer real estate from the settlor to the revocable living trust. If you use a grant deed to transfer property to a revocable living trust, there will not be a property tax reassessment.
If you have questions about drafting a revocable living trust, a review of your current revocable living trust, or other estate planning needs, please contact Attorney Anthony Marinaccio at (818) 839-5220.