Revocable Living Trusts

• Background - The Probate Process
• Statutory Probate Fees
• Ways to Avoid Probate
• Revocable Living Trusts
• Drafting and Funding of Revocable Living Trusts
• Managing Revocable Living Trusts
• Potential Advantages of a Revocable Living Trust
• Possible Disadvantages
• Federal Estate Taxes
• Estate Taxes Exclusion Amounts

Background - The Probate Process

1. WHAT IS PROBATE?

   • A WAY FOR THE COURTS TO MONITOR "THE ESTATE"
   • TO PROVE THE WILL VALID, IF THERE IS ONE
   • TO PAY DEBTS IN A SPECIFIED ORDER
   • TO DISTRIBUTE PROPERTY
   • TO ALLOW CHALLENGES
   • TO CLEAR TITLE
     
     

2. WHEN DO YOU NEED TO PROBATE?

   • FUNCTION OF DOLLARS - NOT WHETHER A WILL EXISTS OR NOT
   • SUMMARY PROCEEDINGS LESS THAN $100,000
     
     

3. WHAT GETS PROBATED?

   • INVENTORY AND ASSETS
   • REAL PROPERTY AT FAIR MARKET VALUE (FMV)
     
     

4. WHO DOES IT?

   • EXECUTOR/ADMINSTRATOR & ATTORNEY
     
     

5. SAMPLE PROCESS

   • FILE WILL
   • PETITION FOR PROBATE
   • NOTICE OF DEATH/PUBLICATION
   • OBTAIN ORDER FOR PROBATE
   • OBTAIN BOND
   • OBTAIN LETTERS TESTAMENTARY
   • PERPARE INVENTORY AND APPRAISEMENT
   • ALLOW FOUR (4) MONTHS FOR CREDITORS CLAIMS
   • SALE OF REAL PROPERTY (IF NECESSARY)
   • PRELIMINARY DISTRIBUTION
   • FINAL ACCOUNTING AND DISTRIBUTION
     
     

6. STATUTORY FEES

   • SLIDING SCALE DEPENDING ON VALUE
   • REMEMBER, HOUSE AT FULL MARKET VALUE NOT EQUITY
   • EXECUTOR/ATTORNEY
   • SAMPLE WORKSHEET
     
     

7. REASONS PEOPLE WISH TO AVOID PROBATE

   • COST
   • TIME
   • LACK OF PRIVACY
     
     

Statutory Probate Fees

4% for the first $100,000
3% for the next $100,000
2% for the next $800,000
1% for the next $9,000,000.

Examples

Attorney & Executor are each entitled to above fees.

There are also additional costs such as : Filing Fees, Publication, Bond, Probate Referee, etc.

Ways to Avoid Probate

• GIFTS

• MATTERS OF CONTRACT:

  LIFE INSURANCE
  IRA, KEOGH, 401k

• FORMS OF TITLE:

  JOINT TENANCY (PASSES BY OPERATION OF LAW)
  JOINT BANK ACCOUNTS
  BANK ACCOUNTS IN TRUST FOR ("TOTTEN TRUSTS")
  NEW COMMUNITY PROPERTY WITH RIGHT OF SURVIVORSHIP
  
  

• TRUSTS:

  SEPARATE ENTITY IN WHICH YOU MAY BE IN CONTROL

What Is A Revocable Living Trust?

• A written legal document/agreement indicating what you want to happen to Your assets when you die.

• Like a will, but avoids probate because separate legal entity which trustee controls.

• Trustor/Settlor is person creating the Trust.

• Trustee is person managing the Trust.

• Trustor & Trustee may be the same or different individuals.

Drafting And Funding Of Revocable Living Trusts

• Declaration of Trust - Identifies the players, the assets (separate, or community property), and how assets are to be distributed

• Trust holds assets for the benefit of yourself or others

• Special on-going provisions may be made (i.e. special needs and care for a particular incapacitated individual; special educational requirements or conditions of distribution; partial distribution at different ages, etc.)

• "What if" scenarios and contingencies can be addressed

• Directs who will manage the Trust after the death of Trustor/Trustee

• Directs who will manage the Trust after the incapacity of a Trustee

• No contest clauses

• Assets are transferred to the trust by changing "Title":

  Real Property via quitclaim deed
  Securities and Bank Account via Letter of Instructions
  Furnishings and other tangible property via Bill of Sale

• Trust assets are listed in "Schedules" (normally found at the end of the trust)

Managing Revocable Living Trusts

• Sign legal documents as Trustee

• Buying and Selling assets done the same way

• Keep Trust Schedule(s) updated - the trust is a living document

• Change of trustee is done via written notice

• Trust should already have contingent successor trustees in case of death or incapacity

• May have issue with refinancing

Potential Advantages Of A Revocable Living Trust

• No Probate - Saves Time and Executor/Attorney's Fees

• Privacy

• Professional Management

• Continuity - Successor Trustee

• Credit Shelter trust can save substantially on Federal Estate Trusts

Possible Disadvantages

• Takes time up front to set up

• On-going records should be kept

• Attorney Fee higher than that of setting up will

Federal Estate Taxes

Estate taxes is an excise tax imposed on your right to transfer your property at your death - as high as 55%. (Robin Hood Principle)

You are currently exempt from Estate taxes if your total assets are under $2,000,000 (Remember all assets are included; i.e. 401K, IRAs, Life Insurance)

If married typically no estate taxes until death of surviving spouse (because of marital deduction) - however, at second death of only one $2,000,000 exclusion

Properly structured Credit Shelter Trust allows for the "split" of the trust at the death of

Example 1 - Estate size now or will grow to $2,500,000

Without a Trust - Estate taxes would approximate $250,000 [($2,500,000 - 2,000,000)/2]

With a Credit Shelter Trust, there would be no Estate taxes. A savings of $250,000

Example 2 - Estate size now or will grow to $4,500,000

Without a Trust - Estate taxes would approximate $1,250,000 [($4,500,00 - 2,000,000)/2]

With a Credit Shelter Trust, Estate taxes would be $250,000. A savings of $1,000,000

Trust "A" = $2,250,000

Trust "B" = $2,000,000

Trust "C" = $250,000

ZERO ESTATE TAXES ON TRUST B

ESTATE TAXES ON TRUST A + TRUST C = [2,250,000 + 250,000 - 2,000,000] /2 = $250,000

Estate Taxes Exclusion Amounts