Do you need a trust?

This is a question many people ask when they begin to plan how to distribute their assets to heirs or pay for long term care expenses.

If you’re considering your financial legacy and have at least $100,000 in liquid assets or real estate, or if you have some assets which you need to get rid of in order to qualify for public benefits, read on.

Each situation is different and anyone considering this should discuss it with an attorney, but here are some reasons it makes sense to establish a trust.

Reason one…probate.  Probate is a court process by which the will of a deceased person is proved to be valid, such that their property can in due course be transferred to beneficiaries of the will.  This process generally applies to estates valued in excess of $100,000.

How much does probate cost?  The answer to that question is easy because the attorney and executor fees are set by statute. Prob C §§ 10800, 10810. At probate’s conclusion, the Superior Court will award compensation as follows:

• Four percent of the first $100,000 of the estate,
• Three percent of the next $100,000,
• Two percent of the next $800,000,
• One percent of the next $9,000,000, and
• One-half percent of the next $15,000,000.
• For estates larger than $25,000,000, the court will determine the fee for the amount that is greater than $25,000,000.

This means that a parent who passes away and leaves their beneficiaries a home valued at $500,000, without a trust, would also be leaving a $13,000 bill for attorney and executor fees.  A basic trust, on the other hand, may run anywhere from $1,600 to $3,000, while a more complex trust will cost a little more. Such a plan should include the trust set-up, a will, a living will and a healthcare proxy.  That’s a savings of at least $10,000.

Another reason to create a trust is to qualify an individual for government benefits.  To receive Medi-Cal, an individual cannot have more than $2000 in countable resources and a couple cannot have more than $3000.  By transferring assets into an irrevocable trust or a special needs trust (a specialized subset of irrevocable trusts for people with disabilities) an individual can pass their assets on after death, or have money to buy certain accepted items, and still meet the income and resource requirements.  This is a very powerful financial tool.  If you or a loved one are looking for a way to protect an inheritance or provide for a disabled child then it is worth your time to speak with an attorney experienced in Medi-Cal and tax rules.