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What is a Revocable Trust?

A revocable trust is usually a written document that states how assets will be managed by a trustee during the lifetime of the creator of the trust (called the “settlor”) and how those trust assets will be distributed at the settlor’s death. A revocable trust is also known as a “living trust” or “inter vivos trust.” One or more settlors can create a trust.

For a self-settled revocable trust the settlor and initial trustee are usually the same person. A successor trustee (and alternates) are usually named in the document to take over as trustee upon the incapacity or death of the settlor/initial trustee. The successor trustee has a fiduciary duty to manage the trust assets according to the terms of the trust and for the benefit of the beneficiaries of the trust.

Revocable trusts are most commonly used for probate avoidance and shielding assets from Medi-Cal recovery by the State of California. A properly drafted, executed, and funded revocable trust is an important part of estate planning and passing trust assets on to your intended beneficiaries.

Due to the high cost and time-consuming, public nature of probate, many people plan their estates with probate avoidance in mind. In California, as of 2023, a decedent’s estate with assets having a fair market value of $184,500 or more are required to go through probate. The costs associated with probate can be significant. For example, an estate with an appraised value of $600,000 in assets would pay statutory fees to the personal representative and the personal representative’s attorney totaling $30,000, minimum. Additional fees could be collected by the personal representative and their attorney for “extraordinary” services rendered to the estate. Additionally, court fees, publication fees, probate referee fees, and other costs of administering an estate of this size would average an additional $2,000. Additionally, probate is a public and drawn out process, often lasting 8-12 month or more. Planning ahead by placing assets in a revocable trust can avoid the expensive and time-consuming nature of probate.

Funding the Trust

Creating a trust is only the beginning. Once created, the trust must be “funded.” Funding the trust means titling assets in the name of the trust. For real property, this generally involves executing and recording a “trust transfer grant deed.” For personal property, an assignment to trust document is signed. Bank accounts require requesting the financial institution to title the accounts in the name of the trust.

Assigning interests in a partnership, LLC, and shares of a corporation to a trust requires consultation with a qualified attorney. Shares of certain types of professional corporations can only be assigned to a revocable trust under certain circumstances.

If a settlor fails to fund a trust or place an asset into a trust prior to their incapacity or death the successor trustee may be required to file a petition in court (called a Probate Code §850 petition) requesting the court to confirm the trust’s interest in the assetso the asset can be transferred to the trust and controlled by the successor trustee. In situations where there is no “pourover will,”a probate may need to be openedto administer the out of trust asset.

Administering the Trust

Upon the death ofthe settlor, the trust becomes irrevocable. The successor trustee is generally required to provide information about the trust to the trust beneficiaries in a Notification by Trustee within 60 days after the death or incapacity of the settlor. The Probate Code requires that certain language be included in the notice. The trust beneficiaries are entitled to receive a copy of the trust and all relevant trust amendments.

The successor trustee then begins to “administer” the trust by carrying out the terms of the trust. This often includes obtaining a tax identification number from the IRS, preparing trust tax returns, paying the settlor’s final debts and funeral expenses, recording change of trustee documents for real property, liquidating assets, and preparing to distribute the assets to the trust’s income or remainder beneficiaries. Upon the passing of 120 days after serving the Notification by Trustee, and depending on the terms of the trust, the successor trustee will generally begin to distribute assets to the remainder beneficiaries as outlined in the trust. Once the trustee has fulfilled their duties and the trust assets are distributed, the trust terminates.

A revocable trust can be a useful estate planning tool to avoid probate and plan for the distribution of trust assets at death. Creating and administering a trust often requires the advice of a qualified estate planning attorney. Contact us today if we can help!

Disclaimer: This article is intended to provide general information about California revocable trusts and trust administration and a broad overview of that topic and should not be relied upon as a substitute for legal advice about your particular situation from a qualified attorney. Reading this article does not create an attorney-client relationship with Allred Law. Unless and until a formal attorney-client contract/legal services agreement is signed by both youand Allred Law we do not represent you as your attorney.

What is Probate?

A “probate” is a court proceeding whereby a deceased person’s estate is administered and the estate’s assets are distributed to the heirs or beneficiaries. Probate is a public court proceeding, meaning that anyone can read the decedent’s will and attend the court hearings for the probate case. A probate of a decedent’s estate generally takes anywhere from 8-12 months to complete, and can take longer. The personal representative of the estate is entitled to statutory fees for their work in administering the estate, as is their attorney. These fees are calculated as a percentage of the appraised value of the decedent’s estate (4% of the first $100,000; 3% of the next $100,000; 2% of the next $800,000; 1% of the next $9 million, etc.).

To initiate administration of the estate, the executor of the decedent’s will, or any interested person, files a petition to administer the estate with the probate court and a date is set for the first hearing. Notice of the hearing is then published in the appropriate newspaper and served on the decedent’s heirs, the beneficiaries of the decedent’s will, and all interested parties. A filing fee is paid and other required documents are also filed with the court.

At the hearing, and upon appointment by the court as personal representative of the estate, the executor or administrator will then begin to administer the estate according to the decedent’s wishes as outlined in the will. Among other things, notice is sent to the estate’s creditors and an inventory and appraisal of all estate assets is undertaken. Once the time for filing creditors’ claims has passed and the estate is ready for final distribution, the personal representative or their attorney will prepare a detailed final account, report, and petition for final distribution.

Probate Is Expensive!

In California, as of 2023, decedents’ estates with assets having a fair market value of $184,500 or more are required to go through probate. The costs associated with probate can be significant. For example, an estate with an appraised value of $600,000 in assets would pay statutory fees to the personal representative and the personal representative’s attorney totaling $30,000, minimum. Additional fees could be collected by the personal representative and their attorney for “extraordinary” services rendered to the estate. Additionally, court fees, publication fees, probate referee fees, and other costs of administering an estate of this size would average around $2,000.

Planning to Avoid Probate

Due to the high cost and time-consuming, public nature of probate, many people plan their estates with probate avoidance in mind. One of the most common estate planning instruments used for probate avoidance is the revocable trust, also known as a living trust or inter vivos trust. Additional estate planning tools that can be used are payable-on-death bank accounts and (more recently) revocable transfer on death deeds. Revocable trusts still offer the most flexibility with probate-avoidance estate planning and are well known and widely used.

Allred Law specializes in crafting custom estate plans to suit every situation. Contact us today so we can help you reach your goals.

Disclaimer: This article is intended to provide general information about estate administration and probate in California and should not be relied upon as a substitute for legal advice about your particular situation from a qualified attorney. Reading this article does not create an attorney-client relationship. Unless and until a formal attorney-client contract/legal services agreement is signed by both you and Allred Law we do not represent you as your attorney.

What Is an Advance Health Care Directive?

Also called a “power of attorney for healthcare”, an Advance Health Care Directive is a document, signed by you in the presence of witnesses or a notary public, that lists your wishes for healthcare and names an individual to act on your behalf should you become incapacitated.

Life is unpredictable. If you experience a medical emergency or are unable to communicate your wishes for healthcare to your healthcare provider, your family members may have to petition a court in conservatorship proceedings in order to help you. Conservatorship is an expensive, time-consuming, and court-controlled process. Appropriate estate planning, including executing aproperty drafted Advance Health Care Directive, could help avoid conservatorship.

Consider the well-publicized and tragic case of Terry Schiavo. Then 26-year-old Ms. Schiavo fell unconscious in her Florida apartment and never regained consciousness. She was hospitalized and given artificial nutrition and hydration. Since Ms. Schiavo did not have an Advance Health Care Directive, her husband petitioned a court to be appointed as Florida’s equivalent of her conservator. Additionally, since Ms. Schiavo had never written down her wishes for healthcare, a long, expensive, and acrimonious court battle took place between the parents and husband of Ms. Schiavo. At the center of the court fight was what kind of medical treatment Ms. Schiavo would have wanted under the circumstances. All of these legal battles could likely have been avoided if Ms. Schiavo had executed an Advance Health Care Directive.

Naming an Agent for Health Care

In your Advance Health Care Directive you name at least one individual to be your “agent” to make health care decisions for you if you are unable to make and communicate those decisions yourself. Often married couples will name their spouse as their primary agent, or sometimes an adult child. You can also name alternate agents in case your primary agent is unable or unwilling to act at the time needed. The agent’s authority can be made effective immediately upon your signing of the document or at a future time (e.g., at your incapacity).

Your Wishes for Health Care

You can also give direction as to your wishes for health care in the Advance Health Care Directive. For those who wish to prolong their life regardless of their condition, language such as the following is used: “I wish to have my life prolonged to the greatestpossible extent without regard for my physical or mental condition, chance of recovery, likelihood of suffering, or expense.”

Alternatively, those who do not wish to have their life prolonged if they have an incurable illness often choose the following language:

“If I have an incurable or irreversible physical or mental condition, even if I am not in a persistent vegetative state or some other form of permanent unconsciousness, I want care and treatment that will enable me to take part in activities of daily living, to eat and drink, and to communicate meaningfully with others. I want to live my life with dignity and for my loved ones to have pleasant memories of my final days. Thus, I wish to be allowed to die without prolonging my death with medical treatment that will not benefit me.”

The California Probate Code provides for a statutory Advance Health Care Directive. Some hospitals, HMOs, and doctors’ offices also provide Advance Health Care Directives for their patients.

Allred Law provides customized Advance Health Care Directives for clients as standalone documents or as part of a bundled estate plan package. Contact us to find out more.

Disclaimer: This article is intended to provide general information about Advance Health Care Directives under California law and should not be relied upon as a substitute for legal advice about your particular situation from a qualified attorney. Reading this article does not create an attorney-client relationship. Unless and until a formal attorney-client contract/legal services agreement is signed by both you and Allred Law we do not represent you as your attorney.