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Living trusts not just for the wealthy

Business Law

Posted: April 18, 2008 5:49 p.m.
Updated: June 19, 2008 5:02 a.m.
Imagine if your kids go to the bank to get their inheritance after you die, and the bank won't give them the money unless they go to court for months and spend thousands of dollars in probate fees. Imagine if you give all your money to your spouse after you die, but then the government steps in and takes a huge chunk of your assets that were intended for your heirs.

What if you pass away and your wife marries a man who eventually becomes co-owner on all your property, which ultimately leads to the unintentional disinheritance of your kids? Imagine if all your personal information were basically available for anyone to see via court records and proceedings. What if you could avoid headaches like this by creating a living trust?

Not just for the rich
Many people do not consider a living trust because there is a perception that trusts are only for the rich. Some believe those with living trusts live in huge mansions on acres and acres of property.

They speak with fake British accents, play sophisticated games like croquet, go to fancy ballroom parties and eat caviar all day.

Did you ever wonder how the rich manage to keep their wealth in the family and pass it on from generation to generation? Many wealthy families use living trusts. Now more than ever, the "not-so-wealthy"
have figured out that living trusts don't belong to the rich.

Nowhere in the law books does it say that living trusts belong exclusively to the wealthy. One of the most popular tools for preserving and managing your wealth (no matter how much you have) is the living trust. Don't worry. You won't have to attend fancy parties or eat caviar!

What about your stuff
If you have any "stuff," then you should consider what happens to that stuff during your life and when you're gone. You've worked hard to accumulate all the "stuff" you have. If you gather all the stuff you own, it is known as your "estate." When you make plans for your stuff, you are engaging in the wise activity of "estate planning." If you own "stuff," and you want to manage and preserve that "stuff," then you need an estate plan.

People with smaller or mid-size estates often don't consider estate planning. They figure, or they've been told, they don't have enough "stuff" to worry about it. They are told their estate is not large enough to consider a trust. In fact, smaller estates may have more to lose because probate-related fees (and taxes in some cases) can take a huge bite out of the smaller estate. In some cases, if you have less than other people, then you arguably have more to lose if you fail to plan.

When you make a living trust, you are known as the "settlor" (you may have also seen "trustor" or "grantor"). Now, imagine a large box as your living trust. You will put almost everything you own into this box. This is called "funding" the living trust. However, the great thing is that you get to maintain control over everything in the box, just as before. In fact, you probably won't notice any difference at all. The box's purpose to keep your "stuff" safe, for your sake and for the sake of your ultimate beneficiaries.

Then you will appoint a gatekeeper known as the "trustee" whose job it is to keep all your stuff safe. In your living trust, you will set out a list of instructions for your trustee. If you've ever hired a babysitter, you've likely given him or her a list of instructions. However, most people have not taken the time to do the same on a larger scale.

Purpose of the living trust
The purpose of the living trust is to avoid probate, reduce estate taxes, preserve your privacy and manage your financial affairs. If you don't plan ahead, court intervention is almost certain. If you end up in court, that means you and/or your family will have to spend money on court filing fees, paperwork, attorneys, probate fees, appraisal fees and more (not to mention the time it takes and the emotional toll such a process involves). With a properly-created revocable living trust, you can avoid headaches such as those mentioned at the outset of this article. Imagine that.

Robert Mansour is an attorney with offices in Valencia. His column represents his own views, and not necessarily those of The Signal. "Business Law" appears Fridays and rotates between members of the Santa Clarita Valley Bar Association,


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