Trusts Summary 3/23/2024

Understanding Trusts and How Estate Plan Saves You Time, Money and Taxes

Speaker: Matthew Avedikian, Principal Attorney, Avedikian Law

Contact Information: | | 925-239-8000


Overview – What is a Living Trust and Estate Plan?

A living trust is a form of estate planning that allows you to control your assets (your money and property) while you are still alive, but have it distributed to people or organizations you select when you die.

If you have assets that you would like to leave for your children, grandchildren or anyone you wish to receive your legacy, the best way to transfer your assets is to set up a revocable living trust, one that can be changed if the circumstances change while you are still alive.  Keep in mind that items that are not included in the trust will not be subject to the trust distribution process. Therefore, it is important to review if the content in the trust covers everything. It is also important to have a discussion with the intended trustee to make sure that he or she knows the important role that he or she plays when you die.

An estate is everything you own. It includes your home and other real estate, your bank accounts, your retirement accounts, investment accounts, business holdings, valuable personal properties (vehicles, jewelry, etc.), intellectual property and digital assets.

An estate plan is about deciding what you are going to do with your estate based on multiple “what if” scenarios. These scenarios include death, incapacity, minor children and grandchildren, heirs with special needs, creditor and predator protection, blended families and long-term care needs.

Regarding guardianship for minor children and grandchildren, adult children with disabilities, etc. you need to express your plans as to who will be assigned to take care of them or if conservatorship is needed. You will also need to inform the assignee for such responsibilities.


How an Estate Plan Helps You Save Time, Money and Taxes

Having an estate plan will help you avoid uncertainty in the above listed “what-if” situations. If you do not have an estate plan, the State of California will allocate your assets according to California law. Having an estate plan would often help you avoid unnecessary fighting, though it could still happen from time to time.

Having an estate plan will save you time as the sequence of events will happen according to what is spelled out in the trust after your death. No court proceedings are required so it will save you money. The best is that it will often save you capital gains tax. For example, you paid $50,000 to purchase a property 50 years ago. That same property is now worth $2,000,000. If you were to sell it for $2,000,000, your capital gains tax could be up to $500,000. However, if your property is in a trust, when you die, your heir will have a one-time step-up property tax base adjustment on the date of your death. The property value would be brought to the current market value. If your heir sells it right away, there would be no capital gains tax. If your heir sells it further down the road, the new adjusted value would be the base for capital gains tax calculation. Please check with your CPA regarding the actual capital gains tax for any particular property.


If You Do Not Have a Trust

If you do not have a trust, your assets will be subject to probate. All probate cases are public records. Your privacy will be revealed to whoever is interested in looking it up.

If you have a will and your estate is $184,500 or less, you may not be required to go through probate.

Some people create a power of attorney while they are alive and think that the power of attorney will take care of the sale of the property when they die. However, in this day and age of elder scams, many title companies do not accept the escrow if the signer of the transaction is a power of attorney even if the POA documents are properly signed and notarized. There is no way of knowing whether the signed and notarized documents were obtained by force, coercion or lies. The resistance of the power of attorney sale is greater if the property is being sold when the owner is still alive.