Many people believe that Living Trusts are only for the wealthy and “Trust fund” children/grandchildren.
Living Trusts can be designed for anyone who owns assets, especially real estate. Because the home is normally a person’s most valuable asset, it should be owned in a Trust to avoid the awesome probate rules in California. If you have a Will and own your home in your name, it will go through probate. If you transfer your home to a Living Trust and own it in your name as Trustee, it avoids probate. Plus, you have more control over its placement if you should lose capacity and at your death.
The following are some examples of what can happen if you don’t utilize a Living Trust:
1. Bob left his home in San Diego to his son, Jim, by Will on his death. Because of the packed probate Court docket, it took Jim 16 years to get the home out of probate and into his name. The home was valued at $600,000, but there was a mortgage of $400,000 against the home equaling a $200,000 equity. Probate fees were assessed against the fair market value of $600,000 as California does not allow debt to reduce value in the assessment of probate fees. The $30,000 assessed in minimum probate fees could have been avoided if Bob had left his home to Jim in a Living Trust.
2. Evelyn, who inherited her home in Del Mar and lived in it for 60 years, left it to her son Paul on her death. Unfortunately Paul was being sued in his business when he inherited the property. Since Paul now owned the Del Mar property, it became subject to the judgment against him as a result of the lawsuit. Had Evelyn held her home in a Living Trust, the home could have been retained in Trust and protected from the lawsuit with proper provisions.
3. Alice owned her home in her name when she lost capacity. Alice eventually received Medi-Cal and the state flagged her home for a recovery claim for Medi-Cal payments. Although her out of work and financially strapped daughter, Martha, was expecting to receive the home for she and her children after Alice’s death, the state forced the sale of home with the recovery claim. Had Alice owned the home in a Living Trust, it could have been transferred to protect it from the State of California claim with proper provisions. As a result of Alice having no Trust, the home was lost.