Debate Over Living Trusts Goes On
The debate as to whether to use wills or living trusts continues.
This week I received a letter from Julia Nissley, a paralegal and the author of “How to Probate an Estate,” an excellent self-help book that guides the uninitiated through the probate process.
Nissley is frustrated by ads for living trusts that describe probate as “an ugly, expensive legal nightmare that takes two to five years to complete.”
That is simply not true, she says. “A stream of major probate law changes in California in recent years has simplified probate procedures considerably,” she writes. “Court involvement has been cut to a minimum, or eliminated completely in many cases, and standardized one-page printed forms are used almost exclusively.”
She is correct in stating that in recent years there have been substantial changes in the probate code. Summary (relatively simple probate) procedures are now available, especially for small estates and estates of married couples in which the assets pass to a surviving spouse. For instance, estates valued under $60,000 can easily be passed to beneficiaries after a waiting period of from 40 days to six months.
One possible catch is that, in some cases, this process considers the fair market value of property in the estate before allowing for any liens or mortgages. For example, if you owned a California home worth $100,000 in your name only , you could not use the summary procedure, even if your mortgage was $75,000. The value considered would be the full $100,000, no matter how much you owed on the property.
On the other hand, if you owned that same home as community property together with your spouse, you might be able to use the summary procedure. That’s because joint-tenancy property, community property, real property outside California and certain other properties are not counted in the computation to determine whether you meet the $60,000 eligibility cutoff. You might be able to use this summary procedure even if your house is worth $500,000--if it is held in joint tenancy or community property--as long as your other assets are worth less than $60,000.
There are also summary procedures in probate that allow a person to pass his or her estate to the surviving spouse. Nissley explains: “Although the probate code allows the surviving spouse to receive such property free of probate, in most cases it is necessary to have an official document to remove the deceased spouse’s name from stock certificates and deeds or other documents. To do this, the surviving spouse can file a Spousal Property Petition and obtain a court order declaring that the surviving spouse is the sole owner of the property.”
Deciding whether to use a will and endure the probate process or use a living trust and thereby avoid probate is a personal decision, based on many individual factors--your net worth, your marital status, your desire for privacy, your health, even your debts, among others. There are advantages and disadvantages to each option, many of which I have described in previous columns. (Remember that, generally speaking, a living trust is not a tax-avoidance device; you can obtain similar tax benefits from a testamentary trust that is established in a will and takes practical effect only during probate.)
Before you decide, find out as much as you can about each option. Consult a lawyer, talk to a financial adviser, attend seminars, and read the various books and other publications available on the whole issue.
