Typical Living Trust Case Brief

Situation:
Client is a Los Angeles double income married couple in their early forties with three minor children. Their estate is currently (2005) valued at $1,400,000 as follows:

Cash & Marketable Securities
200,000
Retirement
200,000
Life Insurance
600,000
Home Equity
400,000
TOTAL
$1,400,000

Solution:
Establish a revocable living trust (also known as an inter vivos trust or a family trust). As the name suggests, the trust is revocable at any time. The couple will be able to manage their own assets in the trust. All trust assets pass to designated beneficiaries without probate.

Benefit:
If the client’s estate continues to grow at a conservative 5% a year, while adding $10,000 to savings annually through earnings, it will be worth $2,050,000 in 2011. If both spouses were to pass away at that time, with a revocable living trust the client receives the following benefits over the do-nothing approach:

  • $439,000 tax savings. In 2011 in a do-nothing approach, they would pay $459,500 in estate tax under existing law. Their taxes would be $20,500 with living trust.
  • $100,000 probate transaction costs savings, usually estimated at 5% of the estate’s value. They would, however, have to pay some transaction costs with the trust.
  • Estate assets readily available to provide for their children. In a do-nothing approach, their estate would likely be in probate for two years or more, tying up many of the assets.
  • Children taken care of by designated guardians. In a real do-nothing approach, without a will, they would not have designated their preferred guardian for their three children.
  • Privacy regarding family wealth transfers. All probate actions are a matter of the public record.

Benefit if the clients are incapacitated:

A designated trustee manages the assets. If the clients are incapacitated without a trust, their children will have to petition the court for a conservatorship to manage the assets, a time-consuming and expensive process.

2018-12-21T21:52:16-07:00