January 28, 2011

Living Trust Seminar

While reading through my town’s newspaper recently, I came across an advertisement for a free living (revocable) trust seminar offered by a legal services company. 

Since two local libraries, namely Newark and Union City, were gracious enough to let me host an estate planning seminar at their branches through the years, I was curious to see what topics the company included in their advertising materials. The following is one reason the advertisement lists that encourage people to write trusts. 

Avoid court involvement by keeping the affairs of your estate private

This is a legitimate reason to write a revocable trust. The reason for this is because if your estate is over a certain amount, generally speaking $100,000, then your estate may be subject to probate. 

In short, probate is the court-supervised process in which your assets are transferred from you to somebody else upon your death. Probate is not the ideal process for distributing your estate to your beneficiaries in California because of the time involved, 9-12 months to start and complete, and the fees involved, a few thousand dollars at a minimum

In light of this, people write revocable trusts to avoid probate, as the California Probate Code specifically says that assets held in a revocable trust are not subject to probate administration. Thus, if somebody writes a revocable trust and funds their estate into it, their estate can be transferred outside of the probate process. However, the same steps involved in the probate process will be utilized in the trust administration process as well. For instance, just as in the probate process, the trust administration process will require an inventory of the person’s assets, the payment of the person’s debts and finally the distribution of said assets after the debts have been satisfied.

Much is made of the fact that the probate process is public whereas the trust administration process is private. Hence, any person can go to the local superior court and look up the probate record of a person who passed away (“decedent”). The probate file will detail the inventory of every item they own, the value of each item and the beneficiary of each item. 

Whereas most people would like to keep their financial affairs private, it is natural to use the lure of a revocable trust’ privacy to encourage people to write one. 

The privacy factor of a revocable trust is an unpersuasive argument in my opinion for at least two reasons. 

First, most people are not so consumed by the financial affairs of a dead person so as to compel them to go to the local probate court and look up their file. I understand some readers are thinking right now, “what about rich people, I am curious to know what that rich person owned.” Granted, you may be curious about that recently-deceased affluent individual who lived on your street, but it is doubtful that your curiosity would propel you to drive to a courthouse to sift through court records. 

Second, the largest asset for the vast majority of Californians is their home. Ownership records for homes are public records. Consequently, if you leave your home to your child through the medium of a revocable trust, the general public will have access to this record. Whereas the transcripts of court records in California are not currently online, real property records are readily available. I can ask my real estate agent for a property address or a name, and he can tell me, usually within a few hours, the owner of the property or which properties are owned by the particular person.

In short, if you think a revocable trust is great because it eliminates the necessity of probate, then that is a prudent thought. Conversely, if you think a revocable trust is great because it is a private document, you are not fully cognizant of the realities of trust administration.