What is a Living Trust?

Hello. My name is Kyle Krasa and I’m an estate planning attorney in Pacific Grove, California. I’m certified by the state bar of California, as a legal specialist in estate planning trust and probate law. The purpose of this video is to give you general information about an important aspect of estate planning law so that you can be prepared when working with your own attorney. Watching this video does not establish an attorney client relationship. The law is far more complex and nuanced than can be explained in a few short minutes. As a result, before acting on any of the information contained in this video, you should consult a competent attorney who is licensed to practice law in your community. With that understanding, I hope you enjoy my video and you find it informative. Thank you.

Okay, let’s say that you own some property and yes, this is my portrait of you. You can tell I went to law school and not art school. Let’s say that you own some bank accounts and maybe you have some real property and these assets are titled in your name. So the deed on the real property has your name on it, the signature card at the various financial institutions, the bank, the investment company, have your name on it. And let’s assume that you don’t have any estate planning in place at all. Now, as long as you’re living and, as long as you have mental capacity to make financial decisions, this arrangement is fine. You can walk into the bank and pull out money. You can write checks, you can invest your money however you want. You can sell your house, you can lease it, you can refinance it.

Everyone’s going to recognize you as the owner of your assets and they’re going to recognize you as having the power and the authority to do whatever you want with your assets. That’s perfect and that’s great. As long as you are living and as long as you have mental capacity. But let’s just assume for a moment here that something happens. You have a stroke and suddenly, although you’re still living, you are not able to effectively manage your financial affairs. So you are out of commission here. The question is what happens? You’re still living, your bills need to be paid. How is someone going to be able to access your accounts and have authority over your assets? If a loved one or a trusted friend or family member goes to the bank and says, Hey, I need to access my friend’s account so I can pay his or her bills, you know, the bank’s not gonna give them access and what’s going to have to happen if there’s no estate plan at all in place, then uh, any interested party who’s trying to help is going to have to go to court.

And if you’re incapacitated, the court process is known as a conservatorship and this is a court supervised process where an interested party explains to the court that you are unable to act and that somebody needs to act on your behalf. So a conservatorship is a court process where a court reviews a situation understands that someone who owns property does not have the ability to manage it and there’s no other estate planning in place. And so the court will appoint someone to give that person authority. The court will issue a special document, letters of conservatorship, that the person will take back and show to the various financial instituions. Now the court has to be careful. They have a fiduciary duty to be very careful about this, so they’re not going to appoint someone as a conservator without doing its own due diligence without looking at doctor’s report.

Maybe a court investigator’s report, maybe appoint attorney to represent you and your interests and have that attorney write a report. So it takes time and there’s an expense involved as well. Now once the conservatorship is established, then the person is able to manage the assets for your benefit, although it is a public process. And then periodically the person who was appointed as your conservator will have to go back to court and check in and do accountings so the court can make sure that that person is exercising his or her authority appropriately. Now let’s assume that a little bit later on you pass away, everything is going to get frozen again. Even the conservator is not going to be able to really fully access all of the assets anymore. Instead a, there’s going to have to be another trip back to court and this time.

It’s going to be a probate. And just like the conservatorship, uh, the probate court has to be very careful. They’re exercising their fiduciary responsibilities, they must do it in a responsible manner and they must do their due diligence and that takes time and it becomes expensive. Um, it’s also a public process. Now, if you had a will that’s not going to help you because a will does not address incapacity. So you’d still have a conservatorship. And then although it will address death, it actually does not give anyone direct authority. You don’t name an executor in your will, you nominate an executor, you’d still, the proposed nominated executor would still have to show the will to the probate court and wait for the probate court to actually issue letters testamentary or letters of administration. And so again, it’s a slower process now, although both processes they will work, they will get you to that point.

They’ll just take longer and typically be more expensive. And so it’s better to try to avoid these procedures if we can. Now, although both procedures take a long time and there are many parts to it, they both boil down to the same issue, both for conservatorship and a probate. They’re trying to address the same problem. And that problem is that title to an asset is held in the name of someone who is unable to act, whether it’s incapacity or death and both a conservatorship and a probate are about changing title to someone who is able to act. And so with doing some proper estate planning, the idea is let’s take care of that title problem. Now while you’re still living and while you still have capacity. Now some people try to shortcut this process here. They think of ways to say, well, you know, I understand I want to avoid probate and conservatorship, but I’m going to shortcut this somehow.

So some people will say, you know what, I’m just going to add my children or maybe a friend of mine or another trusted family member, um, to title of my accounts. That way if something happens to me, then the other people are going to be able to take over. Well there are a lot of bad ideas for that. Um, number one, uh, by adding them to title, have you just made a gift to them and that could result in some gift tax complexity. Uh, that’s probably best to avoid. Number two, uh, well if you’re making them co-owners, what’s preventing them from cleaning out your account and walking off, uh, so you’re more vulnerable to theft in that case. And even when you trust people, it’s still an uncomfortable feeling when there are multiple people who have access to your accounts. Um, a third issue, uh, with this problem or with this kind of setup, this kind of shortcut is, um, you know, we’re sort of contemplating that certain people are going to be around, you know, and so what if the people that we name predecease you or they lose capacity as well, um, that could happen.

We sort of think that someone who’s younger, like our children, our adult children, for example, will survive us and they will be available to help. But that’s not always the case. And a fourth problem with this is liability. By adding, every time you add someone, you are opening yourself up to liability. If any of these individuals get into any kind of legal trouble, they get in a car accident and they’re sued or they have a health bill that exceeds their insurance, not only would their personal assets be vulnerable, but so too might your assets as well. So, although there are some shortcuts, um, the best way typically to solve this problem, to make sure that, uh, you’re gonna update title, uh, to ensure that someone will have immediate access in the event that it’s necessary to access your accounts, both upon incapacity and death without having to go through a court procedure such as conservatorship and probate is to put together a, revocable living trust. And so the basic idea behind a revocable living trust is let’s take care of that title problem. Now while you’re still living and while you still have capacity rather than wait until something happens, it’s so much easier to address that title problem now while you’re living than it is when you’ve lost capacity or when you’ve passed away. I encourage you to watch my other video entitled, “What is a Revocable living trust for more detail and more information about how a living trust works.

I hope you enjoyed watching my video. As I mentioned at the beginning, this is not intended to be a substitute for proper legal counsel. Before acting on any of the information contained in this video, you should consult a competent attorney who is licensed to practice law in your community. Thank you.

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