Wills and trust permit you to determine who will administer your estate, who will be the guardians of minor children, and who will receive your property. If properly structured, a will or trust may result in significant tax savings. There is no general form that is best for everyone; rather each person should analyze their particular situation and determine whether a will or trust, or both, fits their special needs.
A will is a written instrument by which a person disposes of property at death. A will is always subject to change during the person’s lifetime. It conveys no present interest in property until the person’s death. In California there are three types of wills: (a) a “holographic” or handwritten will; (b) a statutory will; and (c) a formal will, prepared by an attorney.
Generally, in a revocable living trust, an owner (“grantor”) transfers property to himself as trustee to be managed for his own benefit (beneficiary). A revocable living trust (also called an inter vivos trust) may be canceled or changed during its existence.
The advantages of a living trust include the following: (a) the costs and delays of probate are avoided; (b) if you become unable to care for yourself due to mental or physical disability, the successor trustee may assume management of the trust, thus avoiding the costs and publicity of a court conservatorship proceeding; and (c) privacy, since the contents of the trust are not a public record as is the case with a probate will. In addition, a living trust can provide a mechanism for professional management of your assets, if you are too ill or not interested in managing them yourself.
The disadvantages of a living trust include (a) the cost and effort involved in transferring all of your assets to the trust; (b) the cost and expenses of setting up the trust; and (c) the cost and expense of administering the trust if you name a trustee other than yourself. Transferring property to a living trust has no impact on property taxes or income taxes, and a separate tax return for the living trust is not required. Thus, establishing a living trust does not reduce estate or income taxes.
An irrevocable trust is created during your lifetime. Certain assets are transferred in for the benefit of heirs. Those assets transferred in may be permanently removed from the estate of the transfer or if they qualify as part of the available exclusions from estate taxes.
The benefit of such transfer is that further appreciation is removed from the estate of the donor, as well as current earnings on these funds are taxed to the beneficiaries. The disadvantages of an irrevocable trust are that once given, the gifts cannot be taken back, and the trustee generally must be someone independent of the donor, who will then control the assets pursuant to the terms of the Trust.
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