Living Trust Alternatives Attorneys in Los Angeles, California
Alternatives to Living Trusts: Faster, Cheaper… and Not Worth It
We are often asked if there are cheaper alternatives to the Living Trust with Pour-Over Will that we advise. The answer is… yes. But we advise that Estate Planning is not an area to skimp on, and the following article will tell you some of the reasons why.
Many people believe that you can draft your own will, sign it in from two disinterested witnesses, and all will be well when you pass. As we mentioned elsewhere, having a valid will in California does not avoid probate. And you do not want your loved ones to end up in probate court. Read our Probate page.
Another common budget estate planning strategy is to maintain or create joint property ownership between a parent and their child/children. At first may seem like the easy, money-saving way to go: simply add your children to the deed of your home as “joint tenants” and then bypass the time and cost of estate planning and the probate process.
There are several major disadvantages to adding your children directly to your deed. One of these is that the property could be reassessed if the deed is properly drafted, leading to much higher property tax bills for heirs. Another big one is capital gains taxes. For example, what if you purchased your home for $100,000, later added your child’s name to the deed, and then passed away when the property was worth $400,000. If that child later sells the house for $500,000, the child would be taxed for a capital gain of $400,000 instead of $100,000, a huge difference and a very costly mistake.
Some people set up joint accounts with their kids not just for property ownership for bank accounts. Again, this is faster and easier than setting up the proper estate planning documents but again leads to a far inferior result.
For example, let’s say you add your son as a co-borrower to your checking account. Possible problems down the line include:
Borrowing – If your son gets into a financial bind, it would be very tempting to “temporarily borrow” from your checking account… and later “forget” about paying it back.
Sibling rivalry – If you have multiple children and you pass away, under the law your son gets to keep everything in account. This can and likely will lead to a family court fight.
Bankruptcy – If your son’s financial problems appeared hopeless, he might file for bankruptcy. Since his name is on your bank account, the bankruptcy can claim some or all of your assets to pay off his creditors.
Divorce – If your son filed for divorce, his spouse could claim the joint assets as part of the marital estate. If you wanted to buy or sell something, your son’s soon-to-be-ex might well need to sign off on the sale or mortgage. Talk about awkward!
Another cheaper alternative to having a Living Trust drawn up – but not much cheaper – is a revocable transfer on death deed, and other so-called transfer on death designations. These might work for small estates, where the ‘tangible personal property” such as furniture and jewelry is under $150,000 in California, which allows for a simplified probate proceeding. But beneficiary designations are easy to forget, which can mean accounts going to the wrong people after changes occur during your life. For example, your ex-wife or your mother may wind up with an account that should have gone to your current spouse. Another problem can occur if a beneficiary dies before you, which means the asset may need to be probated after all.
Hopefully, the examples above have alerted you to the perils of trying to cost-cut your estate planning. In other words, you don’t want to be penny-wise and pound-foolish. Gomez Law, APC has addressed your worries about the expense of complete and proper estate planning by offering a package deal to handle all the common scenarios while you’re alive as well as after you pass: a Living Trust, Pour-Over Will, Durable Power of Attorney and Advanced Health Care Directive.
Gomez Law, APC is a full-service real estate law firm representing families and business people, homeowners, landlords, and tenants, with offices throughout Southern California. This article is informational only and should not be used as legal advice. Please note that laws may have changed since this article was published. Before taking action, we recommend that you consult with one of our attorneys about your specific situation. Contact Gomez Law, APC today.