What is a Revocable Trust?

A Revocable Living Trust is a legal entity in which legal title and management of specified property is vested in a trustee.  The trustee administers the property for the benefit of a your named beneficiary. The person creating the trust is called a settlor and usually names himself or herself as trustee. Revocable Trusts are commonly used in California as tools for transferring a person’s property at death and managing property during periods of incapacity. On the settlor’s death, the property is deemed owned by the Trust rather than by the client for the limited purpose of determining whether court supervision is required. The trustee, or successor trustee, then distributes the trust property as provided in the trust document.

Trust assets may include real estate, stock in a closely held corporation, stocks and other securities held by brokerages, small business interests, patents and copyrights, and precious metals, valuable works of art, valuable stamp or coin collections, and other tangible assets of value.  Click here to learn about the advantages of creating a revocable trust for your family.

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Will My Estate Avoid Probate?

Most people create a Revocable Trust for the primary purpose of avoiding probate. There are two major reasons you want to avoid probate; it's time consuming and expensive. Probate is a court-administered process that typically requires the assistance of an attorney who is entitled to receive fees payable from the decedent’s estate. In California, those fees are set by statute which can be significant and not always necessary. Specifically, the fees are 4% of the first $100,000 in assets, 3% of the next $100,000, 2% of the next $800,000, and 1% of the next $15,000,000.

By way of illustration, if a simple estate with $400,000 of assets (this is gross value and does not consider any debts on the property), the required fee to the attorney and executor would be $11,000 each. While the executor fees can be waived if the heirs are serving in that role, the attorney fees are likely unavoidable. Additionally, court fees and expenses are usually several thousand dollars and appraisal fees can equal as much as .1% of the value of the property.

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Are There Other Ways to Avoid Probate?

The short answer is yes. For example, California does not require a probate proceeding if the gross estate totals less than $166,250. And other assets that transfer to your heirs automatically upon your death are not subject to the terms of your Will. These assets have a beneficiary designation and will transfer directly to recipients without going through probate. Some examples of assets that have a beneficiary designation include joint tenancy; life insurance; retirement accounts; and pay-on-death accounts (also called “POD’s” or “Totten Trusts”).