Do we need a Living Trust?
April 26, 2011 12:31 PM   Subscribe

In California, what are the benefits of a Revocable Living Trust and a will?

I'm married and we recently bought a house. We also have a 3-year old. When we bought the house we had the deed recorded as Community Property with Right of Survivorship. We have a few other assets, mostly in the form of vehicles and musical instruments.

Do we need a living trust and/or will (we have neither)?

Specifically, what happens to the house if one or more of us dies without either of those documents in place? I'm confused about how community property works in the event of one spouse dying but am having a hard time wading through all the information online.

Also, what would happen to our daughter if both of us died? We don't have a guardian named anywhere.

If it matters at all, I have life insurance but my husband does not (yet).
posted by anonymous to Law & Government (4 answers total) 2 users marked this as a favorite
A trust gets your heirs out of having to deal with probate, so it's very quick, and it's private, while a will is public.

You definitely need at least a will, and asap. Even if you decide to get a trust, you would want a will in addition- they aren't mutually exclusive- but the bulk of your instructions would be in the trust.

If you have neither a will nor a trust the state will eventually decide all of the things you mention- who gets your house, who gets your daughter, etc.

In my limited experience, what items you want in a trust is determined to a large extent on convenience. You may not want your checking account in a trust, for instance, because having to explain to the dry cleaner that you are the same person as the "The Smith Doe Family Trust, dtd 2010" is annoying. You might also not want to name specific items if they'll change. If your 2002 Pontiac is named, once you sell it, you'd have to amend the trust with your new car named, so people will often just say "any and all cars" or just leave the cars out.

Personally, and YMMreallyV, I'd want a trust just to stake out the guardianship of my child, but there may be other ways to deal with that.

You didn't ask, but I'd strongly recommend you both get living wills/advance directives and powers of attorney for medical AND financial. These are for when you're NOT dead, despite what a lot of people think because of the "will" in the name, but for when you're incapacitated.

The advance directive tells what kind of care you want if something should happen to you. Terry Schiavo is everyone's poster child for the bad things that happen when you don't have one. Contentious religious relatives aside, if you don't have one, what generally happens is that the hospitals attorney's make decisions about your care based on the hospital's best interest. Ew.

A financial power of attorney allows someone (like your spouse) to write checks, pay bills, etc for you if you can't do it yourself.

A medical power of attorney allows someone (like your spouse) to make basic medical decisions for you.

All of these things- the will, a trust, a living will, and powers of attorney can be done up by an estate attorney as a package, so it's a little cheaper. Around here (San Francisco Bay Area) that package starts at about $2,000.

If I had a house and a kid, I'd have one of these packages drawn up, unless I was so poor I couldn't pay for food each week. If that was the case, I'd do as much as I could via nolo press and realize that I'd likely be making scary errors while doing so. (However, doing nothing at all would be scarier.)
posted by small_ruminant at 12:51 PM on April 26, 2011 [1 favorite]

"Specifically, what happens to the house if one or more of us dies without either of those documents in place?"

The tennancy known as "Community Property with Right of Survivorship" does not exist where I live and work, so I have no direct experience with such a beast. Your best bet, if you want a real answer, is to hire a California attorney to do an estate plan for you (which is a good idea in any event) and have him/her explain what it means.

In general, though, the "right of survivorship" means that a property will pass automatically to the remaining tenant(s) upon the death of one of the tenants. It's basically like you and your spouse both own 100% of the house -- when one spouse dies, all that happens is that one fewer person now owns 100% of the house. No will or trust is necessary, so a "joint tenancy with the right of survivorship" (as the more common tennancy is called) can be used as a cheap will substitute. It is possible that the "Right of Survivorship" in your tenancy means something else (although this seems fairly improbable) so as I say your best bet is to start looking for an estate attorney.
posted by lex mercatoria at 5:14 PM on April 26, 2011

We used Karen A Stevenson (562) 947-8997 in LA and she is very reasonable. I hate to see a young family paying 2,000 to do this and you really do need to get this done.

Seems like you could do the medical directive yourselves if she charges extra for that.

You should have a trust according to everyone I know. And everyone also has to have a will. It is not like you want one or another. We have a will that says "everything goes to our trust". It is my understanding that you have to set it up that way. (you have to have a will) (ask a lawyer)

One difference that I have heard is that a will can be contested (and in my experience usually is) but a trust cannot. (at least it is very hard to contest a trust)

And yes please, generalize if you can. Or else you will have to have it changed every time you trade in an old car. And it cost money to have it changed.
posted by cda at 9:26 PM on April 26, 2011

As far as I know, and IANAL, Community Property WROS means the house will automatically go to your spouse (just like a Joint WROS would). The difference is in how the profit will be taxed when the surviving spouse sells it. With community property, the entire house gets a step up (or down, probably) in basis when the first person dies. Boring tax explanation follows, even though I am also not a tax preparer.

Example: Joe and Jane are legally married. They buy a house for $10. Many years later, when Joe dies, the house's market value is $30. Later on, Jane decides to move to Arizona and sells the house for $40.

With JTWROS, the state will decide that Joe's half was "bought" for $15 (half of what it was worth when he died.) Jane's "buy" price will stay at $5, (half of what it was worth when they first bought it.) The house's "basis" then, is $20 ($15 + $5). When Jane sells it for $40, her taxable profit is $20.

With CPWROS, the state will decide that the entire house was "bought" for $30 (the market value when Joe died). When Jane sells it for $40, her taxable profit is only $10.

Obviously, taxable profit isn't the same as actual profit, and of course Jane wants less taxable profit because she will pay fewer taxes. Basically you want the most real profit you can get and the least taxable profit.

Because it's silly to call it a "buy" price when it's been fiddled around with so much by tax laws, deaths, etc, they call it "cost basis" instead. And instead of profit, they call it "gains." Same thing, different jargon. So when they talk about "capital gains" they are generally talking about taxable profit.

If the value of their house went down between when they bought it and Joe died, I don't know if you MUST step down the basis, in which case, Jane would be a worse position than if they'd done JTWROS. Her actual profit would be less than the taxable profit! I haven't run into that scenario, but I bet a lot of people have in the last couple of years. Hopefully someone here has some experience with that.
posted by small_ruminant at 9:43 AM on April 27, 2011

« Older Home security systems for dummies.   |   Taxonomy or list of English grammatical constructs... Newer »
This thread is closed to new comments.