||What benefits and cost savings does the revocable living trust offer to beneficiaries?
OK, let's say you and your wife or life partner own a home together as joint-tenants with right of survivorship. Let's say that one of you then dies and the survivor ends up the sole owner of this house. What if you have kids and you want to then pass this house down to your children? And your question is should you do it via a will or should you do it via a trust?
Let's say we're in the state of California. Let's say that this house is worth $200,000. And let's say that it had 100 percent financing and the parent owed $200,000 on the house. That sole surviving parent then dies and the will says that that property is to go to the kids. Well, in the state of California, probate is based on the fair market value of the house, as it is in all states, and the mandatory statutory fees in the state of California are $10,300, even though there is not one penny of equity in this house. So, for the kids to inherit this house via a will, it is going to cost them $10,300. And if they don't have the money to pay the lawyer -- because that money is for the executor and the lawyer -- the house can be sold to pay the legal fees.
Now, if that parent had set up a revocable living trust while he or she was alive, if he or she took the steps to transfer title from his or her name and into the title of the trust held for his or her benefit while they were alive and for the children's benefit after they had died, that house would then pass down free of probate and with no probate costs -- and it would immediately happen.
And in the state of California, you need to know that probate can go from six months to two years, with statutory fees and probate costs on top of that. That's the difference. And in states where the fees are not set by statute, the lawyers are free to charge whatever they can get -- which often results in even higher fees.
Blended families face additional challenges if proper estate planning is not done ahead of time. How can parents ensure that children from a prior marriage don't wind up disinherited?
In a case where one parent wants to pass down that house to children from a previous marriage, it's essential that the house is never owned as a joint-tenancy with right of survivorship ... but rather as tenants-in-common.
And the reason you want to own it with a trust -- with one trust owning one half and another trust owning the other half -- is because you want things to be set up in such a way that, in the event of a death, the surviving spouse can live there for as long as he or she wants, he or she can live there until they die. And only at that point, one half of the house would then go to the mother's children and the other half would go to the father's children.