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Estate Planning Must: Revocable Living Trust

Estate planning tool - the living trust - avoiding your assets from being frozen in probate

Estate Planning Influenced by Market Changes

Having weathered the housing bubble storm of 2008 your home is no longer under water. In fact, you’ve got some equity now. You’re not alone. The housing market has picked up dramatically in Santa Clara County over the last year. Envisioning family barbecues in the summers – minus “Uncle Eddie” in his bermuda trunks and snorkeling gear of course – you’re ready to refinance and lay the foundation to the new pool you’ve always wanted. Don’t dive in just yet, Mr. Griswold. The water may be a little cold. The rise in the residential real estate market marks a growing financial threat to homeowners who haven’t created a living trust as part of their estate planning documentation. Without your property properly transferred into an existing revocable living trust the sky-high price of your home corresponds to an equally high probate bill for your estate when you die. One of the Golden State’s not-so-golden probate rules is that the current value of your home (not the equity in your home) is what the probate court uses for valuation purposes. In our local rising housing market you heirs stand to lose more by your failure to properly place your assets into a revocable living trust.

Example: Your only asset is a home worth $750,000. You have 2 mortgages that total $450,000. Your heirs stand to inherit $300,000 on your death if you created a living trust and properly transferred your home into trust as part of your estate planning package. Failing to create an estate plan with your real property properly placed in your revocable living trust subjects your estate to probate. This would cost your estate anywhere from 3 – 5% of the home’s sticker price – or $22,500 and $37,500 respectively.

In California by placing your real property into a revocable living trust you are no longer the owner of the property. Rather your home is now owned by the trust. So long as you created a comprehensive estate planning package that properly spells out your intentions, the court doesn’t have to get involved (i.e. probate) when you die. Your property simply passes according to your wishes. Another advantage is that the trust is revocable. So if you change your mind change your trust. It’s that easy.

A living trust can be especially valuable for someone who owns real estate in more than one state. If you own a vacation home in another state a separate probate process will have to take place in that state if the property is not transferred into trust. Having a living trust set up as part of the estate planning scheme will avoid the costs of a long-distance probate.

Do the Deed

Estate planning - refinancing your home takes your property out of trust mandating the re-transfer of the property into trustThose who have created a living trust as part of their estate plan aren’t always protected. Transferring real estate into trust requires that you pay the fee and record a trust deed with the appropriate County Recorder’s Office. One of the most common mistakes in estate planning is failing to transfer assets into trust.

Even if you’re confident that you originally placed your property in trust, double check the status if you ever refinanced. Many lenders and title companies require homeowners to transfer property held into trust back into their own names on a refinance. You need to ensure the property was safely returned to the trust if you refinanced since initially setting up your estate planning documentation. Failing to complete this process will cause a lot of heartache and costs for your loved ones in the future.


About Sean Hanley

Practicing law since 2007, Sean specializes in the ever-changing laws related to real estate, business and estate planning. Embracing technology with a focus on personalized service, he understands the challenges of living and thriving in Silicon Valley. Tapping into his education in economics and business administration, Sean also serves on the non-profit Willow Glen Business Association.

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