The trustee is the person (or people) who holds legal title to the property that is in the trust. The trustee's job is to manage the property in the trust for the benefit of the beneficiaries in the way the settlor has asked.
Trusts offer amazing benefits, but they also come with potential downsides like loss of control, limited access to assets, costs, and recordkeeping difficulties.
Disadvantages of a Living Trust
Complexity: Properly funding the trust requires transferring assets, which can be complicated. No Tax Advantages: Revocable trusts don't provide tax relief since assets remain part of the grantor's taxable estate.
Suze Orman, the popular financial guru, goes so far as to say that “everyone” needs a revocable living trust.
The answer will always depend on your own personal situation. Almost everyone should have a will, but if your net worth is greater than $100,000, you have minor children, and you want to spare your heirs the hassle of probate and/or keep estate details private, consider adding a trust a mix.
However, a living trust in California after the death or incapacitation of the grantor generally becomes irrevocable, meaning that its terms must be carried out by the successor trustee exactly as they are written.
There are also some potential drawbacks to setting up a trust in California that you should be aware of. These include: When you set up a trust, you will have to pay the cost of preparation, which can be higher than the cost of preparing a will. Also, a trust doesn't provide special asset or estate tax protection.
Income Tax: Trusts must pay income tax on any earnings generated by trust assets, such as interest, dividends, and capital gains. Trusts are taxed at the federal level, and California also imposes a state income tax on trust income.
Parents and other family members who want to pass on assets during their lifetimes may be tempted to gift the assets. Although setting up an irrevocable trust lacks the simplicity of giving a gift, it may be a better way to preserve assets for the future.
Once dominant in a market, critics alleged, the trusts could artificially inflate prices, bully rivals, and bribe politicians.
Once your home is in the trust, it's no longer considered part of your personal assets, thereby protecting it from being used to pay for nursing home care. However, this must be done in compliance with Medicaid's look-back period, typically 5 years before applying for Medicaid benefits.
Secure Your Home's Legacy through a Trust in California
It offers numerous benefits, from avoiding probate to providing privacy and tax advantages. If you're considering this step, consult with an estate planning lawyer to ensure a seamless process and long-lasting protection for your most valuable asset—your home.
A: Property that cannot be held in a trust includes Social Security benefits, health savings and medical savings accounts, and cash. Other types of property that should not go into a trust are individual retirement accounts or 401(k)s, life insurance policies, certain types of bank accounts, and motor vehicles.
While a trust can remain open for 21 years after the death of the grantor, most are closed immediately after death. This can take anywhere from a couple of months to one year, and even as long as two years, depending upon the complexity of the assets held in the trust.
With a trust, there is no automatic judicial review. While this speeds up the process for beneficiaries, it also increases the risk of mismanagement. Trustees may not always act in the best interests of beneficiaries, and without court oversight, beneficiaries must take legal action if they suspect wrongdoing.
It can be advantageous to put most or all of your bank accounts into your trust, especially if you want to streamline estate administration, maintain privacy, and ensure assets are distributed according to your wishes.
A living trust, unlike a will, can keep your assets out of probate proceedings. A trustor names a trustee to manage the assets of the trust indefinitely. Wills name an executor to manage the assets of the probate estate only until probate closes.
One of the biggest mistakes parents make when setting up a trust fund is choosing the wrong trustee to oversee and manage the trust. This crucial decision can open the door to potential theft, mismanagement of assets, and family conflict that derails your child's financial future.
Mortgage payments must be made from the trust's assets. Because the grantor retains control and ownership in a revocable living trust, they remain liable for the mortgage. This is helpful if the trust lacks liquid assets. You might also find information about closing costs, escrow and pricing your home.
Though it varies from case to case, depending on the make-up of the trust assets, how all of the assets were vested and the type of revocable trust, it's typical for a trust administration to take about a year or little longer.
The Disadvantage of a Revocable Living Trust
Complexity: Managing a trust requires ongoing paperwork and record-keeping, which can be burdensome and time-consuming.
In a blog post published last year, Orman wrote that having a revocable trust in place is “one of the most important things you can do to protect yourself and your family.” She especially recommended setting one up when you get married, buy a home, start a business or have a baby.
The income statement, balance sheet, and statement of cash flows are required financial statements.