When I was at UCLA in the 1970s, I took a few courses in the Asian American Studies Department. I learned that the Japanese Americans had done so well in achieving “the American dream,” e.g., getting a good education, working at a good job, and earning a good living, that they were called the “model minority” — a bright, shining example of hard work and patience that other minority groups should follow.
As such, one would think that most Japanese Americans would by “savvy” enough to set up living trusts to avoid probate upon their death. Not so. When I’m at the Probate Court in downtown L.A., I will occasionally scan down the names listed on the probate calendar. I’ll find several Japanese names listed on a regular basis.
I have also looked at the property tax rolls in Japanese communities, like Gardena, Crenshaw and Monterey Park. I found that only one in five homes owned by a Japanese family had that home in a living trust. That means that if that 95-year-old man across the street passes away, the daughter that lives with him and cares for him might have to pay $20,000 or more in probate fees (if both executor and attorney take their statutory fee).
Perhaps many people have the mistaken belief that they don’t need a living trust. They have been told that trusts are only needed if you’re rich. They think, “We’re poor,” even if they own a home fully paid for. Again, not true. In California, if your estate is over $150,000, your estate is heading to probate court without a living trust. In other words, if you own your home, paid for or not, you need a living trust.
Perhaps you have never set up your trust because you believe that you have to give up control over your home, money and other assets. Not so. You appoint yourself as the “trustee” of your own trust. Or, perhaps you have never set up your trust because you didn’t understand the process or fully understand what a trust is.
To help you keep your family out of probate, and get you more comfortable with what a living trust does and/or doesn’t do, the following information comes from a pamphlet published by the State Bar of California, “Do I Need a Living Trust?”
1. What is a living trust?
It is a written legal document that partially substitutes for a will. With a living trust, your assets (your home, bank accounts and stocks, for example) are put into the trust, administered for your benefit during your lifetime, and then transferred to your beneficiaries when you die.
Most people name themselves as the trustee in charge of managing their trust’s assets. This way, even though your assets have been put into the trust, you can remain in control of your assets during your lifetime. You can also name a successor trustee (a person or an institution) who will manage the trust’s assets if you ever become unable or unwilling to do so yourself.
The living trust described in this pamphlet is a revocable living trust (sometimes referred to as a revocable inter vivos trust or a grantor trust). Such a trust may be amended or revoked at any time by the person or persons who created it (commonly known as the trustor(s), grantor(s) or settlor(s)) as long as he, she, or they are still competent.
Your living trust agreement:
• Gives the trustee the legal right to manage and control the assets held in your trust.
• Instructs the trustee to manage the trust’s assets for your benefit during your lifetime.
• Names the beneficiaries (persons or charitable organizations) who are to receive your trust’s assets when you die.
• Gives guidance and certain powers and authority to the trustee to manage and distribute your trust’s assets. The trustee is a fiduciary, which means he or she holds a position of trust and confidence and is subject to strict responsibilities and very high standards. For example, the trustee cannot use your trust’s assets for his or her own personal use or benefit without your explicit permission. Instead, the trustee must hold and use trust assets solely for the benefit of the trust’s beneficiaries.
A living trust can be an important part — and in many cases, the most important part — of your estate plan.
2. What can a living trust do for me?
It can help ensure that your assets will be managed according to your wishes, even if you become unable to manage them yourself.
In setting up your living trust, you may serve as its trustee initially or you may choose someone else to do so. You can name a trustee to take over the trust’s management for your benefit if you ever become unable or unwilling to manage it yourself. And at your death, the trustee — similar to the executor of a will — would then gather your assets, pay any debts, claims and taxes, and distribute your assets according to your instructions. Unlike a will, however, this can all be done without court supervision or approval.
3. Should everyone have a living trust?
No. Young married couples without significant assets and without children, who intend to leave their assets to each other when the first one of them dies, do not need a living trust and would not benefit from having a living trust. Other persons who do not have significant assets and have very simple estate plans also do not need a living trust. Finally, anyone who wants court supervision over the administration of his or her estate should not have a living trust. The greater the value of your assets (particularly if you own real estate), the greater the need for a living trust. And having a living trust could be important in the event of an accident or sudden illness.
4. Who should be the trustee of my living trust?
Many people serve as trustees of their own living trusts until they become incompetent or die. Others decide they need assistance simply because they are too busy or too inexperienced or do not want to manage their day-to-day financial affairs.
Choosing the right trustee to act on your behalf is very important. Your trustee will have considerable authority and responsibility and will not be under direct court supervision.
You might choose a spouse, adult child, domestic partner, other relative, family friend, business associate, or professional fiduciary to be your trustee. The professional fiduciary could be a licensed, registered individual, or a bank or trust company licensed by the State of California. You may also name co-trustees.
Discuss your choice with an estate planning lawyer. There are many issues to consider. For example, would the appointment of one of your grown children cause a problem with his or her siblings? What conflicts of interest would be created if you name a spouse, child, business associate, or partner as your trustee? And will the person named as your successor trustee have the time, organizational ability and experience to do the job effectively?
5. Will I have to file an income tax return for my living trust?
No, not during your lifetime. The taxpayer identification number for accounts held in the trust is your Social Security number, and all income and deductions related to the trust’s assets are reportable on your individual income tax returns.
After your death, the income taxation of the living trust is similar to a probate.
There is more information provided in the pamphlet that will be available in a subsequent Rafu Shimpo article. In the meantime, you may order a free copy of the State Bar pamphlet “Do I Need Estate Planning?” Simply email your order to [email protected] Or visit the bar’s website, www.calbar.ca.gov.
Judd Matsunaga, Esq., is the founding partner of the Law Offices of Matsunaga & Associates, specializing in estate/Medi-Cal planning, probate, personal injury and real estate law. With offices in Torrance, Hollywood, Sherman Oaks, Pasadena and Fountain Valley, he can be reached at (800) 411-0546. Opinions expressed in this column are not necessarily those of The Rafu Shimpo.