Will a living trust help reduce the estate taxes?

No. While a living trust may contain provisions that can postpone, reduce or even eliminate estate taxes, similar provisions could be placed in a will to accomplish the same tax planning.

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.

What other estate planning documents should I have?

A durable power of attorney for property management could be helpful if you ever become incapacitated. It deals with assets that were not transferred to your living trust before you became incapacitated and any assets that you receive afterward. It also empowers your agent to act on your behalf with respect to other financial matters, such as signing tax returns, or dealing with retirement benefits. (Such benefits are not transferred to a trust during one’s lifetime.) With this power of attorney, you appoint another individual (the attorney-in-fact) to make financial decisions on your behalf.

This power of attorney, however, cannot replace a living trust because, among other things, it expires when you die. It cannot provide instructions for the distribution of your assets after your death.

You might also consider setting up an advance health are directive/durable power of attorney for health care. This allows your attorney-in-fact to make health care decisions for you when you can no longer make them for yourself. In your advance health care directive, you may state your wishes regarding life-sustaining treatment, organ donation and funeral arrangements as well. A health care directive also allows an authorized agent to access your medical information, which could be important in light of strengthened federal privacy laws.

What other kinds of trusts are there?

Testamentary trusts and irrevocable trusts are two other types of trusts:

  • Testamentary trusts are trusts that are based on instructions in your will; such trusts are not established until after the probate process. They do not address the management of your assets during your lifetime. They can, however, provide for young children and others who would need someone to manage their assets after your death.
  • Irrevocable trusts are trusts that cannot be amended or revoked once they have been created. These are generally tax-sensitive documents. Some examples include irrevocable life insurance trusts, irrevocable trusts for children, and charitable trusts. A qualified estate planning lawyer can assist you with such documents.

Who should draft a living trust for me?

A qualified estate planning lawyer can help you prepare your living trust, as well as a will and other estate planning documents (see #17).

Although other professionals and business representatives may be involved in your estate planning, a living trust is a legal document, which should be prepared by a qualified lawyer.

In addition, the State Bar urges you to seek advice only from professionals who are qualified to give estate planning advice. Many professionals must be licensed by the State of California.

Ask the professional about his or her qualifications, and ask yourself whether the adviser may have an underlying financial incentive to sell you a particular investment, such as an annuity or life insurance policy. Such a financial incentive could bias that professional’s advice.

A living trust is often held out as an enticement or “loss leader” by offices that are not staffed with competent and qualified estate planning lawyers. Unfortunately, some sellers of dubious financial products gain the confidence and private financial information of their victims by posing as providers of trust or estate planning services.

Should I beware of “promoters” of financial and estate planning services?

Yes. There are many who call themselves “trust specialists,” “certified planners” or other titles that suggest the person has received advanced training in estate planning. California has experienced numerous promotions by unqualified individuals and entities which only have one real goal—to gain access to your finances in order to sell insurance-based products such as annuities and other commission-based products. To better protect yourself:

Consult with a lawyer or other financial advisor who is knowledgeable in estate planning, and who is not trying to sell a product which may be unnecessary — before considering a living trust or any other estate or financial planning document or service.

Always ask for time to consider and reflect on your decision. Do not allow yourself to be pressured into purchasing an estate or financial planning product.

Know your cancellation rights. California law requires that sellers who come to your home to sell goods and services (with some exceptions) that cost more than $25 must give you two copies of a notice of cancellation form to cancel your agreement. You, the buyer, generally would be able to cancel this transaction up until midnight three business days later. Depending on the circumstances, you may have longer to cancel life insurance and annuity transactions. For example, if you are 65 or older, you have 30 days to cancel.

Be wary of organizations or offices that are staffed by non-lawyer personnel and that promote one-size-fits-all living trusts or living trust kits. An estate plan created by someone who is not a qualified lawyer can have enormous and costly consequences for your estate. Do not allow yourself to be pressured into a quick purchase.

Be wary of home solicitors who insist on obtaining confidential and detailed information about your assets and finances. Find out if any complaints have been filed against the company by calling local and state consumer protection offices or the Better Business Bureau.

Insist on the person’s identification and a description of his or her qualifications, education, training and expertise in estate planning. Also, keep in mind that legal document assistants are not permitted to give legal advice. And paralegals must work under the direct supervision of a lawyer. (As a precaution, ask to speak directly to the supervising attorney if you are not given an opportunity to do so.)

Always ask for a copy of any document you sign at the time it is signed.

Report high-pressure tactics, fraud or misrepresentations to the police or district attorney immediately.