As a reminder, one of the primary goals of Real Estate Radio Los Angeles is to offer you trusted advice by introducing you to exceptional people that can help you in your life. One such person is our next guest, Gary Morris. Gary is an alumnus of Point Loma Nazarene University. He received his doctorate from the Loyola University School of Law. He received honors from the State of California by way of assembly resolution, the city of Los Angeles, and Optimus International. His professional memberships include the California State Bar, Los Angeles County Bar, and the Christian Legal Society. He also serves on various committees and boards and is currently a board member of a local private university. Gary's main areas of practice include estate planning with particular emphasis on living trusts, trust administration, probate, asset protection, and business/corporate real estate law. For over 40 years, Gary's law firm, Hart, Mieras, & Morris Inc. has saved families thousand of dollars by showing them how to protect their assets from creditors, avoid taxes, and pay estate taxes at a reduced rate by creating a living trust. Gary Morris, welcome to the show.
Well thank you. Glad to be here.
Well first of all I would like to wish you a Happy Father's Day.
Thank you very much.
I understand that you are a father?
I am I have two girls and two boys in that order.
Three grandsons and a granddaughter.
There you go. Well Gary, I wanted to ask you first of all what exactly is a living trust?
A living trust really is a legal document. By creating a living trust you are creating a new legal entity. That legal entity then allows you to transfer title of assets into that trust. The trust then is able to control those assets by having named a successor trustee. If you pass away, that successor trustee takes charge of the assets and distributes them according to your instruction. If you don't have a trust, then either your assets will pass under intestate succession, meaning you don't have a last will and testament - California law says who's going to get your assets - or it goes by will, and the will and the intestate have to go through probate. If you want to avoid probate, the expense of the probate process, and typically in an estate of a million dollars we're looking at probate expenses close to $50 thousand. In a half-million dollar estate, we're looking at expense around $25 thousand.
So the main reason to get a living trust is to make sure that your heirs actually get your money and aren't saddled with these additional expenses when you pass away.
There's one thing that's inevitable with all of this. It's death and taxes, right?
And this helps with both of them.
[chuckles] I like that. All right, so you can actually avoid some taxes. You can't avoid death but when the inevitable happens, it's important to have this lined up, right?
Correct. In addition, we want to avoid the time period that's necessary in probate. Typically today most attorneys would tell you probate takes a minimum of one to two years. Historically in California, probate averaged 20 to 22 months.
Good heavens. So if someone passes away and they don't have a will or a living trust, then let's say the house is just sitting there empty that they were living in, and the heirs could probably use that money to pay their bills, and in the meantime they're going to have to keep the house up, they're going to have to pay the property taxes on the house. They're going to have to do all those things, right?
Yes, of course the assets that are in a trust are available right away to help cover those issues. If it's subject to the will and go through probate, then we have to wait for court approval to be able to deal with those assets.
Right. When you pass away, the person who was in charge of the money says what they want done with it. So when the inevitable happens, all the money is immediately accessible, the property, you know what to do with it, all those sorts of things, is that right?
Yeah, when you create the trust, you are considered the trustor, the one who is the one who creates the trust. You also are the trustee, the one who manages the trust. So you fill both functions. And if you pass away, we need a successor trustee. Successor trustee would take charge of the assets, pay the bills. They have to follow your instructions as to how those assets are divided or distributed. A trust becomes irrevocable when you die, so they cannot change it. But they're responsible for following your instructions and making sure the assets are properly distributed. If you decide to leave a particular piece of property to someone specific, you can do that in the trust. Otherwise the assets are left to the beneficiaries. If you have four kids, you might just leave everything to the four kids and then they each would get 25%, or the trustee could decide you get this property, this property goes to your brother, and so you have some flexibility.
But the most important thing is, you decide.
The state doesn't decide. You decide. What's the difference between a living trust and a will, and how do they work together?
A trust, of course, allows you to avoid probate. A will is still your instructions as to how you want the assets to be distributed. But the will, if the assets are in excess of $150 thousand, have to go through probate. With the trust, you can avoid it. You can avoid that expense and time delay. Now, even if you have a trust, you still need a will, and the reason is because if you left something out of the trust, and it's subject to probate, and the will, though, says anything I left out goes to my trust. So we call it a pour-over will. It pours everything over into the trust and then the trust controls it. It's important, though, to realize a lot of people in the past have created trust that failed to get that real estate transferred to the trust. So, it's still subject to probate.
Now, how do you transfer real estate into a trust?
Well, you have to actually have a deed prepared. Usually it's a quick claim deed, you sign it as an individual, and you transfer it to yourself as trustee of your living trust dated whatever date you signed the trust document.
Let's say I were to listen to you now and think, "Gosh, I don't have any of this planned." And you may not think you have a lot of assets, but in Southern California, if you own a house, you have a lot of assets. And you're going to want to avoid for your heirs going through probate. So, I would come to you and say, "Okay, Gary. I want to get a living trust." How do you do it? Do you do a living trust and a will at the same time or how does that work?
Yes, we actually create a number of documents. We create the living trusts, the pour-over will, power of attorney for financial, power of attorney for health care, and if you have real estate, we'll do the deeds to transfer the property to the trust.
Now that's good. So, you actually make sure it's done properly so that the property is transferred into your trust.
Now, if you have a loan on the property, does that trigger anything that we call a due-on-sale clause?
No. In fact, there's a federal law that says, "The transfer to a revocable living trust does not cause that property to be subject to a due-on-sale [crosstalk]."
All right. That's very good. And so, let's say you have children that are under the age of 18. Does a trust say what happens to them or does a will?
Well, the trust actually controls the money and says when the money's going to be distributed. You name the trustee who's going to manage the money for that young person. Typically, today most people hold those assets until they're 25 or 30. Because it seems like most kids today take longer to mature, [laughter] and so they want to hold it to a longer period of time. So the trustee manage the money. But if they are under 18 the will appoints the guardian. That's another reason we always do a will. So if you have minors you want to name a guardian who would manage-- take care of the children themselves, physically, but the trustee would manage the money. Now you might have the same person as the guardian and trustee, but on the other hand you might want to have the trustee who's independent who's the one who's deciding how much money to give you compared to the person who's spending it having that same decision.
God forbid that both parents should go at the same time. What happens if there's no will? What happens to the kids?
Well at that point the court certainly is going to decide. Usually it's relatives that come in fight over who's going to be able to take care of the kids.
So a will could avoid all of that.
You mentioned so many things when you get a living trust, a will-- what were some of the other items?
Power of attorney for financial, power of attorney for healthcare, of course we do the deed to put the property in the trust.
So how much does it cost to have your firm do that? How does that work?
Typically a living trust package runs between 25 hundred and $3,000. we do though give a discount for folks who come to our seminar or actually listen to our seminar online--
Then, in terms of the living trust for the fee we've talked about, it can save your heirs many thousands of dollars with a small investment.
Exactly. Yeah. Probate in a million dollar estate runs around $50,000 and half a million dollar estate around $25,000, so you're saving significant money.
Yeah. If you you spend $2,500 to save 25,000, I think you can see there is an immediate return on investment there. Now you'll be gone, but your heirs will be very grateful that you did it.
Another question for you Gary. If I get a living trust and I've owned my home for a while, you can take care of that and put the home into the trust, right?
Exactly. And it does not injure the loan against the property.
Can you buy a home with a living trust? Let's say you already have one set up and you want to purchase a home, can you buy it with that living trust? How does that work?
Yeah. All you have to do is make sure the escrow when they close title, takes title in the name of the trust. And so if you already had a piece of property when you created your trust, you just take a copy of that deed to the new escrow, and they'll just copy that language, and it's in the trust when they close. Now, typically the issue of concern deals with the lender. Do you want to comment on that?
Yes. Sometimes lenders are a little bit hesitant for whatever reasons, to make loans to trusts. Sometimes, especially in refinance situations, they will ask individuals to take property out of a trust and simply sign as trustors individually. The thing that you have to be careful about with that, if you do take it out of the trust after you sign that loan, you want to make sure you put it back into the trust. Because sometimes we found situations where people forget to do that, and then unfortunately they pass away and they don't get the benefits of the trust.
Exactly. They end up having to go through probate when they thought everything was covered.
Yeah, that's a terrible mistake to make.
Exactly. In fact, we do have a seminar that we've created recently for those people who do have a trust, who are concerned to make sure that all of the assets are in the trust, what the trust administration process is. And we encourage them to come back because they don't know what it is, and their heirs don't know what it is, what the process is. And so, we educate folks on what the probate is, how to make sure everything's in the trust, and also what the trust administration process is.
Let's say they had their trust done by a different law firm. They can still come into the seminar?
Sure, this is just educational.
That's great. That's a very good service. So another question, and this one comes up on every deal, is how to take title. So when you open escrow, escrow will send you giant stack of paper - I call it your homework. And it always takes everyone a long time to do it, because it's quite intimidating. In one of those sheets of paper is something where it asks how you want to take title. They always say, "Todd, what do you do?" And I say, "I'm not an attorney, I can't tell you how to do that." So I have an attorney in studio with me today, and I want him to tell us, do you have a good answer? For those watching on video, this is just a small example of all the different types of way you can take title. So what would you say?
Certainly if a husband and wife, traditionally in California they always took title in joint tenancy. And almost any escrow or realtor, they would say, "I can't tell you, but most people take title in joint tenancy." The problem is that we still have to worry about probate, and you don't get the income tax advantage by having property held as community property. Some people would take title and community property. It used to be a problem, because we used to have still a court proceedings on the death of the first spouse. Today, there is a new title, and that is community property with right of survivorship, and so it's treated like joint tenancy, but you get the tax advantage. The tax advantage is that on the death of one spouse, you get a new income tax basis to the full value as the date of death, you can sell it, pay no tax on the value as of date of death, so it's a significant advantage. Now when we create a trust, we put the property in the trust as community property. If you have an old trust, California has weakened that status as community property, so we need to update your trust to make sure you still keep that tax advantage. The problem with community property with right of survivorship is that you still have probate on the death of the second.
All right. So it sounds like the solution to all of it is to have a living trust.
And to take title--
As community property in the trust.
In the trust, okay. And thanks to Jim Wood, with progressive title, and also a big thank you to Gary Morris with Hart, Mieras, & Morris.