Are Trusts Only For Wealthy People?
Hi. This is Marc Herbert from Herbert Law Office with the Question of the week, which is are trusts only for wealthy people? Well, the simple answer is no. Trusts are really for middle class people and wealthy people as well. But it’s pretty much for anybody who has a house. Anybody who has young heirs or anybody who has disabled heirs, particularly if you’re a single person.
So in California, any land worth more than $50,000 is a probable asset. If that asset is not protected by a trust, then it’s going to end up in court where your family is going to end up wasting two years of time, $20,000 or more, and a lot of unnecessary stress to transfer that title under California law. So any property over $50,000.
So any house in California should be protected in a trust, especially after the passage of Proposition 19. So Proposition 19 was a law that was voted in by California voters a couple of years ago. And the original idea and the idea that they broadcast, you know, in the media was that this was going to protect victims of wildfires or disabled homeowners, people like that.
So a lot of people voted for it and it passed and it became law. And for some folks, especially people over 55 years old, people with disabilities, victims of natural disasters, it is a good law because it protects them from property taxes increased when they buy new, more expensive properties. The bad news for most people is that, you know, 99% of us are not victims of wildfires or, you know, have disabled homeowners.
Most of the time, Proposition 19 is actually going to penalize any non spouse heirs. That usually means our children and our grandchildren who are using that house as a secondary home or a rental property. Right now, the limit for those tax increases is $1,000,000. But I lived in California my whole life. I sort of see the trend in California where taxes tend to increase.
So I expect that number to come down in the next 3 to 5 years. I hope I’m wrong, but that’s really the risk. So if you fall into the the categories in Proposition 19 as a non spouse heir, those property taxes can essentially triple under Proposition 19. So a trust, whether you’re wealthy or middle class or somewhere in between, a trust helps you avoid Proposition 19 and a lot of other unnecessary state and federal taxes.
Again, if you have young heirs regard this of your income level, I think you’d probably need a trust. So a young heir, in my opinion, is anybody 25 years and under who you want to give property to. So under California law, everyone is entitled to receive 100% of their inheritance the day they turn 18. I’ve raised three kids with my wife.
I think that’s not always a good idea. Some kids can handle it. Some kids can’t. And so, in my opinion, a better approach might be giving some money at 18 years old, giving some more money at 21, and the rest at 25. Let’s say. But by building a trust, you determine the ages and you determine the amounts, not California law.
So, again, the trust is really helpful if you have young heirs. Finally, if you have disabled heirs, whether that’s a child, sibling or parent, a trust allows them to protect any government benefits that they may legitimately receive while still having a side account available managed by a trustee. So it’s really the best of both worlds. They keep their benefits that they deserve, but there’s extra money on the side to help with their needs, medical needs, social needs for recreation, for vacations, for a lot of different special costs.
That would be part of the special needs trust. So if you’re interested in learning about your situation, how a trust could work for you and your family, just give us a call at 6612739007 and schedule a free consultation. We’ll sit down together. We’ll go through your situation, we’ll go through your options, and then you decide what works best for you and your family.
Look forward to talking to you real soon. Have a great day.