December 14, 2006

Ask The Lawyer

Back to the basics with pros and cons of living trusts

This week's question:
I question the usefulness of the advice you gave in a column a while back. Of what value is a revocable living trust if the bulk of a person's assets consist of their primary residence, held in common with his or her spouse, and IRAs, with the spouse named as the primary beneficiary? As I understand, neither of the above assets is required to pass through probate when the person dies.

Elizabeth E.
Almaden Valley


Dear Elizabeth:
First of all, Elizabeth, the column you are referring to and all of my columns talk about information, and not "advice." There is a big difference, and only your own attorney is allowed to give advice and not me in this newspaper column. That might sound like just a technicality, but it's really not.

There is absolutely no substitute for each individual to see his or her own attorney. Why is that? Because only your own attorney is knowledgeable about your own particular situation and has the time and expertise to get to know you and your factual circumstances. That's why this column and every one I have written since 1986 has a rather lengthy disclaimer at the end that points out the fact that no attorney client relationship is established by these articles. This is very essential and not just a technicality.

Now, to address your question. True, if a person's residence is held in common with a spouse, the residence may pass to the spouse without probate if the first spouse dies, as in joint tenancy or community property with the right of survivorship. And it is also true that if the spouse is the beneficiary of the IRA the money will pass to the surviving spouse if so designated in the beneficiary form on file with the IRA company holding the money. However, that's only the very beginning of the story. If you stop there, you have missed the ending.

You would be very wise to consider control and tax issues, both income and estate tax, before you stopped in the middle of the story and missed the ending.

As to control of the asset, you may want to have your children share in the asset after the surviving spouse passes on, as you can do with a living trust.

I have had adult children in my office weep uncontrollably when I have had to tell them about the dangers of joint tenancy—absolute control by operation of law in favor of the surviving joint tenant spouse—and that there was nothing that I could do to change that.

And the same could well be true of a simple will that leaves everything to the surviving spouse and nothing to the children of the parties. Sorry kids, Dad left everything to Mom (or worse yet, for the kids, Dad left everything to his new sweetheart!)

As far as income tax is concerned and estate tax, there are also many advantages with a living trust that are not present if the house and other assets pass directly to the surviving spouse by joint tenancy. Feel free to have a visit with your own attorney or certified public accountant (CPA) for a full discussion of those topics, including stepped-up basis. You may find it quite informative.

With that attorney or CPA visit, you may find that an individual passing on this year (or in 2007 and 2008) may be able to pass $2,000,000 of his or her estate tax-free ($4,000,000 estate tax free for a married couple). Of course, that person or couple's heirs would also save thousands of dollars in attorney's fees in probate court if the assets were in a living trust.

So, good luck, Elizabeth. I hope I have clarified some of this information for you—and once again, it is just information. You will want to see your own attorney to see what's best for you.

Donald J. DeVries
Almaden Valley


Donald J. DeVries is an attorney practicing law in Almaden Valley. If you would like him to answer your question in his next Almaden Times column, you can reach him by e-mail at don@almadenvalleylawyers.com, fax at (408) 268-6502, telephone at (408) 268-9500, or mail at, 6475 Camden Avenue, Suite 200, San Jose, CA 95120. Your matters are personal and private, so of course, he will not disclose your identity or any details about your situation. To view Almaden Times columns since 1986 visit www.almadenvalleylawyers.com. DeVries writes this column to provide you with general information about important legal matters affecting California residents—not to give you legal advice about your specific matter. No attorney-client relationship is created by these articles. The law is complex and constantly changing and varies from state to state. So you should consult an attorney before taking any action that would affect your personal or business matters.