There are a lot of misconceptions and misinformation regarding estate planning out there. I call it cocktail party talk. That is, you are at a cocktail party and the know-it-all in the room starts telling horror stories about his mother-in-law’s estate planning. This post aims to clear up some of the issues regarding the fees and costs of establishing a trust. Besides your attorney fees what other costs should you encounter when you set up your living trust?
One client told me they believed their property taxes would change. They were very concerned because “our prop 13 is really low.” This is 100% WRONG. Your property taxes will stay the same unless your attorney sets something up incorrectly or fails to file a document properly. Even that it should be fixable. A living trust is basically just a change in name and the California property tax laws do not consider this a change in ownership. Thus the change in ownership rules (i.e. “prop 13″ re-assessment) do not apply. We will record a quitclaim deed to transfer your house, and any other real property, into your trust. When we record the deed we will file a Preliminary Change in Ownership Statement (“PCOR”) with the county assessor. On the PCOR we will notify the county assessor that this is a transfer to a revocable trust. Once the assessor sees that box checked they will move on to the next case. If it’s a transfer to an irrevocable trust the assessor might ask for a copy of the trust. Again, as long as the set up is done correctly there should be no change in property tax!
There is a recording fee to record the deed that transfers the property into your trust. However, the recording fee should be minimal. Somewhere between $10 and $15 for most properties in California. Out of state real estate is different so make sure you talk to your attorney up front about all assets but especially out of state real estate (including that timeshare in Hawaii!).
What about gift or estate taxes? In a standard revocable living trust you are not giving away anything now and thus there is no gift tax. The giving away happens at death. There may be an estate tax (if you have a large estate) but the trust will certainly not increase the estate tax. In fact, when a husband and wife set up a living trust the estate tax can be drastically reduced.
Ok, so there are no estate or gift taxes but what about income or capital gains tax? Again, the transfer to a revocable trust should not cause any income or capital gains tax. It is not a sale. It’s just a name change. Your taxes continuing to get reported in your social security number so there is no extra tax return either!
Only certain documents require notarization. However, it is customary to have all estate planning documents (except a “will”) notarized. In fact, though it is not required for all documents, including a living trust, it is good practice to have your trust notarized by a California licensed notary. By law notaries, in California, are allowed to charge $10 per signature. However, at our office we will notarize all of your estate planning documents for free as a service to our clients. In fact, bring in any other documents you need notarized and we will notarize those too! It’s a small service to our clients but one we are happy to offer.
So basically the recording fee is the only fee or cost you should incur besides your attorney fee when setting up a California living revocable trust.
Contact me with any questions. -John