Should my father have a living trust?

by Dick Nadler, CPA 

My dad has personal property that is worth about $150,000. He also has two bank accounts, each with about $100,000 in them. He has added my name to one of the accounts and my brother's name to the other account. We're wondering how these arrangements will affect our tax situation when my father dies. Would it be better for us if my dad created a trust? We are all California residents.

It appears your father has a net estate of about $350,000. Unless you properly plan for the inevitable, his estate will be probated.

I suggest creation of a revocable living trust. (Itís called revocable because the trustee can change its provisions at any time.) A living trust is easy to administer, and at your father's death, you will not have to pay estate tax. A living trust also eliminates the need for a conservatorship if your father suffers a stroke or any other disabling event.

My own family situation, which resembles your own, illustrates the benefit of a living trust. My father owned a home with no mortgage outstanding plus about $120,000 in savings accounts. In 1980, after my momís death, Dad created a living trust in which he placed all of his assets. In 1986 he became increasingly incompetent; therefore, my brother and I had Dad resign as trustee of his trust and name me as successor trustee. I took over managing his affairs, which included selling his residence and moving him into an adult living facility.

In 1990, Dad commented that naming me trustee was one of the best things he had done. He had no worries about finances. In July 1991, Dadís health got very bad, so we moved him into a convalescent hospital. He passed away a few months later. About two weeks after his death, my brother and I divided his estate. If we had to probate his estate, the distribution to beneficiaries would have taken about one year. Furthermore, during Dadís convalescence, the expense of a conservatorship was avoided since I could take care of his affairs.

Although your dad's estate is small, your family will greatly benefit from having him form a revocable living trust. You might want to consult your CPA to help you set up one.

Dick Nadler, CPA, is principal of Nadler Accountancy Corp., Orangevale, Calif., and a member of the California Society of CPAs, Sacramento chapter. His e-mail address is dick@nadlercpa.com.

Have a question for a CPA? Ask it here.

In accordance with IRS Circular 230, the information on this website is not intended or written to be used, and cannot be used as or considered a "covered opinion" or other written tax advice and should not be relied upon for the purpose of avoiding tax-related penalties under the Internal Revenue Code; promoting, marketing, or recommending to another party any transaction or tax-related matter(s) addressed herein; for IRS audit, tax dispute or other purposes.