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Column: Why Have a Trust If You Don't Update?

  • By Shel Segal

Why have a trust?
Not just does almost everyone need a living trust, but if you haven’t had it adjusted in a while you might be in for a surprise when it’s time for that trust to kick in.

Those are the thoughts of estate planning attorney Samuel B. Ledwitz, who has an office here in the Inland Empire. Ledwitz said he often comes across trusts that were put together when Ronald Reagan was president, presenting problems.
“Much like a car you get in 1985, if you don’t maintain it and don’t do anything to it, what’s the likelihood it’s going to run in 2014?” Ledwitz said. “Right when you need it in an emergency do you think that car will work if you haven’t done anything to it in 30 years?”
Ledwitz said one of the reasons clients give for not updating their trusts is that while the world around them has changed, they believe all their financials have stayed the same.
“Everyone says nothing changed,” he said. “I still live in the same house. I still have money in the bank. My answer to you is, ‘Which bank? Three hundred went under.’ Your bank account may not be with the same bank. Your house you bought for $100,000 might be worth a half a million, a million now.”
But something important has changed over the years, Ledwitz said. It’s the federal tax exemption for trusts.
“So, nothing’s changed, but everything did,” he said. “And it’s that dollar amount that we’re now comparing with that (government) number, what the House, the Senate and the President agreed to.”
Ledwitz said that number has increased steadily over the years – and rightly so. However, there was a time when the mood among politicians was to lower the threshold instead of raise it.
“That number this year has gone up to $5,340,000,” he said. “Back when a lot of you did the trusts initially that number was $600,000. In 1992, there was even talk of bringing that down to $200,000. There was actually conversation to take the exemption downward. In the 1990s we were very afraid the exemption would disappear altogether. And we were trying to preserve it, no matter what. We didn’t want to lose it.”
So, what is the purpose of having a trust if the exemption is more than $5 million? There is very good reason, Ledwitz said.
“Now that the exemption is so high, why do I even need a trust?” he said. “The problem with that thought is the state of California and something called probate. We have two evil dragons coming at us: one is the federal government and the other is the state.”
The California issue is a real problem to those without trusts, Ledwitz said.
“In California we also have budget deficits,” he said. “What did we do to fix them? One was raise taxes and the other was to make some cuts. What did they cut? The court system. They gutted the system by about $60 million. Probate now takes longer, and at some point, more expensive. It’s now taking one and a half to two years to do. It’s very public and costly process.”
Samuel B. Ledwitz is president of Bezaire, Ledwitz & Borncamp and a certified estate planning attorney. For more information or to make an appointment, call (626) 398-0100. 

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