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I'm considering setting up a trust for my father but would like a second opinion before meeting with an estate planning attorney.

His estate is fairly simple; a home, bank accounts, a CD, a vehicle, 401k (is this eligible for a trust?). I would estimate a net worth of $600k.

I've done some research and wonder if the cost of setting up this simple estate would be less than the cost of probate. How can one determine whether to get a trust or will? Should avoiding probate be a priority?

I understand this is situational and would be best answered by speaking with an attorney but I want to get as much information before I reach out to one. We are in California.

This all started because he almost added me to the property title using a Quitclaim deed. After researching this, I advised him not to because of the gift tax he would incur and the potentially larger capital gains tax I would owe in the future.

Any advice would be greatly appreciated.

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    As I understand it, there is no gift tax. Federal, at least... You've got to file for anything over $14K, but it's just deducted from the $5 million estate exemption (and $600K is nowhere near $5M. – RonJohn May 30 at 0:25
  • @RonJohn is right in principle, but the annual exemption is now $15k and the lifetime is $11.18 million. – ab2 ReinstateMonicaNow May 30 at 2:11
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Unfortunately, this is an attorney question and not an internet question. A living trust is not only a document, using it also requires that you retitle all the assets in the trust from your father to the trust itself via the trustee. In some states, there are property tax implications. Some states do not treat a home as "owner-occupied" when it is owned by a trust. A 401(k) plan passes by operation of law and not through the probate process.

You should also ask about planning for a nursing home or Medicaid. The law requires that the transfers happen at least five years before needing it. It would not take a nursing home long to destroy $600k. It is probably too little for a bank trustee to take on the assets.

Revocable trusts are nice in that they solve quite a few unplanned headaches, such as what happens when a person is no longer competent or is simply unconscious.

There is a potential mistake here. If you walk in and say, we would like a revocable trust, the attorney will provide you with one even if the attorney thinks it is an inefficient vehicle. The same thing is true if you ask for a will. You should ask the attorney about the options and when and why they should be chosen. Rather than walk in with a solution that you want, inquire what solutions are available.

  • Excellent answer. Let me add that the threshold for avoiding probate is low in California, and what you spend on setting up a trust now you may save in not needing an attorney (or much of one) when the time comes. – Andrew Lazarus May 30 at 20:34

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