3 Day Notice to Vacate | 30 Day Notice to Vacate | 60 Day Notice to Vacate | 90 day Notice to Vacate | Unlawful Detainer

 JUDGMENT AND WRIT   /  REGAINING POSSESSION OF THE PROPERTY   /  POST-POSSESSION ISSUES

Renting Property that is now in Foreclosure   / The Myths About Evictions

STEP 1: THE TERMINATION NOTICE:

In order to evict a tenant, you must first correctly fill out and properly serve a termination notice. The most common notices are the ” Three Day Pay or Quit” and the “Thirty Day Termination of Tenancy.” If you are not certain how to file out the proper documents, you should hire a lawyer to advise you what type of notice to use and how to fill out the notice. Any mistake can invalidate the notice and force you to start over again.

There are a number of ways to properly serve the notice. Again, unless you are experienced at serving notices, you should have hire a licensed process server. Keep in mind that those tenants who cannot be “personally” served must be served “constructively” or by way of “substituted” service. The rules for these types of service are different and it is essential that the landlord comply with them in every detail.

Generally, the day of the service of the notice is not counted and the period of the notice (i.e. 3 days, 7 days, 30 days, etc.) is then counted to determine when the notice period has expired. If the law requires that the notice also be mailed to the tenant, you must add 5 days to the notice period to allow for mailing.

STEP 2: THE “UNLAWFUL DETAINER” LAWSUIT:

If the tenant does not voluntarily vacate after the service and expiration of the notice, you must prepare an “Unlawful Detainer” lawsuit. This lawsuit must be filed with the court, served on the tenant and prosecuted to a judgment.

A Complaint is prepared and filed with the Court. A copy of the Complaint must then be served on the tenants. Once served the tenants have five days to file and serve an Answer to the Complaint.

STEP 3: ANSWER OR DEFAULT:

After service of the Complaint the tenants have five days to file and serve an Answer. If they answer, the matter is “contested” and a trial must be set. If they do not file and serve an Answer, their default may be entered and judgment may be obtained either by way of a short uncontested trial or by way of a declaration.

TENANTS’ DEFENSES: The most common defense to an unlawful detainer action based upon failure to pay rent is that the premises lack the minimal standards of habitability. The classic defects are lack of heat, plumbing problems, missing screens, leaking roof, non-functional appliances and electrical outlets and infestations. Additionally, anything cited in a health department notice can constitute a habitability defect. If you do not maintain the premises, the tenant may not have to pay the rent.

STEP 4: TRIAL OR DECLARATION FOR DEFAULT JUDGMENT:

In order to obtain a Judgment, it will be necessary for the landlord to present the facts of the case to the Court. This must be done whether or not the tenants put up a defense. At minimum, the landlord will have to establish that there was a written or oral landlord/tenant relationship, that the relationship has been properly terminated with a properly served notice, and that the landlord is entitled to possession of the property and (in most cases) rent damages.

UNCONTESTED MATTERS: If the matter is uncontested, the facts may be presented to the court either in a short court appearance or by way of a written declaration for default judgment without the necessity of an appearance.

CONTESTED MATTERS: If the case is contested, you will have to go to trial. You can expect that trial will take an average of two hours of your time. Generally, you will need to bring the following to trial:

a. The Proof of Service (to prove the tenant was servered properly);

b. Your rent receipts (pay or quit cases);

c. All written complaints and correspondence with the tenant concerning problems with the unit (pay or quit cases);

d. All receipts and repair records for the unit (pay or quit cases);

e. The evidence which backs up your reason for evicting the tenant (30 Day Notice Cases).

STEP 5: JUDGMENT AND WRIT:

After the facts of the case have been presented to the court, the court enters a Judgment either for the landlord or for the tenant. The Judgment is a document prepared by the landlord or his attorney and presented to the court for the Judge’s signature.

The court clerk then issues a “Writ Of Execution” based on the judgment. This is the document which empowers the Sherrif’s Department to execute upon (collect on) the judgment.

Note: Unlawful Detainer lawsuits are limited in the relief available. The judgment may only provide for possession of the premises, forfeiture of the rental agreement, past due rent up to the date of judgment, court costs and costs of service of the summons and attorney fees if a written rental agreement provides for such.

STEP 6: REGAINING POSSESSION OF THE PROPERTY:

After issuance of the Judgment and Writ, the Writ is delivered to the Sherrif’s Department for execution. At that time, the Sherrif’s Department is also issued instructions to execute and the Sherrif’s Department execution fee is paid.

The Sherrif’s Department then goes to the property and posts a 5-day notice on the door. This notice advises the tenants that the Sherrif’s Department will return in five days to remove the tenants from the premises if they are not gone by that time.

At the expiration of the 5-day period, the landlord meets the Sherrif’s Department at the property. If the tenants are still on the property, they are removed at that time, the tenants are instructed not to return, and the landlord is then in a position to change the locks.

STEP 7: POST-POSSESSION ISSUES

SECURITY AND RENT DEPOSITS: Landlords must account for all deposits within 21 days of obtaining possession of a unit. Failure to properly account may result in a Small Claims judgment against you for the full amount of the security deposit (even if you properly applied some or all of it) and a $200 penalty.

ABANDONED PERSONAL PROPERTY: Personal property left on the premises must be disposed of in accordance with the California statutes covering abandonment of personal property. The process begins with the service of a Notice Of Abandonment and ends with an auction.

COLLECTION OF MONEY JUDGMENTS: Collection of the money part of the Judgment is beyond the scope of this article. Suffice it to say that virtually all income or property is subject to execution. The two most common methods of collection are wage garnishment and execution on bank accounts.

TENANT’S POST TRIAL MANEUVERS: Tenants sometimes try to delay their eviction by filing a Chapter 7 or Chapter 13 Bankruptcy just prior to the date of the lockout. After a tenant files Bankruptcy you must get an order for “relief from automatic stay” from the U. S. Bankruptcy Court.

The Myths About Evictions

Landlords try to scare you into moving, and not fighting it, because they know how much hassle you can give them, and how expensive it can be to get you out.  Here are the common myths:
(1) The landlord CANNOT lock you out, remove your property, remove doors or windows, or turn off utilities to get you out, in lieu of court; Civil Code 789.3 prohibits that [for residential tenants] and makes the landlord liable to you for actual costs plus $100 per day that it continues, and the police will back you on this one [Penal Code 484].
(2) The landlord CANNOT have the police or Sheriff arrest you for overstaying your welcome, instead of going to court. The Sheriff may be used to serve the eviction papers, but anything beyond that awaits the court’s determination, first.
(3) The landlord CANNOT barge in and start doing major construction to make it impossible to live there, or otherwise interfere with your quiet enjoyment to force you out; Civil Code 1940.2 prohibits that, and makes the landlord liable for $2000 for each such attempt, in addition to your actual losses. The police will back you on this one, too [Penal Code 484].
(4) The landlord CANNOT threaten to report you to immigration authorities or other law enforcement, nor make any other threat to get you out. Civil Code 1940.2 prohibits that, and makes the landlord liable for $2000 for each such attempt, in addition to your actual losses. The police will back you on this one, as well [Penal Code 518].

Renting a Property that is now in Foreclosure

If you are the tenant of a property owner who is facing foreclosure, or has lost the property through foreclosure, there are thousands like you through California faced with the same dilemma.

The bank does not have to talk to you, work with you, consider your family or children’s education, or even try to sell the property to you. You can’t pay them for more time, or even expect courtesy when they want to show the property to new buyers or realtors while you’re still living there. Out! Out! Out! is what you get, in most instances.

Occasionally, a bank will offer “cash for keys,” where they send you some money to move out without a fuss.

The real zinger for tenants of the former landlord is that you sign off your rights in exchange for the money. What rights? You have the right to get your full security deposit back from the bank, because it is the new owner and the current owner owes you your deposit, even if they never got it from the old owner. [The exception is where the former landlord pays you the full deposit beforehand.]  The bank has the obligation to pay you the full deposit, not just a part, so your “cash for keys” agreement has you giving up the rest of your deposit, and then you have to find your former landlord, who may very well have filed bankruptcy.

The time line on a foreclosure is this: Usually after a few months of mortgage delinquency, the bank records. posts, and mails a Notice of Default, giving the owner 90 days to bring the account current. If that doesn’t happen, the next step is the bank giving a 30-day Notice of Trustee’s Sale, which is also recorded, posted, and mailed. The trustee’s sale is the auction where the property is sold to the bank or a new buyer. Just before the trustee’s sale is the time when many property owners file for bankruptcy, because they will be hit with a huge tax bill when their mortgage is no longer their debt – the IRS sees it as “income.”  Therefore, owners file bankruptcy, which stalls the eviction for about a month or so until the bank can get the bankruptcy judge to let them proceed with the foreclosure and eviction.

The time line on the eviction is this: After the foreclosure sale, it takes a few days to record the deed, and then a Notice to Quit [or similar title] is given to the occupants of the property. The notice gives 3-days to the former owner, but often includes a separate Notice to the tenants, giving the statutory 30 days to move out. This is like any other eviction notice, in that it has to expire before they can file the eviction case.

We proudly serve the entire San Luis Obispo (SLO) County:  Paso Robles, Atascadero, Templelton, San Miguel, Shandon, Santa Margarita, Los Osos, Morro Bay, Pismo Beach, Avila Beach, Oceano, Arroyo Grande, Shell Beach, Grover Beach, Guadalupe, Lompoc, Santa Maria, Santa Barbara, Orcutt, Los Olivos, Buellton and more.

So far, Sleep Number, The Sleep Train, Quicken Loans, Legal Zoom and Citrix have pulled ads from the program, and several others are considering following their lead.

In some situations, the judge may order a trial be bifurcated or that a particular issue within the case be tried separately. If there is not agreement on community property, for example, then the court may require that a separate trial determine whether or not that property was community or separate property and to determine the value.

The judge will grant a Motion for Bifurcation if one or both of the spouses are remarrying or if one or both of the spouses wants to file as a single person on their taxes.

Reasons for Bifurcation

In most situations, the judge will grant a Motion for Bifurcation if one or both of the spouses are remarrying or if one or both of the spouses wants to file as a single person on their taxes. Tax laws are very clear in that they allow you to file using your single status as long as the marriage is dissolved before the end of the calendar year.

For a spouse who is paying any kind of support (child or spousal) this is beneficial, because the support is 100% deductible on income taxes, but only if you are filing as a single person. On the other hand, the person receiving the support must list the support payments as income on their tax returns.

In addition to working with a divorce lawyer, you should also work with your accountant to learn more about disadvantages and advantages of filing jointly or as single individuals.

Paperwork and Timeline for Bifurcation

A Motion for Bifurcation can speed up some divorces, but it depends on your individual situation. It should be noted that even with a Motion for Bifurcation you cannot divorce any sooner than six months after your separation date.

NOTE:  Even with a Motion for Bifurcation you cannot divorce any sooner than six months after your separation date.

Before you can file a Motion for Bifurcation you must file a preliminary Declaration of Disclosure on the other party. Once that is complete, you can move forward to request the bifurcation.

Three to six weeks after you file the motion with the court (with copies sent to the opposing party), you and your attorney will appear before the judge, at which point the court will grant or deny your request. Assuming your case is straightforward, the court is likely to grant the request.

Conditions to Meet for Bifurcation

Even if the request is granted, you or your spouse may still need to meet certain conditions, including:

If one spouse maintains medical insurance, he or she must continue to do so. If that’s not possible, then the spouse who requests bifurcation must pay for medical insurance that is comparable to the former policy or pay for medical bills incurred.

1. If either spouse has a pension plan through their employer, the other spouse receives indemnification for the loss of death benefits.
2. The opposing party must be reimbursed for any tax consequences or the loss of the right to claim probate homestead or family allowance.

If you want to take advantage of a bifurcation, give us a call.

The following information is designed to give the reader a general idea of how the average divorce proceeds. However, each divorce is a little different because of specific issues between the spouses.

To begin a divorce in the state of California, one spouse must file a Petition. The person who files the Petition is the “Petitioner.” The Divorce Petition must then be served.

After the spouse is served, that person has 30 days to file a Response. This document tells the court that the Respondent wishes to participate in the divorce proceedings. The person who must file the Response is called the “Respondent.”

If the Respondent fails to file a Response within 30 days after being served with divorce paperwork, the case proceeds without the Respondent’s participation. The Petitioner prepares a judgment and submits it to the court. The Petitioner requests orders concerning custody, visitation, child support, spousal support and division of property. Six months and one day after the Respondent is served, the divorce becomes final (this is called a “waiting period”).

If the Respondent files a Response, the parties exchange documents and other information about their property and incomes.

If one or both of the parties need the court to make orders, either spouse may do so by filing an Order to Show Cause.  Normally, the request will be for child custody, child visitation, child support, spousal support, attorney fees, or for a domestic violence restraining order. Each party appears in court and explains his/her position. The court then makes orders based upon the parties’ declarations or testimony.

In many cases, the matter goes by “default,” which is when one party does not file a Response and the Petitioner asks the Court/Judge for a Judgment without having to go to Court.  Often times, the parties will settle the entire case with a Marital Settlement Agreement.  Judgment documents must be properly prepared and processed with the Court in every instance.  Again, six months and one day after the Respondent was served, the divorce becomes final.

Once the judge signs the judgment and the six month waiting period has elapsed, the divorce becomes final.

Even after the court signs the judgment, some orders can be modified. These include child support, custody, visitation, and usually spousal support. However, other orders can almost never be changed after the judgment is entered, these include orders dividing property and any other type of order.

Serving all San Luis Obispo County, Paso Robles, Atascadero, Cambria, Morro Bay, Los Osos, Arroyo Grande, Grover Beach, Oceano, Santa Maria, Lompoc, Orcutt and more.

WHAT IS PROBATE? Probate is a legal proceeding that is used to wind up a person’s legal and financial affairs after death. In California probate proceedings are conducted in the Superior Court for the county in which the decedent lived, and can take at least eight months and sometimes as long as several years.

WHAT HAPPENS DURING A PROBATE? The person who is nominated in the will as executor files a petition with the Superior Court asking that he or she be appointed as executor. If there is no will, the Probate Code provides a list of persons who have priority to petition to become administrator. The will also is filed with the petition, and notices are sent to the heirs and/or relatives to let them know when the hearing will be held. If there are objections to the petition, or if the validity of the will is contested, the hearing will be used to resolve any problems that have arisen. In some cases this may mean that the validity of the will is not upheld, or that some other person than the original petitioner is chosen to administer the estate. In most cases, however, there is no objection and the petition is granted. The executor then makes an inventory of the estate’s assets, locates creditors, pays bills, files tax returns, and manages the estate assets. When all of the duties of the executor are completed, another petition is filed with the court asking that the estate be distributed to the heirs. If this petition is granted, the estate administrated is completed by distributing the assets to the heirs and filing final tax returns.

HOW MUCH DOES PROBATE COST? California Probate Code section 10810 sets the maximum statutory fees that attorneys can charge for a probate. Higher fees can be ordered by a court for more complicated cases. The fees are four percent of the first $100,000 of the estate, three percent of the next $100,000, two percent of the next $800,000, one percent of the next $9,000,000, and one-half percent of the next $15,000,000. For estates larger than $25,000,000, the court will determine the fee for the amount that is greater than $25,000,000.

The fees listed below are the California statutory fees used to compensate attorneys and executors in probate cases for various sizes of estates. If both the attorney and the executor receive a fee, the amount paid will be double that shown below.  The value of the estate is determined, in general, by the inventory for the estate.  (If an accounting of the estate has been waived, the total value of the estate for attorney’s fees purposes is the inventory, plus gains on sales, minus losses on sales.)  Debts are not included in determining attorney’s fees, and if a house is appraised at $1,000,000, for example, and it has a mortgage of $800,000, it is still considered a $1,000,000 asset for the purpose of calculating attorney’s fees. 

 

Estate Value	Statutory Fee
$100,000	$4,000
$200,000	$7,000
$300,000	$9,000
$400,000	$11,000
$500,000	$13,000
$600,000	$15,000
$700,000	$17,000
$800,000	$19,000
$900,000	$21,000
$1,000,000	$23,000
$1,500,000	$28,000
$2,000,000	$33,000
$3,000,000	$43,000
$4,000,000	$53,000
$5,000,000	$63,000
$6,000,000	$73,000
$7,000,000	$83,000
$8,000,000	$93,000
$9,000,000	$103,000
$10,000,000	$113,000
$15,000,000	$138,000
$20,000,000	$163,000

 

The fee charged to file a probate petition is $395, but may be slightly higher in some counties due to surcharges.  There will be an additional $395 filing fee when the petition for final distribution is filed.  There are other fees for publication of the probate notice, for the probate referee, and for certification of copies of court documents.

APPRAISAL OF THE ESTATE: Estates are appraised by probate referees, who are appointed by the State Controller to determine the fair market value of the asset. The fair market value includes mortgages and other debts, which can result in an appraisal of the property that is higher than the equity that the deceased owned in the property. Probate referees receive a fee based on .1 percent of the assets that have been appraised.

FEES CAN GO HIGHER: In probates that are complicated by lawsuits or tax problems, the attorney and executor can ask the judge to approve fees that are higher than those set by state law.

ADVANTAGES OF PROBATE: The proceedings are controlled by a judge, who can decide disputes between heirs or between the heirs and the executor. Creditors are required to submit their claims against the estate within a four-month period, provided they have been notified of the probate. The executor is required, in most cases, to prepare an accounting and report of the executor’s activities.

DISADVANTAGES OF PROBATE: The cost is usually much higher than would be required for the administration of a living trust for an estate valued at the same amount. It usually takes longer to probate an estate than to administer a trust. Most estates don’t need the supervision of the court unless disputes occur.

AVOIDING PROBATE: Many estates do not need to be probated. For information about avoiding probate, click here: Avoid Probate  If there is a surviving spouse, a spousal property petition might be used.  For small estates the small estate lawmay be useful.

Source:  http://www.ca-trusts.com/probate.html on 8/21/11

If the tenant doesn’t voluntarily move out after the landlord has properly given the required notice to the tenant, the landlord can evict the tenant. In order to evict the tenant, the landlord must file an unlawful detainer lawsuit in superior court.

In an eviction lawsuit, the landlord is called the “plaintiff” and the tenant is called the “defendant.”

Recent laws designed to abate drug dealing ²⁹⁵ and unlawful use, manufacture, or possession of weapons and ammunition,²⁹⁶permit a city attorney or prosecutor in selected jurisdictions ²⁹⁷ to file an unlawful detainer action against a tenant based on an arrest report (or other action or report by law enforcement or regulatory agencies) if the landlord fails to evict the tenant after 30 days notice from the city. The tenant must be notified of the nature of the action and possible defenses.

An unlawful detainer lawsuit is a “summary” court procedure. This means that the court action moves forward very quickly, and that the time given the tenant to respond during the lawsuit is very short. For example, in most cases, the tenant has only five days to file a written response to the lawsuit after being served with a copy of the landlord’s summons and complaint.²⁹⁸ Normally, a judge will hear and decide the case within 20 days after the tenant or the landlord files a request to set the case for trial.²⁹⁹

The court-administered eviction process assures the tenant of the right to a court hearing if the tenant believes that the landlord has no right to evict the tenant. The landlord must use this court process to evict the tenant; the landlord cannot use self-help measures to force the tenant to move. For example, the landlord cannot physically remove or lock out the tenant, cut off utilities such as water or electricity, remove outside windows or doors, or seize (take) the tenant’s belongings in order to carry out the eviction. The landlord must use the court procedures.

If the landlord uses unlawful methods to evict a tenant, the landlord may be subject to liability for the tenant’s damages, as well as penalties of up to $100 per day for the time that the landlord used the unlawful methods.³⁰⁰

In an unlawful detainer lawsuit, the court holds a hearing at which the parties can present their evidence and explain their case. If the court finds that the tenant has a good defense, the court will not evict the tenant. If the court decides in favor of the tenant, the tenant will not have to move, and the landlord may be ordered to pay court costs (for example, the tenant’s filing fees). The landlord also may have to pay the tenant’s attorney’s fees, if the rental agreement contains an attorney’s fee clause and if the tenant was represented by an attorney.³⁰¹

If the court decides in favor of the landlord, the court will issue a writ of possession.³⁰² The writ of possession orders the sheriff to remove the tenant from the rental unit, but gives the tenant five days from the date that the writ is served to leave voluntarily. If the tenant does not leave by the end of the fifth day, the writ of possession authorizes the sheriff to physically remove and lock the tenant out, and seize (take) the tenant’s belongings that have been left in the rental unit. The landlord is not entitled to possession of the rental unit until after the sheriff has removed the tenant.

The court also may award the landlord any unpaid rent if the eviction is based on the tenant’s failure to pay rent. The court also may award the landlord damages, court costs, and attorney’s fees (if the rental agreement or lease contains an attorney’s fee clause and if the landlord was represented by an attorney). If the court finds that the tenant acted maliciously in not giving up the rental unit, the court also may award the landlord up to $600 as a penalty.³⁰³ The judgment against the tenant will be reported on the tenant’scredit report for seven years.³⁰⁴

How to respond to an unlawful detainer lawsuit

If you are served with an unlawful detainer complaint, you should get legal advice or assistance immediately. Tenant organizations, tenant-landlord programs, housing clinics, legal aid organizations, or private attorneys can provide you with advice, and assistance if you need it. (See “Getting Help From a Third Party “)

You usually have only five days to respond in writing to the landlord’s complaint. You must respond during this time by filing the correct legal document with the Clerk of Court in which the lawsuit was filed. If the fifth day falls on a weekend or holiday, you can file your written response on the following Monday or nonholiday.³⁰⁵ Typically, a tenant responds to a landlord’s complaint by filing a written “answer.” (You can get a copy of a form to use for filing an answer from the Clerk of Court’s office or online atwww.courtinfo.ca.gov/cgi-bin/forms.cgi (Form 982.1(95).)

You may have a legal defense to the landlord’s complaint. If so, you must state the defense in a written answer and file your written answer with the Clerk of Court by the end of the fifth day. Otherwise, you will lose any defenses that you may have. Some typical defenses that a tenant might have are listed here as examples:

• The landlord’s three-day notice requested more rent than was actually due.
• The rental unit violated the implied warranty of habitability.
• The landlord filed the eviction action in retaliation for the tenant exercising a tenant right or because the tenant complained to the building inspector about the condition of the rental unit.

Depending on the facts of your case, there are other legal responses to the landlord’s complaint that you might file instead of an answer. For example, if you believe that your landlord did not properly serve the summons and the complaint, you might file a Motion to Quash Service of Summons. If you believe that the complaint has some technical defect or does not properly allege the landlord’s right to evict you, you might file a Demurrer. It is important that you obtain advice from a lawyer before you attempt to use these procedures.

If you don’t file a written response to the landlord’s complaint by the end of the fifth day, the court will enter a default judgmentin favor of the landlord. A default judgment allows the landlord to obtain a writ of possession (see Writ of Possession), and may also award the landlord unpaid rent, damages and court costs.

The Clerk of Court will ask you to pay a filing fee when you file your written response. The filing fee typically is about $180. However, if you can’t afford to pay the filing fee, you can request that the Clerk allow you to file your response without paying the fee (that is, you can request a waiver of the fee). An application form for a fee waiver, called an “Application for Waiver of Court Fees and Costs,”can be obtained from the Clerk of Court or online at www.courtinfo.ca.gov/cgi-bin/forms.cgi (Form 982a(17)).³⁰⁶

After you have filed your written answer to the landlord’s complaint, the Clerk of Court will mail to both you and the landlord a notice of the time and place of the trial. If you don’t appear in court, a default judgment will be entered against you.

Special Rules for Tenants in the Military: A servicemember may be entitled to a stay (delay) of an eviction action for 90 days. This rule applies to the servicemember and his or her dependents (such as a spouse or child) in a residential rental unit with rent of $2,400 per month or less. The servicemember’s ability to pay rent must be materially affected by military service. The judge may order the stay on his or her own motion or upon request by the servicemember or a representative. The judge can adjust the length and terms of the delay as equity (fairness) requires.³⁰⁷

Eviction of “unnamed occupants”

Sometimes, people who are not parties to the rental agreement or lease move into the rental unit with the tenant or after the tenant leaves, but before the unlawful detainer lawsuit is filed. When a landlord thinks that these “occupants” might claim a legal right to possess the rental unit, the landlord may seek to include them as defendants in the eviction action, even if the landlord doesn’t know who they are. In this case, the landlord will tell the process server to serve the occupants with a Prejudgment Claim of Right to Possession form at the same time that the eviction summons and complaint are served on the tenants who are named defendants.³⁰⁸See additional discussion of “unnamed occupants” and Claim of Right to Possession forms.

SOURCE:  http://www.dca.ca.gov/publications/landlordbook/evictions.shtml

By Daniel B. Evans
Copyright © 1995, 2007 Daniel B. Evans. All rights reserved.
Last updated 8/21/2007

Revocable trusts have become increasingly popular as substitutes for wills in estate planning. Many people believe that by creating a trust, naming themselves as trustees, and transferring their assets to the trust, they will save taxes, simplify the administration of their estates, and save money for their children or other beneficiaries. Unfortunately, these beliefs are not based in fact, and are typical of the myths that surround so-called “living trusts.” (For a summary of some of the similarities and differences between wills and revocable trusts, see “What Are the Differences Between Wills and Revocable Trusts?” in this website.)

Myth # 1: Living trusts save taxes.

This is absolutely wrong. All of the assets in a living trust are subject to both state inheritance taxes and the federal estate tax, just like assets that pass through a probate estate.

A living trust also saves no income taxes during lifetime and may actually increase income taxes after death, because some of the income tax rules for trusts are not as favorable as the income tax rules for estates (although an option now exists to elect to treat a revocable trust as part of the probate estate for federal income tax purposes).

A trust that is created at death might save taxes in the future in a number of different ways, because a trust can provide income or other benefits to a person without adding those assets to the person’s taxable estate, but that kind of trust can be created by will and a revocable trust is not needed.

Myth # 2: A living trust is cheaper to administer than an estate.

This may be true for some persons in some states, but the generalization is wrong more often than it is right.

In Pennsylvania, New Jersey, and many other states, the much-feared “probate of the will” usually takes less than an hour and does not require a lawyer. The real work in the administration of an estate is the collection of the decedent’s assets, the payment of debts and death taxes, and the distribution of the remaining assets according to the will. The administration of a living trust is almost exactly the same, because the trust assets must be collected, the debts and death taxes must be paid, and the remaining trust assets must be distributed. The only advantage of a living trust is that if the decedent was not the trustee, the time and expense of searching for assets and transferring them to the executor might be avoided. That advantage must be weighed against the time and expense of transferring assets to a trustee during lifetime, as well as the inconvenience and loss of control when assets are held in the name of a trustee.

Because the steps necessary to settle a trust are similar to the steps necessary to settle an estate, the legal fees should be about the same, and the executor (or trustee) should be able to negotiate a reasonable fee agreement after comparing the fees of different lawyers. Legal fees for the settlement of an estate will be higher than the fees for the administration of a trust in those few states (such as California and New York) that have complicated probate procedures or a statutory fee schedule for lawyers. In those states, having a living trust may help to reduce legal fees.

Myth # 3: A living trust can be distributed faster than an estate.

This is also wrong. There is no law preventing an executor from distributing all or any part of the estate at any time, as long as the executor is willing to assume the risk of loss if there are additional debts or taxes, or if the distribution is incorrect.

The trustee of a living trust is also liable for debts and taxes, and may delay distributing assets for the same reasons.

As a practical matter, most executors are reluctant to distribute assets until the death taxes have been settled, which can take from nine months to two years, and there is no reason for the trustee of a living trust to distribute assets any more quickly.

Myth # 4: Even if it might do no good, a living trust will do no harm.

Not necessarily.

In their desire to avoid the alleged evils of “probate,” many people jump out of the frying pan and into the fire, running directly into the arms of charlatans who are eager to sell “packages” of living trusts for exorbitant fees. And those trust documents may be poorly written, with the result that large fees have been paid for documents that actually result in unneccessary taxes, legal fees, or court costs.

And the probate system is not without its advantages, because it requires notices to beneficiaries and a clear remedy if the estate is not distributed according to the will. In their desire to avoid probate litigation, many people create trusts that give fewer rights to their beneficiaries and so, if the trustee turns out to be dishonest or hostile, the beneficiaries of a living trust may find themselves hampered by the trust document in their attempts to recover their inheritances.

Conclusion: Living trusts are good for some people, but not for everyone.

Living trusts have both advantages and disadvantages, but most people don’t need them and aren’t helped by them. A living trust is most likely to benefit someone who lives in a state with complicated or expensive estate administration requirements (not Pennsylvania or New Jersey), who has life insurance or retirement benefits which need to be held in trust after death (because of minor children or for tax reasons), who owns real estate in other states (which might require probate proceedings in those other states), or whose investments are already being held and managed by some other person and that other person could serve as trustee at little or no additional cost.

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Why a Living Trust?

Why NOT a Living Trust?

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