Purchasing a home is often seen as the material realization of the American Dream. As an asset that can be held for both long-term wealth building and as something to enjoy, Silicon Valley real estate transactions involve a lot of enthusiasm. We’re Kiersten and Patricia, founders of the Kiersten Ligeti and Patricia Karoubi Team with The Agency Los Altos, and we love helping our clients acquire their dream luxury properties in Los Altos, Los Altos Hills, Atherton and beyond.
​​A common mistake buyers make is not understanding how many details they need to consider when closing on their new home. New buyers can get caught up in the moment and rush into a quick closing, without considering the long-term effects of taxation, asset management and estate planning.
We get it! You’ve worked hard and want to enjoy the fruits of your labor by moving into your Los Altos Hills exclusive estate. From the jump, we always advise our clients to keep in mind what this home may mean to them and their family as a generational asset. While we are not legal professionals, our 45+ combined years of Silicon Valley real estate experience have taught us the importance of ensuring that our clients have access to the information and legal resources they need to succeed. We strongly believe that understanding the basics of your options in terms of home ownership is critical for long-term wealth building and asset management.
THE BASICS
In California, it's common for married couples to opt for "Community Property with Rights of Survivorship," due to its associated tax advantages in the event of one spouse's passing. However, said couples may not fully contemplate issues related to asset protection and estate planning when it comes to their property. In Silicon Valley, where luxury homes in Los Altos and neighboring communities often are worth north of five million dollars, many homes are owned in a trust.
If you just bought a property and didn’t place it in a trust—don’t worry, many of these homes are transferred to a trust after the acquisition of a property, sometimes much later.
Usually, these trusts have simple names like "Kiersten and Patricia Doe Family Trust." However, in the more privacy-conscious age we now live in, many trusts are now created with names completely different from those linked to family members or residents. Sometimes trusts are even named after the property address like “160 Main Street, Los Altos Trust.”
If you happen to own a piece of Silicon Valley real estate or are planning on purchasing, you've probably heard the word “trust” tossed around. As you should! Various types of trusts exist, such as revocable trusts, irrevocable trusts, testamentary trusts, charitable trusts, etc.—each with its own goals and specifications.
Let’s dive a little deeper into why a family trust is something you may want to think about when considering your own real estate purchases in Silicon Valley.
WHAT IS A FAMILY TRUST (REVOCABLE LIVING TRUST)
A trust is a legally binding written document that serves similar functions to a will, as it outlines the guidelines established by the trust's creator for managing assets within the trust for the benefit of its beneficiaries. However, a trust goes way beyond the scope of a will. In some ways, you may think of a trust as having some similarities with a corporation, as it maintains its own distinct existence apart from the trustor who established it, and it persists beyond the trustor's lifetime.
One of the most widely used and adaptable trust forms is the "revocable living trust," often referred to as a "family trust." When a living trust is established, the trustor transfers their assets into it. Trustees are responsible for managing and overseeing the trust property, ensuring that it adheres to the terms outlined in the revocable trust agreement, and holding legal ownership. Trusts of this type enable the trustor to change trust terms, move assets into and out of the trust, and even terminate the trust during their lifetime if they so choose. In the majority of cases, individuals who create a living trust appoint themselves as the trustees.
Frequently, a married couple assumes the role of initial co-trustees of the trust, allowing them to exercise significant control over the trust assets throughout their lifetimes. However, when one spouse passes away, there are typically significant restrictions placed on the surviving spouse's management of the deceased spouse's portion of the assets. This arrangement is often established to ensure that the assets are distributed among the closest descendants of the couple, typically in accordance with the original intention of the trust.
WHY HAVE A FAMILY TRUST (REVOCABLE LIVING TRUST)?
To control asset distribution, avoid probate costs and lower estate taxes, people set up family trusts.
One of the key advantages of a trust is the flexibility it offers in asset distribution. Most people want to support their surviving spouse throughout their lifetime and ensure that their assets eventually pass to their children. Nonetheless, if these assets are directly left to the surviving spouse, there's no guarantee that they'll be passed on to their children in their entirety. In a family trust, a spouse can specify what assets will be used by the surviving spouse and what assets will go to the children. Furthermore, it's possible to delay distributions to the children until they reach specific ages, ensuring their financial security.
A family trust can protect you from the probate process in the state of California. Probate is the procedure of settling the estate of a deceased person, and is typically not something most people enjoy when already grieving a lost loved one. The administrative, legal and accessory costs of probate can add up quickly and can add a lot of stress to a family that is already grieving. We’re sure you have heard horror stories about relatives fighting over assets and life-long relationships being ruined that unfortunately stemmed from a recently deceased relative not planning ahead with what should be done with their assets. Throw in probate laws that the average person knows nothing about, and you have a very difficult situation. A family trust sidesteps the probate process because any property transferred into it before the trustor's passing is no longer considered as belonging to the trustor. Instead, the successor trustee promptly takes charge of the trust assets in alignment with the guidelines outlined in the trust document. This may involve actions such as transferring trust property to the beneficiaries or settling the estate's outstanding debts. One of the major advantages here is that, unlike a will, the transfer of trust property can be accomplished within a matter of days or weeks, avoiding frustrating elongated legal proceedings for all parties involved.
For the affluent, strategic usage of family trusts can help alleviate some of the estate tax burden. Estate taxes are imposed on the transfer of a deceased individual's property. This encompasses all assets owned by the deceased or in which they held a vested interest at the time of their passing. Federal estate taxes not only carry a substantial financial burden but must also be settled with cash, typically due shortly after the individual's death. Given that most estates lack sufficient liquid assets, some assets within the estate may need to be sold to cover these taxes. To alleviate the weight of these substantial tax obligations, the federal government provides each citizen with a designated exemption amount that can be applied to reduce the taxable value of their estate. Additionally, the notion of "portability" was introduced more than a decade ago, enabling a surviving spouse to make use of any remaining portion of their deceased spouse's estate tax exclusion in their own estate planning strategy. While estate tax considerations should at least be considered by virtually all owners of Silicon Valley real estate, homeowners living in affluent Los Altos, Los Altos Hills and Atherton neighborhoods, need to be fully informed by a legal professional about their options as their property values do position them to potentially pay high estate taxes.
Understanding family trusts and their advantages and disadvantages is of utmost importance for a Silicon Valley homeowner.
FOR CURRENT HOMEOWNERS IN SILICON VALLEY
Congratulations, you have succeeded in owning property in the Los Altos luxury real estate market—now what?
You absolutely need to make sure that your investment will serve you and those closest to you not just this Fall, or this Winter, or next Summer, but for the rest of your life and beyond. We are always happy to support you with your real estate needs. We want to be your real estate resource for life, not just during the transaction. We have contacts with all the right professional resources that you need to ensure your long-term success. Give us a call anytime to start a conversation!
Are you looking for a top Los Altos realtor at The Agency? Follow Kiersten Ligeti and Patricia Karoubi Team luxury realtors for an exclusive look at Los Altos, Los Altos Hills, Atherton properties and more.
Kiersten Ligeti | 650.766.8319 | LIC. #01298631
Patricia Karoubi | 650.868.4565 | LIC. #01396914
The Agency Los Altos
