Living trusts are becoming increasingly common for California families because they handle a variety of tasks many families can benefit from regardless of income.

Young families can use living trusts to control how and when young beneficiaries receive life insurance money and other inherited assets. Living trusts can withhold an inheritance until a beneficiary reaches a designated age or certain criteria established by the trust’s creator.  unless partial distributions are approved by someone pre-appointed by you for health, education, maintenance or support needs.

Avoiding probate in California is a common concern for those with assets valued over $100,000 (excluding assets that have beneficiaries listed) or over $30,000 in home equity. Probate is not a tax but a court process that has the potential to be lengthy and costly. Assets in a living trust can legally avoid probate.

Other uses for revocable living trusts covered on this site include:

• Make estate management easier during an incapacitation
• Reducing the likelihood of a contested estate
• Allowing the spouse in a blended family to continue using assets before ultimately being distributed to the deceased’s heirs (a life estate)
• Allowing children and their appointed guardian to continue living in your home for a predetermined time after your passing
• Holding distributions in a special needs trust for beneficiaries receiving disability income

What Is A Living Trust?

A last will & testament and a living trust share several responsibilities such as instructing how an estate shall be divided and who should be responsible for administering the estate’s transition.  However, a will is only a set of instructions while a living trust is a legal entity, which means a living trust can be titled as the owner of an asset.

As owner of an asset, the living trust can hold an asset long after the living trust’s creator (called a grantor, settlor or trustor) passes until the trust instructs the asset(s) be distributed.

Assets commonly held in a living trust include:

• Real estate
• Personal property (jewelry, furniture, art, etc)
• Vehicles
• Bank accounts and after-tax (non-qualified) investments
• Life insurance payouts

Assets can be placed into a living trust while the grantor is living or after the grantor has passed. Assets in a living trust prior to the creator’s passing will avoid probate. Assets placed in the living trust after the creator’s passing may be subject to probate (unless the trust is listed as beneficiary, such as for life insurance payouts or IRA/401(k) payouts upon death).

Hence, if a person has determined they wish to use a living trust as part of their estate plan, that person must understand there is work to done after the documents are signed. Banks may need to be visited with the trust documents to put accounts into the trust, new deeds must be prepared and recorded to transfer real estate into the living trust and beneficiaries on accounts may need to be changed reflecting the trust as a beneficiary. This process is known as “trust funding“.

Once assets are transferred to a living trust, the trustees manage the assets in the trust. The grantor often names him/herself as the initial trustee, which means the person creating the living trust retains control of his or her assets.  If the trustee is unable to act due to incapacitation or resignation, successor trustees manage the assets until the initial trustee is able retake control.  Hence, successor trustees while the initial trustee is living act similar to an agent named in a financial power of attorney.

Upon the grantor’s passing (if he/she is also the initial trustee), the successor trustee steps in once more and acts similar to an executor / personal representative in handling the transition of the estate.  Also at the grantor’s passing, the trust becomes irrevocable, meaning the language in the trust may no longer be amended.

Additional notes about living trusts:

• Married couples and common-law couples can be co-grantors and co-trustees. Family members, such as siblings or a parent and child cannot create a living trust together.
• Revocable means the trust can be amended or terminated at anytime by the grantor(s).  Irrevocable means the trust can not be changed or terminated. Irrevocable trusts also reduce the liquidity of assets owned by the grantor(s).

There many other types of trusts besides living trusts. Testamentary trusts function similar to a living trust except it is created after a person passes and is created via instructions in a last will and testament. Testament trusts do not help assets avoid probate yet can be used to control how and when beneficiaries receive their inheritances. Other types of trusts include irrevocable trusts, charitable remainder trusts and life insurance trusts, all of which are typically used for estates facing taxation issues or addressing needs a revocable living trust can not handle. Consult an attorney to determine which type of trust is best for you.

What This Site Offers

Use this site to help prepare for a meeting with an estate planning professional. If you come with an understanding of the basic documents and principles behind each, you’ll likely create an estate plan that covers all your needs.