Revocable Living Trusts in California
The probate process is used to determine what to do with a person's property after they pass, unless there is another method already in place, which is where a trust comes into play. A trust is a common tool used to avoid having to go through probate. However, contrary to popular belief, avoiding probate does not avoid estate taxes, and estate taxes must be paid just as they would when someone has a will. This article offers general information about one specific type of trust used fairly often in California, the revocable living trust.
The Purpose of a Revocable Living Trust
The basic purpose of a living trust is to allow someone to maintain control of their property while making sure the property is managed according to their wishes upon death or incapacity. Revocable living trusts are used by thousands of people in California to avoid having their estates go through the probate process. In California, estates with a market value over $150,000 may be subject to the full probate process, and a simplified process is available for estates worth less. It probably should come as no surprise to Californians that most who own homes in the golden state are likely to have an estate worth more than $150,000.
What is a Trust?
A basic trust is a relationship between three people: a grantor, a beneficiary, and a trustee. The grantor gives property to the trustee to manage for the benefit of the beneficiary, according to certain rules written in the trust document. These three roles can be held by the same person. Although it may sound strange, a person can give property to themselves to manage for their own benefit. The only way that this legal relationship avoids probate is if subsequent beneficiaries are named in the trust document, who will receive the property after the original beneficiary passes.
What is a Living Trust?
A living trust is a type of trust that operates when the grantor is still alive (as opposed to a trust made in a will, which is called a testamentary trust). If the grantor wants the right to change the terms of the trust or end the trust, we call the trust a revocable trust. The living trust can be created with a legal document that includes instructions about who you want to leave your assets to (subsequent beneficiaries), in addition to who will manage your assets and how they will be managed if you become unable to manage them (alternate trustees). The trust document will contain instructions on how to manage the property after you (the initial trustee) pass.
How is a Trust Funded?
Given the nature of the trust relationship, every trust must manage specific property that is listed in the trust document. When you establish a living trust, the next step will involve transferring assets into the trust, such as bank accounts, real estate, and stocks. After the transfer, these assets still remain in your control, because you are the original trustee.
What Happens When I Die?
When you die, your co-trustee or successor trustee will carry out the instructions set forth in your trust, distributing and managing your assets for the named beneficiaries. The beneficiaries of the living trust can be people and/or organizations, such as family members, friends, religious organizations, and educational institutions. The assets held in your living trust will be subject to federal and state taxation. However, your attorney can add provisions in your living trust to help reduce and possibly even eliminate taxes, depending on the size of your estate. If your primary concern is to avoid burdensome federal estate taxes, you may want to consider alternative options such as an irrevocable trust.
A revocable living trust can be a valuable planning tool to help you maintain control over your assets during your lifetime and at death. A living trust may be used as a substitute for a will, allowing flexibility for major life changes such as marriage, divorce, and children. A living trust can also help you reduce or eliminate probate and administrative expenses when your estate is settled. By creating a living trust, an experienced attorney may be able to lower estate costs and avoid unnecessary taxation at the federal and state levels.
If you would like to know more about revocable living trusts, and whether they are the best option for you, there are many estate planning attorneys throughout California who may be able to help.