A trust document is prepared that identifies the following: the trustors (the persons who are setting up the trust as the trustees of the trust); the trustees (those who are responsible for managing the trust and its assets); and, the successor trustee (the person or entity who will take over management of the trust after the death, resignation, or incompetency of the original trustee).
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A California trust is established when a settlor transfers into trust property for a trustee to administer. The first objective is to determine the purpose of your California trust. After that, you will need to decide what property or assets you want to put into trust, who will benefit, and who will administer the trust.
A California trust is an instrument created to distribute the estate of the trustor or settlor. The process to establish a California trust is very similar to establishing a California Will. The difference being that a trust is effective immediately whereas a Will is not effective until death of the testator. Depending on the size of the estate, there may be tax advantages to establishing a trust that will reduce or eliminate federal estate taxes.
After the trustor (settlor) executes the trust, they transfer their assets to the trust. If this is not done, additional legal work, possibly including a probate of these assets, will be required after the death of the trustor.
Advantages of a California Living Trust
Any assets held in the name of the trust will not need to be probated. Legal fees for probating an estate are usually much higher than fees for administering a trust. Probate can also take a year or longer to complete while administration of a trust can usually be completed in a much shorter time.
If a trustor becomes mentally incompetent, the successor trustee can take control of the trust. This avoid the costs associated with establishing a conservatorship. Conservatorships are often used in situations where someone can no longer manage their own financial affairs or personal care. A conservatorship is a court-supervised proceeding that can involve substantial legal fees.
California Trusts in General
Trusts are estate-planning tools that can replace or supplement wills, as well as help manage property during your lifetime. A trust takes control to manage the distribution of a person’s property by transferring its benefits and obligations to certain beneficiaries.
California Trust Creation
To create a trust, the property owner (called the “trustor,” “grantor,” or “settlor”) transfers legal ownership of their property to a person or institution (called the “trustee”). The trustee then takes over to manage that property for the benefit of another person (called the “beneficiary”). The trustee may receive compensation for managing the trust. Trusts create a “fiduciary” relationship running from the trustee to the beneficiary, meaning that the trustee must act solely in the best interests of the beneficiary when dealing with the trust property. If a trustee does not live up to this duty, then the trustee is legally accountable to the beneficiary for any damage to his or her interests.
The settlor may act as the trustee to retain control of property but must still act in a fiduciary capacity. A settlor may also name themselves as one of the beneficiaries of the trust. In any trust arrangement, however, the trust cannot become effective until the settlor transfers the property to the trustee.
California Testamentary Trusts
A testamentary trust transfers property into the trust only after the death of the settlor. Because a trust allows the settlor to specify conditions for receipt of benefits, as well as to spread payment of benefits over a period of time instead of making a single gift, many people prefer to include a trust in their wills to reinforce their preferences and goals after death. The testamentary trust is not automatically created at death but is commonly specified in a will and so as a will provision, the trust property must go through probate prior to commencement of the trust.
California Living Trusts
A living trust, also sometimes called an “inter vivos” trust, starts during the life of the settlor, but may be designed to continue after their death. This type of trust may help avoid probate if all assets subject to probate are transferred into the trust prior to death. A living trust may be “revocable” or “irrevocable.” The settlor of a revocable living trust can change or revoke the terms of the trust any time after the trust commences. The settlor of an irrevocable trust, on the other hand, permanently relinquishes the right to make changes after the trust is created. A revocable trust typically acts as a supplement to a will, or as a way to name a person to manage the grantor’s affairs should he or she become incapacitated.
Irrevocable trusts transfer assets before death and thus avoid probate. However, revocable trusts are more popular as a means of avoiding the probate process. If a person transfers all of his assets to a revocable trust, he owns no assets at his death. Therefore, his assets do not have to be transferred through the probate process. Even though the grantor of the trust died, the trust did not die, so the trust assets do not have to be probated. However, trusts avoid probate only if all or most of the deceased person’s assets had been transferred to the trust while the person was alive. To allow for the possibility that some assets were not transferred, most revocable living trusts are accompanied by a “pour-over” will, which specifies that at death, all assets not owned by the trustee should be transferred to the trustee of the trust.
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