Creating a Living Trust
Definition of Terms
What is a Living Trust?
A living trust is a legal document that is created in vivos, or during your lifetime. You can place assets in the trust or “fund it” with the intention of bequeathing them to your beneficiaries when you pass away. You don’t have to be dead for the trust to be activated. Once created, a trust controls those assets right away while you’re still living.
What is a Grantor?
A grantor refers to you as the person that owns property and creates a trust, also known as a settlor or creator.
What is a Trustee?
The trustee is specifically identified in the trust and is responsible for managing the assets placed in the trust on your behalf and on behalf of your beneficiaries. You as the Grantor can name yourself as a trustee or you can grant someone else that power – a successor trustee.
What is a Successor Trustee?
A successor trustee is the person responsible for administering the trust after the Grantor either passes away or becomes “Incapacitated” and unable to administer the trust themselves
What is an Irrevocable Living Trust?
An irrevocable living trust is permanent and any asset that’s placed inside it cannot ever be taken out without express permission from everyone named in the trust. When an irrevocable trust takes effect, you relinquish all control of the assets placed in the trust permanently and that includes taxes or any outstanding liabilities.
What is a Revocable Living Trust?
A revocable living trust, on the other hand, is more flexible and allows for changes or modifications such as the removal of property and/or beneficiaries as needed. With a revocable living trust you remain in control of the assets placed in the trust.
What is a Will?
A will is a testamentary document that takes effect after death. Under California law, all wills must go through a probate to determine validity.
Living Trust vs. Will
A trust does not require probate to be considered valid unlike a will and that saves the estate time and money. However, you still need a will when you create a living trust because there is always a chance that some assets won’t end up in the living trust. A will can provide direction on what to do with property that’s not included in the living trust.
A will is also simpler to create, but it does require witnesses. The table below summarizes some of the similarities and differences between a living trust and a will.
Creating a Living Trust – 5-Step Process
1. Pick a type of living trust
Decide whether you want a single or joint trust. If you’re married, a joint trust will allow you to include property that each spouse owns separately as well as joint property.
2. Take stock of your property and assets
Collect the necessary paperwork for your property, including certificates of stock ownership, titles to automobiles and other vehicles and records of home ownership.
3. Choose A Trustee
The trustee manages the assets in the trust. If you name yourself as trustee, make sure to choose a successor trustee to take over the trust after you die or in the event you become incapacitated.
4. Draw up and sign the trust document
You can download a document template online or seek the help of either a lawyer or a financial advisor. You must complete this step by signing the trust in the presence of a notary public.
5. Transfer your property to the trust
This is known as “funding the trust” otherwise the trust will be empty when it’s passed on to your successor trustee and beneficiaries. An attorney can help you complete the paperwork and process the transfer.
Frequently Asked Questions
Who should get a living trust in California?
Anyone with a significant amount of property and assets should get a living trust. While trusts are not only for the rich, it is especially beneficial for larger estates as they tend to be more complex.
How much does it cost to create a living trust in California?
The cost depends on the method you use for creating a living trust. If you do it yourself by buying a book or writing your own document using downloadable templates, it will likely cost less than $100. Should you decide to DIY your estate planning, just be aware that this entails a lot of risk.
Working with a professional, however, is the right move but it will cost you upwards of $1000. An attorney that specializes in trusts and certified by the California Bar Association can help you navigate through the complexities of estate planning, trust and probate laws.
Why get a living trust in California?
One of the key reasons for having a living trust in California is that it allows your heirs to avoid going through probate when you die – a costly and difficult process. It is especially important if you want to make life easier for your heirs in the Golden State.
A living trust can also be very useful if you are leaving property to a minor child. In California, property can be held in the trust until the child reaches 18 years of age.
Finally, establishing a living trust means you won’t have to have a conservatorship placed on your assets in the event you become incapacitated. With a living trust, you’ll already have established a trustee to administer your assets.
How much tax should I pay?
At the state level, there is no estate tax or inheritance tax in California. But as of 2020, any estate worth more than $11.58 million ($23.16 million for couples) may owe a federal estate tax regardless of whether you use a living trust or not.
Do I still need a will when I already have a living trust?
Yes, you always need a will. A will is a backup plan for any asset that doesn’t make it in your trust. For example, if you acquire new property and you forgot to add it to your trust before you die, that property is excluded under the terms of the trust document. However, you can use a will to name someone to inherit property that you left out in the trust. Also, in California, if you don’t have a will, any property that isn’t transferred by your living trust will automatically go to your closest relatives.
Can a living trust save me the cost of estate tax?
Probably not. California does not have its own estate tax. The federal estate tax is levied only on estates worth close to $12 million. That said, if your estate is close to $12 million, you may require a more complex trust to reduce or avoid estate taxes.