Everyone has heard you “can’t take it with you.” During your lifetime you are quite capable of managing your assets, but what happens once you can’t manage those assets either through death, incapacity or resignation. If you do not plan for those eventualities while you are alive and competent it will be left to the Lawyers and the Court system of the State of California to handle the management or disposition of your assets. Therefore, prudent estate planning in California is crucial. One of the most common estate planning tools used in California is Trust.
Most Utilized Types of Trusts:
Before one creates a Trust in California, it is important to know its basics.
- Testamentary trust
When a person in California dies, his or her estate needs to be transferred to his or her heirs. This is controlled by the existence or the non-existence of an Estate Plan. If a person dies with property in California, all assets will go through a legal procedure known as Probate if the total value of the estate exceeds $166,250 or if the decedent owned real estate with a value more than $55,000. If the decedent’s estate reaches either of these minimums the Probate process would occur if he had no estate plan or even if he or she had a Will! Many people are surprised to find out that: Their estate must go through Probate whether they have a Will or not! A testamentary trust is a trust that is created after you have died that is established through your Testamentary Will. In your Will, the terms of the Trust are heard by the Probate Court and the Executor is instructed to follow those irrevocable instructions. In most cases the Court will retain jurisdiction over the Trust, the Trust provisions, and the Executor to make sure your testamentary instructions are being followed. Needless to say, when a Court system is involved the burden can be financially and emotionally draining.
- Revocable trust
A Revocable Trust is created during your lifetime rather than after you have died. There are three participants involved in a Living Trust. These are the Trustors, the Trustees, and the Beneficiaries. Throughout a single person’s or married couple’s lifetime, they, the Trustors, occupy all three positions. This means they have total control of all assets owned by the trust. When one spouse dies, the surviving spouse will normally control the entire Trust estate. With a single person, there is no surviving spouse. When the last Trustor dies, instructions in the trust identify the person who will step in to manage the trust (the Successor Trustee). If the trust states that the property is to be held in the trust for a Beneficiary for a certain amount of time, the Successor Trustee has the legal duty to manage that Beneficiary’s share until the trust designates final distribution. If the Trustors elect to distribute their estate immediately upon the death of the last Trustor, the Successor Trustee will manage that distribution according to the instructions in the trust, WITHOUT THE NEED FOR A PROBATE COURT PROCEEDING.
An easy way to understand a Living Trust is to think of it as a contract between the Trustor(s) and the Trustee(s). In this contract, very specific language is used to accomplish the following objectives:
Control – Throughout your lifetime, the trust is written so that you have complete control over all the assets owned by the trust. This means you may buy, sell, exchange, spend, give away, or do anything else you could do with the property before you created the Living Trust.
Nuisance Factor – While you are alive, the trust allows you to live your lives exactly the way you did before the trust was created. Once existing assets are transferred to the Living Trust, a trust causes you no more difficulty than if you had created a Will. The Creators will continue to fill out their tax returns using their SS# because the Living Trust does not apply for a Tax ID# while you are alive.
Incapacity – If you become incapacitated, the trust and ancillary documents name your spouse, or someone else you choose, to manage your financial needs and decisions without a Conservatorship and without court intervention. If you are single, or if both married spouses become incapacitated, the trust and ancillary documents name a Successor Trustee and agent to make those decisions for you. The trust states in specific language that you are to be cared for in the way you are accustomed throughout your remaining lifetime, or until you recover.
Proper Distribution – Upon the death of the last spouse, (or if you are single, upon your death) the estate will be distributed according to your exact written wishes. These written wishes spell out exactly who is to receive what and when he is to receive it. Through the trust, you keep the distribution process out of the Probate Court system. The ones you choose can handle all matters. If the court system is ever needed to settle a dispute, it is always available to the family. Since the language of the trust is so clearly written, families rarely have disputes with a trust, but if there is a dispute there are severe penalties to anyone who challenges what your wishes are.
Changes – While you are alive and competent, you can amend or completely revoke the Living Trust in whole or in part. Naturally, if a single Creator dies the trust becomes IRREVOCABLE, meaning the Successor Trustee(s) cannot change what your wishes were. Of course, upon the passing of the second of two spouses, once again, the trust becomes IRREVOCABLE and the trust cannot be changed by the Successor Trust manager(s).
Drafting Trusts in California is a crucial process as the future of how your assets will be managed while you are alive and disposed of after you are gone. Trusting your estate plan to a software program can put your entire estate at risk. You worked your entire life to accumulate your estate and protecting it after you are gone is just as important as protecting it while you are alive. How to protect you, your family and your estate may be the most important decision you make during your lifetime. The Dimeff Law Office offers estate planning solutions that personally cater to your needs and preference. These are just a few of the types of Trusts available to California residents. There are Charitable Trusts, Life Insurance Trusts, Children’s Trusts and many more but those are beyond the call of this article.