Wills Trusts Powers of Attorney Life Insurance Trusts Qualified Personal Residence Trusts (QPRTs)
A trust is an agreement or declaration that determines how your property is to be managed and distributed during your lifetime and also upon death. A trust normally involves three parties:
- The Grantor (also called “Trustor” or “Settlor”) creates the trust and is usually the only person who provides funding for the trust. Two or more persons can be the grantors of a trust, such as when a husband and wife join together to create a family trust.
- The Trustee holds title to the trust property and manages it according to the terms of the trust. The grantor often serves as trustee during his or her lifetime, and another person or a corporate trust company is named to serve as successor trustee after the grantor’s death if the grantor is unable to continue serving for any reason. Two or more individuals may be named to serve as co-trustees or a combination of individuals and a corporate trustee may be named.
- The Beneficiary can be one or more persons or entities who will receive the income or principal from the trust. This can be, and often is, the grantor (and the grantor’s spouse) during his or her lifetime and the grantor’s children (or anyone else the grantor chooses to name) after the grantor’s death.
A trust is classified as a “living” (or “inter vivos”) trust when it is established during the grantor’s lifetime. A living trust may be revocable (subject to change and termination by the grantor) or irrevocable. Either type of trust may be designed to manage property, assist the grantor if he or she becomes physically or mentally incapacitated, and dispose of property after the grantor’s death.
A living trust is created by preparing a declaration of trust or trust agreement that remains in existence during your life, generally appointing yourself as trustee for your life or until you become incapacitated and your spouse or an adult child as successor trustee. With some exceptions, your assets should be transferred to the trust during your lifetime. You have complete control over the assets in the trust and can revoke the trust any time you are mentally competent. Upon your death, the trustee is generally directed to either distribute the trust property to your beneficiaries, or to continue to hold it and manage it for the benefit of your beneficiaries.
In recent years, living trusts have become increasingly more popular as the centerpiece of estate plans instead of wills because of their significant advantages, such as:
- Avoiding probate expenses. In California, probate administration usually costs at least several thousand dollars in courts costs, executor’s fees, and attorneys’ fees, and often much more, depending on the size of the estate and complexity of the probate. Property held in a revocable living trust when the grantor dies is not subject to probate and thus avoids those expenses.
- Avoiding the time assets are tied up in probate. In California, probate administration often takes 1-2 years or more, which means your assets could be tied up for that long before being distributed. Property held in a living trust can often be distributed to the beneficiaries shortly after the grantor’s death, avoiding much of the delay encountered with probate administration. Also, probate court approval is not necessary to sell an asset in a trust, thus avoiding further delay.
- Privacy. Probate proceedings are public record, which means anyone could find out what assets you had and to whom they would be distributed. In contrast, the administration of a revocable living trust at the grantor’s death is normally a private matter between the trustee and the beneficiaries.
- Avoiding will contests and family disputes. A living trust is less likely to be contested by your heirs than a will and thus discourages family disputes.
- Avoiding probate in more than one state. If you own real estate in more than one state, a living trust will avoid probate in each state where the real estate is located. For those owning real estate in several states, this can be a significant advantage.
- Avoiding guardianship or conservatorship. The expense and embarrassment of a formal court-supervised guardianship or conservatorship proceeding would be avoided if you become physically or mentally incapacitated because your successor trustee could act as guardian of your property.
Trusts are not only for the wealthy. Many young parents with limited assets choose to create trusts either during life or in their wills for the benefit of their children in case both parents die before all their children have reached an age deemed by them to indicate sufficient maturity to handle property. This permits the trust estate to be held as a single undivided fund to be used for the support and education of minor children according to their needs, with eventual division of the trust among the children when the youngest has reached a specified age. This type of arrangement has an obvious advantage over an inflexible division of property among children of different ages without regard to their level of maturity or individual needs at the time of such distribution.
Because a living trust is the centerpiece to most estate plans and may dictate how and to what extent you and your family will enjoy your assets, it is crucial to have the most complete living trust possible prepared for you. Contact Collins Law Corporation today to begin creating your living trust and the rest of your estate plan.