21 Natoma Street
Suite 110
Folsom, CA 95630

[email protected]

(916) 782-3900

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What is a Revocable Living Trust?

A California revocable living trust is a legal document that allows you to transfer ownership of your assets (such as property, investments, and bank accounts) into a trust (a legal document) during your lifetime, and you can change or revoke it at any time as long as you are mentally competent.

The trust is managed by a trustee of your choice, which can be yourself or someone else, who will be responsible for managing the assets in the trust for the benefit of the beneficiaries named in the trust document.

It’s important to note that a living trust does not provide asset protection, meaning that your assets in the trust can still be subject to claims by creditors. However, there are other types of trusts that can provide this protection.

Put more simply, a revocable living trust is a document that allows individuals to continue to own and control their property while they are alive, then transfer it to whoever they want after they die, all while avoiding probate.

This important estate planning tool is very appealing to many California residents because of its flexibility.

  • Living Trust definition: A living trust is a legal arrangement established by an individual (the grantor) during their lifetime to protect their assets and direct their distribution after the grantor’s death.

Who Needs a Revocable Living Trust?

The following are those who may benefit from setting up a living trust:

  • A Grantor who wishes to avoid the Probate process.
  • A Grantor who wants someone else to accept the management responsibility of their property.
  • A Grantor who wants to assure that his/her property will continue to be managed in the event that the Grantor becomes disabled or deceased.
  • A Grantor who wants privacy in the administration of his/her estate while he/she is alive, and upon his/her death.
  • A Grantor who owns a business or professional practice.

What are the Requirements for a Revocable Living Trust in California?

In order for a Trust benefit you, there are general requirements. Those requirements include, but are not limited to:

  • In order for a trust to exist there must be trust property held by the trust.
  • There must be a Grantor (sometimes referred to as a Settlor or Trustor). A Grantor is the person who transfers the property into the trust and creates the terms of the trust.
  • There must be a Trustee. A Trustee is a party whom property is transferred by the grantor, who receives legal title to the property placed in the trust, and who generally manages and distributes income of the trust. The Trustee must follow the terms of the trust, as established by the Grantor.
  • There must be a Beneficiary. A beneficiary is a party for whose benefit the trust is created and who will receive the direct or indirect benefit of the use of income from and/or principal of the trust property. Keep in mind there are certain beneficiary rights in California to be aware of.
  • The Grantor and Trustee must both be legally competent.
  • The Grantor must sign the trust in front of a certified notary and then fund the trust with the Grantor’s property.

When is a Revocable Living Trust Funded?

The term “funding” is used to describe the process of moving assets into the trust.

This is usually accomplished by changing the title of the asset from the grantor’s name into the name of the trust. Once the assets are moved into the trust, the terms of the trust govern how they are managed.

In short, a Revocable Living Trust should be funded:

  • The trust should be fully funded on the creation date and should include a schedule with sufficient details to identify the asset such as the address and APN to real estate and a list of bank account with an account number.
  • Every year thereafter it is a good idea to review your assets and verify the the correct assets are held by the trust.
  • Be sure to update any beneficiary designations for assets held outside of the trust.

Funding a revocable living trust can occur at the establishment of the trust or at any later date. It is best practice to fund the trust with a token at the creation of the trust (such as $10 or a magic wand provision). The holder of a durable power of attorney may be authorized to fund the trust if they are granted that power.

 

In some cases, courts have allowed the holder of a durable power of attorney to transfer assets into a trust even when they are not specifically authorized to, however, it is not wise to count on this.

 

As part of the funding process, it is also important to update any applicable beneficiary designations to coordinate with the provisions of the trust.

Why Set Up A Trust in California? – Things To Consider

Setting up a trust helps you achieve some benefits you cannot get with a will. For example, it allows you to be very specific about how, when, and to whom your assets are distributed when you die. A trust can also safeguard your interests and assets in cases of incapacity – like when you have Alzheimer’s, dementia, stroke, etc.

Additionally, you can structure a trust to shield the beneficiaries from creditors, preserve the generation-skipping tax exemption, and/or manage their state income taxes. A trust is especially important in California, where probate is expensive and lengthy. It will help save your loved one’s time, money, and a lot of hassle.

Besides, with trusts like a living trust, you can still buy, sell, and trade assets as usual. You can also move assets to and from the Trust as you please. The main difference is you can add more designees and controls to help protect your assets in case you die or become incapacitated.

Reasons to Consider Setting Up a Trust.

Avoid the Lengthy Probate Process

Trust can help you avoid probate. Probate is the legal process of administering the estate of a deceased person. If the deceased person leaves behind a will, the probate court will appoint an executor to carry out the instructions in the will. When there’s no will, the court will appoint an administrator to manage the estate. The probate process can be time-consuming and expensive, so many people try to avoid it by setting up a trust.
When a property is held in a trust, it does not become part of the decedent’s estate and thus does not have to go through probate. Instead, the trustee can distribute the assets according to the terms of the Trust. As such, trusts are often used to manage real estate, investments, and other valuable assets.

Save on Probate Fees.

California has high probate fees for people who only have a will. Without a trust, your beneficiaries will have to pay these fees. The probate fees are based on a percentage of the value of your estate. For instance, the first $100,000 of an estate is subject to a 4% probate fee.

 

Here is a breakdown of California probate fees for ordinary services provided by personal representatives and their attorneys: 

 

Estate Value

Compensation

First $100,000

4%

Next $100,000

3%

Next $800,000

2%

Next $9 million

1%

Next $15 million

0.5%

Next $25 million+ 

Reasonable amount to be determined by the court

 

It is important to keep in mind that California probate fees for personal representatives and their attorneys are cumulative. This means that if an estate is worth $2 million, the personal representative and their attorney will each earn 4% of $100,000 (or $4,000), 3% of the next $100,000 (or $3,000), 2% of the next $800,000 (or $16,000), and 1% of the next $9 million (or $10,000). 

 

While it’s possible a personal representative could waive their own fees, the fees for the attorney of the personal representative will still need to be paid. Since attorney fees for ordinary services in probate are determined by the law and not by the attorneys themselves, it is recommended that the personal representative retain a premier law firm that practices exclusively in probate, since the fees for ordinary services will be the same across the board.

 

While a probate fees calculator and the chart above may be helpful in calculating the approximate cost of probate in California, they don’t take into account the “extraordinary fees” that could arise during administration or the costs of probate payable to others.

Maintain Privacy Regarding your Assets.

Another advantage of setting up a trust is that it can help to maintain privacy regarding your assets. With a will, the distribution of your assets is a matter of public record. However, with a trust, the distribution of your assets can be kept private. This makes it for an assigned individual to take over for you if you should become incapacitated.

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    Scharf Law, P.C. offers extensive experience and advocacy for our clients. Scharf Law, P.C. provides legal representation in the areas of Family Law, Juvenile Dependency, and Probate.

    Scharf Law, P.C.

    21 Natoma Street, Suite 110
    Folsom, CA 95630

    Telephone: (916) 782-3900

    [email protected]

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