At its most basic, a trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also referred to as a Grantor or Maker, who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. The beneficiaries may be current and/or future beneficiaries and may be an individual, a charity or organization, or even the family pet.
Once upon a time, trusts were predominantly used by wealthy families to control the family fortune and to pass it down through the generations without incurring taxes. Those days are long gone. In fact, trusts are now found in the average estate plan given how user-friendly they are and how versatile they are. While high net worth individuals do still utilize trusts with great frequency, individual’s with a modest estate can also now benefit from incorporating a trust into their estate plan as well.
A trust is formally created using a written legal document called a “trust agreement.” The trust agreement reflects the terms of the trust as created by the Settlor. Though you probably do not ever think about it, you likely enter into oral trust agreements all the time. For example, if you asked a co-worker to hold a package for you while you are on vacation and give it to your niece when she arrives from out of town, you have created a trust wherein you are the Settlor, your co-worker is the Trustee and your niece is the beneficiary of the trust.
Trusts are broadly divided into two categories — living trusts and testamentary trusts with the former activating during the lifetime of the Settlor and the latter typically being activated at the time of the Settlor’s death by a provision in the Settlor’s Will. Living trusts can be further sub-divided into revocable and irrevocable living trusts while a testamentary trust is always revocable because a Will is always revocable. As the names imply, a revocable trust is one that can be modified or revoked by the Settlor at any time and for any reason whereas an irrevocable trust cannot be modified or revoked, once activated, by the Settlor.
One of the most important decisions a Settlor must make when creating a trust is who to appoint as the Trustee. In fact, a common mistake people make is appointing a spouse or close friend as Trustee without taking the time to consider if that individual has the experienced and/or skills to successfully serve as the Trustee. Sometimes, appointing a professional Trustee is the better choice. The overall job of a Trustee is to manage and invest trust assets and to oversee the administration of the trust. Generally, the reason behind appointing the wrong person as Trustee is a lack of understanding of the numerous and varied duties and responsibilities of a Trustee, such as:
- Following all trust terms unless they are illegal or unconscionable.
- Communicating with beneficiaries.
- Resolving disputes among beneficiaries.
- Investing trust assets using the “prudent investor” standard.
- Managing trust assets.
- Distributing trust assets.
- Keeping trust records.
- Preparing and filing trust taxes.
- Defending the trust against legal challenges.
My clients often ask me “Will my property taxes change if I create a trust?” In general in California the answer is no. When it comes to real property, like family homes or vacation homes, there is no change in who owns the property only how the property is owned, so this does not trigger a property tax change.
I’ve also been asked, “What is a Conservatorship?”. Conservatorship is a court-supervised process that allows an individual to manage the affairs of an incapacitated person. I’d like to note again that any court-supervised process is a public process, a costly process and will most likely be a lengthy process.
Here at the Collins Law Group, we are often asked, “Do I need an attorney to create my living trust?”. The answer is that it’s highly recommended that you get a licensed and qualified attorney who specializes in estate planning because estate planning is a complex area of the law. We do not recommend that you use any online resources to create your trust documents by yourself because what you want is a qualified and licensed attorney, or a law firm, to stand by your trust documents when you and you family need them the most.
My clients often ask me, “How long does it take to set up my living trust?”. Here at the Collins Law Group, we have a six-step planning process that generally involves three meetings taking place over the course of thirty days. Of course, we are sensitive to our clients needs, so if there’s a need to expedite the process, we can complete the trust work within the matter of days.
Another question that I get is, “Can out of state properties be put into my trust?”. The answer is yes. The Collins Law Group is a member of the American Academy of Estate Planning Attorneys, a national organization with attorney members coast to coast. So, if you have out of state properties, we do have a national network of attorneys who can assist us in making sure that your property is properly transferred into your trust.
While you are alive, you can act as a trustee of your trust and you can manage your estate. You will need to designate a successor trustee, such as a trusted and responsible family member or a trusted friend, to administer your trust at your death. Your chosen successor trustee should have business sense, and be responsible with money management, because he or she will be responsible for carrying out the wishes and desires that you’ve set out in your trust agreement.