Unlike an irrevocable trust, which generally cannot be changed and which requires you to give up more control over your assets, you retain control over the property you transfer into your
living trust
.
Not only can you be the trustee during your lifetime, but you can also modify the terms of the living trust or cancel it any time you’d like.
There are three roles under a revocable living trust: the person who makes the trust. They might be called the settlor, grantor, or trustor. The person who makes decisions about the money or property in the revocable living trust. They are called the trustee. In general, during the life of the grantor, the grantor is their own trustee. A trustee can be an individual or a financial institution. If there is more than one, they are co-trustees. A successor trustee can also be named but can act only if a trustee can no longer fulfill their role, for example, in the event they die or are disabled.
A revocable living trust is one of the most misunderstood tools of estate planning, especially since many people associate trusts with the extremely wealthy and the term “trust funds. ” but revocable living trusts are necessary for anyone with a piece of real property in california. They are also necessary to address protections for minor children, incapacity, and predators who may seek to take the inheritance from your beneficiaries. The only types of assets that must go through a prolonged probate process in california are solely-held assets—this means anything that is owned by one individual without any beneficiaries. When a revocable living trust is created, the trust maker (settlor) transfers their assets into the trust, which is then controlled by a trustee.
Assets Held in Trust Transfer Outside the Probate Process
An after-death trust will be created by a will after a person’s death. The assets to fund these trusts must usually go through the probate process and may be supervised by the court even after the estate is closed. An example of an after-death trust would be one created by a parent leaving land to a trust to benefit a minor child in his or her will.
The will establishes the trust to which the land is transferred, to be administered by a trustee until the child reaches a stated age, at which point title to the land is transferred to the child outright.
Benefits drawbacks protects in case of incapacity. The trust must be created when the person is mentally capable of agreeing to the document, or it won’t be legally binding. When the person dies or becomes incapable of handling their financial affairs, the trustee or successor trustee takes over. Can be more complex and costly to set up. Depending on how complicated your estate plan is, working with financial professionals or estate planning attorneys can make living trusts more expensive than setting up a will. Transferring assets to the trust can be difficult and time-consuming. Can save costs related to probate , the court-supervised process that manages the distribution of your assets when you die.
A key benefit of a living trust is bypassing the probate process, which can be lengthy and costly. Probate can take months to years, delaying asset distribution to beneficiaries. Living trusts allow for direct transfer of assets, ensuring beneficiaries receive their inheritance promptly. This efficient process conserves resources and reduces the administrative burdens on loved ones.
The Successor Trustee Manages Assets in Case of Incapacity
A living trust also provides protection in case of incapacity. If you become unable to manage your assets due to illness or injury, your successor trustee can step in and manage the trust on your behalf. This avoids the need for court-appointed guardianship, ensuring that your assets are managed according to your wishes.
A trust is a legal arrangement involving three parties. The grantor places assets in a trust, which is administered by a trustee for the benefit of the beneficiary. A revocable living trust, created during the grantor’s lifetime, can be revoked, meaning the grantor still has control over the assets. In the case of revocable living trusts, the grantor is often the trustee and the beneficiary. The grantor may also name beneficiaries to receive the assets after their passing. A trust allows for a successor trustee to manage assets upon incapacity of the grantor, and for simplification and privacy in administration after death.
The successor trustee manages the assets of the trust and serves as the decedents’ representative upon their death. The trustee spends the assets for the benefit of the trust creator if needed and distributes all the trust assets according to the instructions establishing the trust. A living trust becomes irrevocable upon the death or incapacity of the last of the original trust creators. The trustee distributes assets to beneficiaries according to the decedents’ instructions without having to go to court and without court supervision. The successor trustee may be directed by the terms of the trust not to distribute the assets immediately.
The primary advantages of a trust are often realized only if you fund the trust during your lifetime while you are competent. The trust controls only the assets which are registered in its name, so any asset that has not been transferred to the trust before your death will likely have to pass through probate, undermining one of the primary advantages to having a living trust. You should discuss with your attorney and financial advisor regarding the transfer of all of (or most of) your assets that would otherwise be probate assets into the trust. Moving forward, every time you acquire or exchange assets that would otherwise be probate assets, you must make sure you evaluate whether to have them registered in the name of the trust.
When an irrevocable living trust is created, the creator has given the assets to the trustee. The creator no longer has control over the assets, or the legal right to control them in the future, unless the creator is the trustee. Assets in an irrevocable living trust are not subject to estate taxes unless the creator is also the trustee or has retained other rights. In essence, the creator makes a gift to the trust when the trust is funded. Unless special provisions are included in an irrevocable trust, gifts to the trust will not qualify for the $13,000 annual exclusion.
There are many types of trusts; a major distinction between them is whether they are revocable or irrevocable. Revocable trust: also known as a living trust, a revocable trust can help assets pass outside of probate, yet allows you to retain control of the assets during your (the grantor's) lifetime. It is flexible and can be dissolved at any time, should your circumstances or intentions change. A revocable trust typically becomes irrevocable upon the death of the grantor. You can name yourself trustee (or co-trustee) and retain ownership and control over the trust, its terms and assets during your lifetime, but make provisions for a successor trustee to manage them in the event of your incapacity or death.