People often ask these questions about Trusts:
I hear about trusts; what exactly are they?
Trusts are the basic Estate Planning tool for families that plan ahead. Trusts are legal entities into which certain tangible possessions and assets, such as homes, real estate, bank accounts, and securities, are transferred.
Do I need a lot of money to have a trust?
No. Trusts are a means of protecting what you have, in a manner that enables you to decide when and how assets are distributed. The cost of setting up a trust is not great compared to what would be lost upon your death without a trust. The assets in a trust do not need to be of any minimum value.
How do I know if I need one?
Most individuals with families and dependents would benenfit from establishing a trust. Depending on your situation, I will explain what type of trust would best suit your situation, and draft the trust and related documentation for you.
More about Trusts:
Trusts are the basic estate planning tool for most families who take the time and care to plan ahead. A trust is a private document, not subject to the expense or public scrutiny of probate proceedings, in which you can distribute your assets in the manner you choose. You can decide when your beneficiaries should receive income and/or capital, and you can specify the person or institution to manage any assets remaining in the trust, for the benefit of your children or other beneficiaries.
The necessary parties to any type of trust are:
Grantor: The person setting up the trust and putting his or her property into it. There can be joint Grantors in the case of people who own property together, such as spouses, who agree to put their joint property into a trust. Sometimes this person is referred to as the “Settlor”.
Trustee: The person managing the property in the trust. There can be co-trustees in the case of spouses or people who wish to manage the trust property together.
Beneficiary: The people and/or entities entitled to receive the property in the trust upon a date or event specified in the trust by the Grantors, such as death of the last Grantor to die, or some other specified event.
A trust is a legal entity, created by statutory law. California trusts are under the jurisdiction of the California Probate Code. The Grantor’s property (including home and other real property, financial assets such as bank accounts, brokerage accounts, etc., and certain types of tangible personal property) is transferred into the trust. Generally, the Grantors name themselves as the initial Trustees, with the power to manage the trust property during their lifetimes, as long as they have the mental capacity to manage it. In most cases, this management power will be exactly the same power as the Grantors had to manage their property before putting it into a Trust. In the case of joint Grantor/Trustees, the surviving Grantor/Trustee will continue to manage the trust property after the incapacity or death of the first Grantor/Trustee. Then, upon the incapacity or death of the survivor, the Successor Trustee named in the Trust will take over the management and distribution of the trust property, following the instructions written in the trust for management and distribution.
There are many different kinds of trusts, depending on your needs. Following is a list of some of the most common types of trusts used in estate planning:
Revocable Living Trust: This is the simplest and most common type of “Probate Avoidance” Trust. A Revocable Living Trust can be changed or revoked by the grantor at any time before the grantor’s death. A Revocable Living Trust is a good choice for most people whose estates are not likely to be large enough to be concerned about estate taxes, and who have no potential conflicts about the ultimate distribution of their joint assets. This type of trust will avoid the probate court’s involvement in the distribution of assets, thereby saving time and money. (See Appendix “A” for estimated California probate costs.)
Marital Deduction Trust:This trust is useful for married couples whose total combined estate is likely to be larger than the federal estate tax credit. It can save substantial estate tax liability. This trust is also known as an “A-B” Trust. There are variations on Marital Deduction Trusts, based on the size of the total estate. A type of Marital Deduction Trust, called a “Qualified Domestic Trust”, or “QDOT”, can also be used for spouses where one of them is not a U.S. citizen. (See Appendix “B” for Federal Estate Tax Schedule.)
Charitable Remainder Trust: There are several types of charitable remainder trusts, each designed to accomplish the Grantor’s goals of charitable giving combined with providing security for the Grantors and their personal beneficiaries (i.e., children). Charitable Remainder Trusts can be used in combination with other types of Trusts to accomplish the Grantor’s diverse goals, which can include minimizing estate taxes through charitable giving.
Special Needs Trust: With this type of trust, you can provide for loved ones who are ill or incapacitated, or unable to manage their own finances. A Special Needs Trust provides income for life to the incapacitated beneficiary, according to the terms of the trust, and can even be set up for the purpose of not interfering with eligibility for public benefits, in cases where those benefits are paying for needed care which would not otherwise be available. On the death of the incapacitated beneficiary, the remainder is distributed to an ultimate beneficiary of your choosing.
