California Revocable Living Trust: The Ultimate Guide for 2023
A revocable living trust can be a critical component of an estate plan for California residents. This comprehensive guide examines everything you need to know about creating and using a revocable living trust in California in 2023 and beyond. We’ll cover what a living trust is, the pros and cons, whether you need one, how to set one up correctly, choosing trustees, probate avoidance, estate tax planning, and much more. You’ll also find recent updates on California trust and estate laws you need to be aware of. Read on for an in-depth look at revocable living trusts in California this new year.
What is a Revocable Living Trust?
A revocable living trust, also called a revocable trust or inter vivos trust, is a legal document used in estate planning that allows you to place assets in a trust during your lifetime. As the trust creator (grantor), you maintain control over the assets while alive. You can change or terminate the trust at any time. Upon your death or incapacity, the trust becomes irrevocable and your named beneficiaries receive distributions per the trust terms.
A living trust is established as a separate legal entity with its own tax ID number. You name a trustee (often yourself at first) who is responsible for managing the assets in the trust on behalf of the beneficiaries. The terms dictate what happens to the assets when certain events occur.
Unlike an irrevocable trust, a revocable living trust remains within your control during your lifetime. The key benefit comes into play at death or if you become incapacitated.
Why Consider a Living Trust in California?
Here are some of the top reasons to consider using a living trust as part of your California estate plan:
Avoid Probate - Assets transferred into a living trust while you are alive pass directly to beneficiaries upon death. They do not go through the court-supervised probate process. This saves time, money, and privacy compared to simply using a will.
Control Assets if Incapacitated - The living trust includes legally binding instructions for who will manage your financial affairs if you become incapacitated. This may avoid the need for a court-appointed conservatorship.
Avoid Multiple State Probate - If you own real estate in multiple states, your living trust can allow for faster transfer of out-of-state properties. Without a trust, ancillary probate may be needed in each state.
Privacy - Trusts are not public documents like wills that go through probate. The terms and assets remain private.
Flexible Control - As a grantor, you retain control over the trust and can amend or revoke it at any time during your life. The terms only become irrevocable at your death or incapacity.
Professional Asset Management - Naming a professional trustee like a bank trust department allows for ongoing financial management even if you can no longer handle it yourself.
Tax Planning - When structured correctly, a living trust can help you minimize estate taxes as part of an integrated estate plan.
Is a Living Trust Right for You?
While most people can benefit from having a living trust, they are especially useful for:
- Those with real estate holdings, business interests, or substantial assets that would require probate if left through a will.
- Seniors who want to put procedures in place should they become incapacitated and protect against unnecessary conservatorships.
- Families with minor children who need guardianship provisions if something happens to the parents.
- Those who highly value keeping their financial affairs private and out of the public eye.
- People with real estate or other assets located in multiple states.
- Individuals concerned about family fighting or disputes over inheritances without clear instructions.
- Anyone wanting professional asset management through corporate trustee services.
An attorney can help assess your specific needs and advise if a trust is appropriate for your situation.
Choosing Trustees and Successors
Selecting the right trustee is a critical decision when establishing your living trust. Here are some guidelines on picking trustees:
- Initial Trustee - Typically you will serve as the initial trustee so you maintain control over the trust assets during your lifetime.
- First Successor - Choose a responsible person like a conscientious family member or trusted friend to serve as the first successor trustee to take over managing the trust if you can no longer serve.
- Second Successor - It's wise to name a second (or third) successor trustee as a backup. Cascading successors provide continuity if any one choice is unable to fulfill the duties.
- Corporate Trustee - Naming a professional trustee like a bank trust department can provide impartiality and sophisticated asset management either upfront or as a final successor. However, they charge fees for services.
- Trustee Consent - Make sure to discuss the position with your chosen trustees before finalizing them in your trust to ensure they are willing and able to serve if called upon.
- Trustee Provisions - Confer with your estate planning attorney about including important trustee provisions in your trust regarding accountability, trustee removal and replacement, and resignation procedures.
Choosing a competent and reliable trustee is essential to ensuring your trust is managed properly.
If you decide moving forward with a living trust is right for your situation, here are the steps involved:
- Hire an experienced California estate planning attorney to draft your personalized living trust document based on in-depth discussions about your family, assets, trustees, and wishes.
- Review the trust agreement thoroughly before signing it to make sure it accurately reflects your intentions. Ask questions!
- Formally execute the trust by signing it in the presence of a notary public or two adult witnesses. Notarization provides an extra layer of legal protection.
- Fund the trust by retitling assets like bank accounts, real estate, investments, etc. from your individual name to the name of the trust. Keep thorough records.
- Prepare and sign a pour-over will to catch any stray assets not transferred to the trust before death.
- Obtain EIN and TID numbers from the IRS and California FTB for tax reporting purposes.
- Administer and manage the trust assets while serving as initial trustee. Keep detailed accounts and records. File annual trust tax returns.
- Periodically review the trust with your attorney to update it as your circumstances change. Amend as needed.
Proper trust creation, funding, and administration take work. An experienced attorney guides you through the intricacies.
Pros and Cons of Living Trusts
Like any estate planning tool, living trusts have both advantages and disadvantages. Here is an overview:
Pros
- Avoid probate for most assets
- Maintain control as trustee during life
- Instructions in place if incapacitated
- Remains private unlike wills
- Difficult to contest or challenge
- Provide smooth transition of assets to heirs
- Can manage real estate and business interests
- Allow for customized estate tax planning
Cons
- Higher upfront costs to create
- Ongoing maintenance is required
- Assets must be transferred into trust
- Loss of control if you become incapacitated
- Lack of customization with online templates
- Can't change once you become incompetent
- Doesn't eliminate all possibilities of disputes
A qualified estate planning attorney can help assess whether the benefits outweigh the drawbacks given your specific situation.
Recent Changes to California Trust Laws
If you already have an existing living trust, it's important to be aware of recent changes to California trust law that may impact your plan:
- The probate code now allows for nonjudicial modification of irrevocable trusts under certain circumstances.
- Stricter accounting and notice requirements for trustees were enacted under the new California trust law AB-905.
- The Uniform Electronic Wills Act was adopted in California allowing electronic wills and codicils in certain cases.
- The California Uniform Trust Decanting Act provides expanded decanting powers allowing modifications to irrevocable trusts.
- The California Uniform Directed Trust Act was passed which allows directed trustees in certain cases.
Consult with an estate planning attorney to ensure your trust complies with any new laws and make any necessary updates. Staying on top of changes is key.
Finding the Right California Attorney
Creating a customized living trust requires working with an attorney experienced in California estate planning and trust law. Here are some tips for finding the right lawyer for your needs:
- Ask trusted friends and financial advisors for referrals to estate planning lawyers they recommend.
- Choose an attorney who specializes in estate planning and trusts rather than a general practitioner.
- Look for a lawyer with membership in prestigious estate planning organizations like the American College of Trust and Estate Counsel (ACTEC).
- Search for lawyers listed in Best Lawyers for Trusts and Estates to find leading attorneys in your area.
- Meet with multiple qualified candidates before selecting your attorney. Make sure you have a good rapport.
- Ask about prices and understand fee structures - some charge hourly while others have flat rates.
Taking your time to select the right estate planning attorney can provide peace of mind knowing your trust is in good hands.
