In California, a person can create a living trust in order to avoid the expensive, stressful and time consuming process of probate. Probate is the court process of distributing assets when someone does not have a Revocable Living Trust. In order to transfer assets to beneficiaries without court proceedings, however, a revocable trust must undertake a series of steps. Conceptually, creating a revocable trust is not very complicated, and it can help you feel at ease in knowing that your beneficiaries will not have to be concerned with a court-supervised probate after your passing. The problem with the probate court proceedings is that they take at least a year, sometimes much longer, and cost tens of thousands in fees and expenses. Your Revocable Living Trust can also ensure that your private affairs will remain private. Probate court proceedings are all public record, meaning all the details of your assets could be available for anyone to see if you don’t have a proper estate plan.

What is a Revocable Trust?

During your lifetime, a revocable trust acts very much like owning assets in your own name. You can use the money whenever you want and for whatever you want. You can always revise your revocable trust in the future as your circumstances change. After your passing, the trust becomes irrevocable and cannot be changed. The trust will be managed and distributed as you have stated in the trust document.

Initiating the Process – Estate Planning in California

Revocable living trusts are established by drafting and signing a trust agreement. Trust agreements involve three essential parties:

  1. The settlor, also known as a grantor – the individual who is creating or funding the trust. This will always be you.
  2. The trustee – the individual who is responsible for managing the trust and its assets. Most of the time, the settlor is the initial trustee. The settlor will also name “successor trustees” who will step in to administer the trust when the original trustee becomes unable to do so because of death or incapacity.
  3. The beneficiary – the party who is benefiting from the trust. Again, this is the settlor during the settlor’s lifetime and the settlor’s loved ones after the settlor passes away.

Trust Funding – Naming and Transferring Assets into the Trust

Once the trust agreement has been signed, the settlor will need to fund the trust. This process involves transferring the settlor’s assets into the name of the trust. For certain assets, such as retirement accounts, you can’t change the name of the account to the trust, but you can name the trust as the pay-on-death beneficiary.

Real property is also generally held in trusts. This is done with transfer deeds at the County Recorder where the property is located. Ultimately, you want to make sure all of your assets are either held in trust or transferred to your trust automatically upon passing.

How a Living Trust Avoids Probate

The only assets that go through probate are assets in your probate estate. Your probate estate consist of assets owned in your individual name, which do not have a pay-on-death beneficiary. Assets transferred to your trust avoid probate because they are held in the name of the trust, not your individual name. There are many pitfalls to relying on pay-on-death accounts to avoid probate. The best way to avoid probate and protect your assets is by transferring your assets to your trust.

The successor trustee appointed in the trust agreement will have legal authority to take the place of the initial trustee (usually the settlor) upon the settlor’s passing or incapacity. This person can then take control of the settlor’s trust assets, including investment accounts, bank accounts, and other business ventures. This person can also collect any life insurance proceeds, retirement funds, or annuities if the trust is the beneficiary. The successor trustee will also have the legal authority to pay any outstanding debts and taxes as well as distribute the remainder of the trust funds to other beneficiaries named in the agreement. This can all be possible without a court involved probate.

When Opening a Probate May Be Necessary

In the event that a revocable living trust has been created but the settlor has failed to transfer a specific asset into the trust, this property may still need to be probated. Such an event can happen if an asset was purchased after the trust was created or if the settlor failed to fund the trust initially. If a will has not been properly executed, the assets will pass to the settlor’s heirs-at-law, or next of kin, under California intestacy laws. This could be completely different than the wishes of the settlor which is why comprehensive estate planning is so important.

In order to avoid assets going to the improper people, a “pour-over” will should be executed at the same time that a trust is created and funded. The pour-over will can direct assets owned outside the trust to be transferred into the trust through probate. Ideally, you do not rely on your pour-over will to fund your trust because it will require a probate.

The best option would be to transfer all assets into the revocable living trust. Read about funding issues, and other common estate planning mistakes.

Hire an Experienced Living Trust Attorney in Orange County

The living trust attorneys at Modern Wealth Law have many years of dedicated experience helping their clients prepare and effectively plan for the future. Ultimately, the firm helps clients ensure that their assets are allocated to their loved ones and are protected against future creditors or ex-spouses. Living trusts can offer numerous benefits and help avoid court-ordered probate if the process is carried out effectively. In order to ensure all assets avoid probate, seek the legal support of a skilled law firm for support.