The living trust is often the most difficult estate planning document for my clients to conceptualize. Sometimes I compare a trust to an entity like a corporation to help people understand what a trust is and how it works. When I explain to my clients the benefits of a trust they are happy to move forward with creating one of their own – the real challenge is making sure my clients understand what they are creating and why. Only a consultation with an attorney can help you decide what estate plan is right for you, but in the meantime here are a few frequently asked questions about living trusts:
What is a living trust?
A living trust is a legal entity that holds your assets during your life and distributes your assets according to your terms upon your death.
What is the trust estate?
The trust estate is the net worth of all of your assets after final expenses and debts have been paid. See here for more information.
What is a Trustee?
The Trustee is the person who controls, administers and distributes the trust estate. During your life, while you are able, you act as the Trustee. You have the power to appoint Successor Trustees who will act as Trustee if you become incapacitated and when you pass away. If you and your spouse are both Trustees, after the death of the first of you, the surviving spouse will act as the sole Trustee.
Can I control when and under what circumstances my children inherit my estate?
Yes! This is the true benefit and flexibility of a living trust—the ability to literally create your own law. You can select the age at which a beneficiary inherits. You can also place different conditions upon inheritance, such as receiving an education, holding down a job, or not abusing drugs, among many others. Disbursements can also be made in installments over many years, or require that the Trustee only disburse funds for education or health necessities.
Do I have to file taxes differently if I have a living trust?
Usually you do not have to file taxes any differently after you create a living trust. Both the federal and state governments look at the trust as an extension of yourself because as Trustee you retain full control of the trust estate and may revoke the trust at any time. However, keep in mind that some trusts, including irrevocable trusts or life insurance trusts, may require you file a separate return. (I always advise my clients to speak with their own tax professional if they have questions and I regularly seek advice from tax advisors as well.)
Do I have to change the title to my house?
It depends. If you want real property to be included in the trust estate (rather than pass directly through joint tenancy or probate) it should be titled in the name of the trust. Most estate planning attorneys include a transfer deed in their living trust package, as do I. It is a simple process at the LA County Records Office and costs about $20. There is recent case law in California that allows for property to be included in the estate even if the title is not changed during the owner’s lifetime – but only in certain situations and it still requires your family to go to probate court (which is avoided when the deed is properly titled in the name of the trust).
Will I need to modify my trust often?
All estate planning documents should be reviewed every few years. With that being said, unless a nominated guardian, agent or trustee has passed away or become someone you no longer wish to appoint, modifications are not always needed. The most common reason my clients modify their trust is to change conditions for inheritance or to add or remove beneficiaries.
As for adding new assets to the trust, so long as your trust includes the proper clauses, when you purchase property you merely take title to the property in the name of your trust and make a note on your “Schedule A” document to add it to the trust estate. Your estate attorney should explain how to make additions to the trust so that you do not have to hire an attorney every time you acquire a new account or piece of property.
I hope you found these FAQs helpful!
The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship. Brittany Britton is licensed to practice law in the state of California only.