What is a trust?
Technically, a trust is a contract containing your instructions so others know what you want to happen and how they can help you. Trusts can be arranged in many ways. The Trust document tells the Trustee exactly how and when the assets pass to the beneficiaries. Revocable living trusts have been popular for the last 40 years and are commonly part of a foundational estate plan. The revocable trust is easy; you serve as your own trustee and beneficiary during your lifetime. Other trusted helpers (i.e. trustees) are appointed to step in and help if you aren’t able to manage your finances and day-to-day business if you are incapacitated and then also after your death.
Trusts are sometimes called an “inter vivos” or “living” trust. These terms simply mean the trust is a living document that works for your while you are living, not just after you pass away. You have the ability to change it by way of an amendment or restatement as long as you have capacity. Sometimes the term “revocable” is also in the title. You can completely revoke or “undo” a trust while you have capacity if the circumstance calls for it, such as in a divorce.
The person who creates the Trust is called a “grantor” or a “settlor” or a “trustor.” Every Trust is managed by someone known as a Trustee. The person or persons who create the trust chooses who will serve as a Trustee and who will receive the benefit of the Trust property. A person who receives the benefit of the trust is called a “beneficiary.” It is common that when a person first creates a trust, they may be the “grantor” and the “trustee” and the “beneficiary” all at the same time.
There are many other kinds of trusts as well. Trusts are used to protect qualified retirement plans, life insurance, and other assets. They are also used to reduce taxes and carry out charitable, family, education, and business goals. We’ll help you determine whether a trust is a good fit for your individual situation and, if so, which trust is most appropriate.
Who administers a trust?
The Trustee manages the Trust. The Trustee can be anyone, but people will often pick a trusted family member. This may or may not be a good choice in your situation. The more complicated the Trust the greater the need for a Trustee who is familiar with the Trust Administration process. This is why institutional Trustees such as law firms, banks or Trust companies are often chosen to serve as a Trustee. In California, there are also private licensed fiduciaries who can also be hired to be a Trustee.
Does the court get involved?
A Trust is a private creation which does not have to be registered with a court. In fact, many people create Trusts specifically to avoid the requirements of having to go before a Probate court in order to transfer property after they die. Because Trust law differs between states, you should always consult a qualified estate planning attorney for any questions you have about how your state courts are involved in the Trust administration process.
In California, a Trust can be completely administered outside of a court process. However, a court may intervene if members of a family or other beneficiaries petition the court to get involved in a specific matter or potentially the whole administration. This is on a case by case basis.
What happens to a trust after the trustmaker dies?
A properly funded revocable living trust or irrevocable trust can avoid probate at the time of the trustmaker’s death. However, the trustees and successor trustees of such trusts have the responsibility to follow the instructions in the trust and follow state law. This is called a trustees fiduciary duty. Usually this means that the property and assets in the trust are distributed to family members or distributed into one or more new trusts for the benefit of family members. In addition, the trustee is required to satisfy creditors of the estate of the deceased trustmaker, file income and estate tax returns, gather and appraise assets, manage and liquidate assets, provide an accounting to beneficiaries and generally wind up the affairs of the person who has passed away. We call this process post-mortem trust administration.