Revocable Living Trusts

A trust is an arrangement in which one or more people manage or take care of property for someone else’s benefit. A living trust is a trust that is created during your lifetime. In other words, while you are still alive, you transfer title to your property from your name to that of the trustee of the living trust. You can use the trust to gather your property under one document so that it is distributed efficiently after your death.

When you put your property into a trust, the trustee of that trust owns the property — you are no longer the legal owner of the transferred property. This doesn’t mean you have no control of your assets. As the trust’s initial trustee, you will still be in charge of your property. You can do whatever you want with it — you can leave it alone, take it out of the trust, or use it as you had been before the trust was created. A living trust is an easy way to organize your assets and manage them as a single unit. Most importantly, a living trust allows for a timely and efficient property distribution when you die.

Do I need a living trust?                                                                                                                                           

Most Californians who own real estate, such as a home, need a living trust in order for their families to avoid probate when they die.  In California, probate is an expensive, cumbersome and public process and as such, most people would prefer to avoid it.

Can a living trust protect my assets from being used to pay for catastrophic medical costs?

No. Including a catastrophic illness clause in your living trust won’t shield your property. If you have concerns about this, you should consult with an attorney.

Can I make a loan from my trust to a beneficiary?

Yes, you can make a loan to a beneficiary. You can allow the beneficiary to repay the loan with money he or she would otherwise have received as an inheritance from the trust.

Similarly, you can make it clear in the trust that the trustee can make loan payments on behalf of a beneficiary (e.g., in the case of a child’s college tuition).

Can I include property for which I still owe money in my trust?

Yes. The most common example of such property is a house with an attached mortgage. Your beneficiary becomes responsible for the debt (i.e., the mortgage) when he or she receives the property. If you want your trust to pay the balance of a mortgage or other debt on an asset before that property is distributed to a beneficiary, you should talk with an attorney.

Do I need to set up separate record keeping for the living trust?

No. If you are the initial trustee of your trust, you do not need to set up records separate from the personal financial records you currently maintain.

Can I transfer property in and out of the trust while I am alive?

Yes. If you have an individual trust, you can transfer property in and out of it whenever you want. You don’t need anyone else’s permission. If you have a shared trust, you may need to secure your co-trustee’s consent before transferring property you own together.

When should you update a living trust?

You should consider amending your living trust when your life circumstances change. For example:

• You get married or divorced
• You have, or adopt, a child
• You move to another state
• Your financial status changes significantly
• One of your trust beneficiaries dies
• One of your named trustees dies or is incapacitated

Is it a hassle to hold property in a living trust?

Making a living trust work for you does require some crucial paperwork. For example, if you want to leave your house through the trust, you must sign a new deed, showing that you now own the house as trustee of your living trust. This paperwork can be tedious, but the hassles are fewer these days because living trusts have become so common and dealing with them now is worth it to eliminate hassles for your heirs down the road.

Is a living trust document ever made public, like a will?

No. A will becomes a matter of public record when it is submitted to a probate court, as do all the other documents associated with probate, such as inventories of the deceased person’s assets and debts. The terms of a living trust, however, need not be made public.

If I make a living trust, do I still need a will?

Yes, you do — and here’s why:

A will is an essential back-up device for property that you don’t transfer to yourself as trustee. For example, if you acquire property shortly before you die, you may not think to transfer ownership of it to your trust — which means that it won’t pass under the terms of the trust document. But in your will, you can include a clause that names someone to get all of the property that you haven’t left to a specific beneficiary.

If you don’t have a will, any property that isn’t transferred by your living trust or other probate-avoidance device (such as joint tenancy) will go to your closest relatives in an order determined by state law. These laws may not distribute property in the way you would have chosen.

A will also lets you name a guardian for your minor children and covers property intentionally left out of the trust (e.g., cars, personal checking accounts).

Can a living trust reduce estate taxes?

A simple probate-avoidance living trust has no effect on state or federal estate taxes.

Keep in mind that for deaths in 2017, only estates worth more than $5.49 million will owe federal estate tax. This means that very few people have to worry about this tax. This exemption amount will increase with inflation.

In the past, AB trusts were used to help couples save on estate taxes. However, the large personal exemption and “portability” for spouses make AB trusts unnecessary for many couples.

Does my living trust need an EIN?

A revocable living trust does not normally need its own TIN (Tax Identification Number) while the grantor is still alive.

During the grantor’s life, the trust is revocable and taxes are paid by the grantor as an individual, using the grantor’s SSN (Social Security Number). In other words, when an institution requests an SSN or EIN (Employer Identification Number) for trust property, the grantor just uses his or her own SSN. When the grantor dies, the living trust becomes irrevocable and the successor trustee will get an EIN from the IRS to pay the trust’s taxes.

For shared property in shared living trusts, the grantors can use either person’s SSN. When choosing which SSN to use, keep in mind that income on trust property will be reported through the SSN you select. This won’t matter to couples who file taxes jointly, but it could make a difference to couples who file taxes with separate returns. For individually owned property in a shared living trust, use the owner’s SSN.