San Diego County
Practice Areas - Trusts

What is a Trust? 

A Trust, sometimes referred to as a Family Trust or Living Trust, is an instrument primarily used in an Estate Plan to help distribute a person’s Assets to their designated Beneficiaries, avoid Probate, minimize potential tax burdens and possibly delay an Estate Tax.  In most Estate Plans the Trust is a key component.  A Trust is created by a Trustor or Settlor (who funds the Trust), names a Trustee (who manages the Trust), and identifies the Beneficiary (who benefits from the Trust).  The Trustor and Trustee can be the same person, but there must be a Beneficiary other than the Trustor.


Can you Avoid Probate with a Trust?

When utilizing a Trust to distribute an Estate, you can avoid Probate so long as the Trust is properly funded with your Assets.  In addition to the original corpus (property) used to fund the Trust, a person’s Assets must be placed into the Trust by titling the Assets in the name of the Trust.  If a person’s Trust is not properly funded with their Assets, the Assets will remain outside the Trust and likely become subject to Probate.  After executing your Trust it is critical to fund it in order for the Trust to provide its benefits.


Is a Trust Private?

Unlike Wills, Trusts are much more private.  By avoiding Probate a Trust also avoids becoming a public record.  It is possible that a Pour Over Will in your Estate Plan designating your Trust as Beneficiary to all Assets not already in Trust will be filed with the Court, but it contains limited information compared to a Will designed to administer an entire Estate.  Upon death, notice must be provided to all those named in your Trust and the Trustee must furnish a copy to any named party who received notice and requests a copy of the Trust.  On the contrary, if using a Will to administer your Estate, any member of the public can go to the Probate Courthouse and request to view the file containing your will and make copies if they please.


Do I avoid taxes with a Trust?

A common misconception is that creating a Trust shields a person from all tax liability.  This is not true.  With many Trusts, no special tax identification number is required.  Tax returns are filed using the person’s Social Security Number, as if they were filing as an individual.  There are some potential tax savings that can occur through the use of a Trust and other instruments in a personalized Estate Plan.  Some people are under the impression that an offshore Trust will allow them to avoid taxes.  Again, U.S. citizens are required to pay taxes on their income regardless of where it is situated.  Although the Court may not have jurisdiction over the contents of the offshore Trust, if the person resides in the United States, the Court will have personal jurisdiction over the individual who is usually the Trustee of the offshore Trust.  The person may be ordered to pay taxes and held in contempt of Court for failure to comply.   


Are Assets protected from Creditors once they are placed into a Trust?

Another common misconception is that once Assets are placed into a Trust they are immune from the claims of creditors.  This is simply not true.  You can’t avoid your creditors by putting your Assets into a Trust.  However, it may be wise to include a Spendthrift provision in your Trust to help protect your Beneficiaries from their creditors.  There are some public policy exceptions.  For example, child and spousal support obligations of the Beneficiary require a Trustee to distribute to a Beneficiary even if a creditor will receive the money.  For other types of debts the Trustee may hold the share of a Beneficiary so it does not go straight to the Creditor.     


Once I put an Asset into my Trust can I get it back?

There is a presumption in California that a Trust is a Revocable Trust (changeable) unless stated otherwise.  Most Trusts designed to distribute a person’s estate are revocable, which means, yes, you could take the Assets out of the Trust.  Some Trusts for married couples are revocable until the first spouse dies.  After the first spouse dies the Trust may split, with the deceased spouse’s share becoming an Irrevocable Trust (unchangeable) and the living spouse’s share remaining a separate Revocable Trust.  One of the functions of this type of split is to help ensure the deceased spouse’s share will reach their designated Beneficiaries. 


Can I change the terms of my Trust?

This depends on whether the Trust is revocable (changeable) or irrevocable (unchangeable).  Most Trusts are presumed revocable and if that is the case, then yes, terms in the Trust may be altered by Amending the Trust.   


Are there disadvantages to having a Trust?

There are possible disadvantages to having a Trust.  Because a Trust operates outside of Probate there is no Judicial supervision,  and the only responsible party for carrying out your instructions is the Trustee you appointed.  Many named Trustees include family or close friends but there are situations where a person may have doubts about the ability of their family or close friends to carry out the terms of their Trust.  A potential solution is naming a Professional Trustee.  Professional Trustees charge fees for their services and typically require an estate valued in excess of $1,000,000 but are also much less likely to deviate from the terms of the Trust.  Also, as discussed above, Trusts do not fund themselves automatically.  For the Trust to be useful, Title to Assets must be transferred to the Trust.


If I have a Trust do I still need a Will?

A Will is still a valuable part of an Estate Plan even with a Trust.  In particular, with a Pour Over Will it is important to transfer Assets into the Trust that do not traditionally have Title, such as jewelry.  If minor children are involved, naming Guardians in the Will should also occur.    


What is a Living Trust?

A Living Trust is one created while the Trustor is still living; it is also referred to as an Inter Vivos Trust.


Are Trusts expensive?

Trusts are typically more expensive to create than a Will.  However, the initially less expensive Will tends to cost much more in Probate Fees than a Trust Administration.  The more complex a client's Estate, the more expensive the Trust or Trusts will likely be to draft because of the additional planning opportunities.  However there should be a correlation between increased Estate plan costs and long term overall savings  or control for the client.    


Are there different types of Trusts?

Yes, there are different kinds of Trusts.  For example, Trusts can be drafted for single individuals, married individuals, married couples, individuals with special needs (disabilities), for life insurance and for charities.  The use of different Trusts depends on your personal circumstances together with your Estate Planning goals. 

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