Living Trusts

A living trust is an effective way to transfer property upon death without probate. Essentially, it allows you to achieve the same goal as a will, with the huge advantage of avoiding probate.

Besides helping to avoid probate, living trusts have the following advantages:

  • Flexibility. You can transfer all of your property or only some of the assets to the living trust.
  • Privacy. Unlike wills, living trusts do not become part of the probate record at your death, and therefore, remain shielded from the public eye.
  • Convenience. You don’t need to maintain separate trust tax records or obtain a taxpayer identification number for your living trust. As long as you live, all of the trust transactions are reported on your personal income tax return. Aside of the paperwork necessary to establish the living trust and transfer the assets to it, no other actions are required to maintain the trust.

What exactly is a trust? The concept of a trust, although mysterious at first, is actually quite simple. A trust is an entity to which you transfer your property. You keep the control over the property while you are alive, and at your death, the property goes to the people you named to inherit it.

Why is it called a living trust? Living trusts are called living, because they are created while you are alive. They are also called revocable, because you can terminate the living trust or change it anytime and for any reason. Even after the trust is created, you continue to own the property transferred to the living trust and can sell it, spend it, or give it away.

How does the living trust work? Before you establish a living trust you have to think through and decide the following:

1) What property will be in the trust?
2) Who will be the successor trustee? (Usually, you, or you and your spouse, are the initial trustee or trustees.)
3) Who will be the beneficiaries?
4) How will any debts and taxes outstanding at your death be paid?

After you have made the above decisions, you will contact an estate planning attorney to create the written trust document containing all of the terms and provisions of the trust.
Although you could draft the trust document yourself, it is not recommended. The trust has to meet various legal and technical requirements to be valid, and the drafting can get very complex. You will sign the trust document in front of the notary public.

After the trust document is created, you will need to transfer the title to the property into your name as the trustee of the living trust. To achieve this you will register the title to the trust property in the trustee’s name. The assets that do not have title documents are transferred by simply listing them in the trust document.

After the property transfers are complete, your trust is established.

How do I maintain the living trust? It is important to keep your living trust current and amend it if you acquire or dispose of assets or if you want to change the beneficiaries or trustees. No other maintenance is necessary, and you can revoke your living trust at any time.

A living trust is probably the most efficient probate avoidance device and most people who plan their estates should consider using one to protect their assets upon their death. However, great estate planning cannot be reduced to a one-fits-all formula, and despite all of its advantages, a living trust may not be the necessary or the best option for your specific situation.

Contact San Diego Tax Law Group today to find the best probate avoidance device for you.