There are many important factors to consider when deciding whether or not to set up a trust in California. A trust can be a crucial tool in estate planning and can help ensure that your assets are distributed as per your wishes. Still, setting up a trust comes with its fair share of drawbacks, and it’s vital to consider all aspects before deciding. A lawyer with experience in trust law can help you understand all the potential implications of setting up a trust and can advise you on whether it is the right option for your situation.
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There are many important factors to consider when deciding whether or not to set up a trust in California. A trust can be a crucial tool in estate planning and can help ensure that your assets are distributed as per your wishes. Still, setting up a trust comes with its fair share of drawbacks, and it’s vital to consider all aspects before deciding. A lawyer with experience in trust law can help you understand all the potential implications of setting up a trust and can advise you on whether it is the right option for your situation.
Article Contents
What is Trust, and How Does it Work?
A trust is a legal arrangement in which one person, the trustee, holds the property on behalf of another person, the beneficiary. The trustee has a legal responsibility to manage the trust property for the benefit of the beneficiary and to carry out the instructions of the person who created the Trust, known as the settlor. Trusts can be created for various purposes, including managing property during someone’s lifetime and distributing assets after death.
Trust can be either revocable or irrevocable.
- A revocable trust is one that can be dissolved or changed by the settlor at any time
- An irrevocable trust cannot be changed once it has been created.
Why Set Up A Trust in California – Things To Consider
Setting up a trust helps you achieve some benefits you cannot get with a will. For example, it allows you to be very specific about how, when, and to whom your assets are distributed when you die. A trust can also safeguard your interests and assets in cases of incapacity – like when you have Alzheimer’s, dementia, stroke, etc.
Additionally, you can structure a trust to shield the beneficiaries from creditors, preserve the generation-skipping tax exemption, and/or manage their state income taxes. A trust is especially important in California, where probate is expensive and lengthy. It will help save your loved one’s time, money, and a lot of hassle.
Besides, with trusts like a living trust, you can still buy, sell, and trade assets as usual. You can also move assets to and from the Trust as you please. The main difference is you can add more designees and controls to help protect your assets in case you die or become incapacitated.
Reasons to Consider Setting Up a Trust
Avoid the Lengthy Probate Process
Trust can help you avoid probate. Probate is the legal process of administering the estate of a deceased person. If the deceased person leaves behind a will, the probate court will appoint an executor to carry out the instructions in the will. When there’s no will, the court will appoint an administrator to manage the estate. The probate process can be time-consuming and expensive, so many people try to avoid it by setting up a trust.
When a property is held in a trust, it does not become part of the decedent’s estate and thus does not have to go through probate. Instead, the trustee can distribute the assets according to the terms of the Trust. As such, trusts are often used to manage real estate, investments, and other valuable assets.
Save on Probate Fees
California has high probate fees for people who only have a will. Without a trust, your beneficiaries will have to pay these fees. The probate fees are based on a percentage of the value of your estate. For instance, the first $100,000 of an estate is subject to a 4% probate fee.
Protect Your Assets
Another benefit of setting up a trust is that it can help you to protect your assets from creditors. If you only have a will, your assets could be seized by creditors to pay off your debts. However, if your assets are held in a trust, they may be shielded from creditors.
Distribute Your Assets According to Your Wishes
A trust can also help you to ensure that your assets are distributed according to your wishes. With a will, the distribution of your assets is subject to the probate process. This means that your assets could be distributed according to California’s intestacy laws, which may not be what you wanted.
Qualify for Certain Benefits
A trust can also help you to qualify for certain benefits, such as Medicaid. If you have a revocable trust, the assets in the Trust will not be counted when determining your eligibility for Medicaid. This is because the assets in the Trust are still considered to be owned by you.
Maintain Privacy Regarding your Assets
Another advantage of setting up a trust is that it can help to maintain privacy regarding your assets. With a will, the distribution of your assets is a matter of public record. However, with a trust, the distribution of your assets can be kept private. This makes it for an assigned individual to take over for you if you should become incapacitated.
Drawbacks of Setting Up a Trust in California
There are also some potential drawbacks to setting up a trust in California that you should be aware of. These include:
- When you set up a trust, you will have to pay the cost of preparation, which can be higher than the cost of preparing a will.
- Also, a trust doesn’t provide special asset or estate tax protection. Where necessary, creditors can gain access to assets in a trust when certain provisions are not put in place.
How to set up a trust in California
Setting up a trust in California involves several important steps, each designed to ensure that your estate planning needs are met and that your assets are protected according to your wishes. You might not have the answers to all of these questions which is why working with a qualified attorney is crucial.
Determine Your Goals:
Before setting up a trust, it’s crucial to understand your estate planning goals. Are you looking to avoid probate? Do you want to protect assets from creditors? Or perhaps ensure privacy in asset distribution? These goals will guide the type of trust that best suits your needs.
Choose the Type of Trust:
Decide whether a revocable or irrevocable trust fits your situation. A revocable trust offers flexibility as you can alter or dissolve it during your lifetime, while an irrevocable trust provides strong protection against creditors and lawsuits but cannot be changed once established.
Select a Trustee:
Choose a reliable trustee who will manage the trust assets. This can be yourself, a trusted family member, a friend, or a professional trustee. The trustee should be someone capable of managing financial affairs and acting in the best interest of the beneficiaries.
Identify the Beneficiaries:
Clearly define who will benefit from the trust, such as family members, friends, or charities. Specify what benefits each beneficiary will receive and under what conditions.
Create the Trust Document:
Work with an experienced estate planning attorney to draft the trust document. This legal document will outline all the details of the trust, including its purpose, terms, trustee powers, and how the assets will be managed and distributed.
Fund the Trust:
For the trust to be effective, you must transfer assets into it. This can include real estate, bank accounts, investments, and personal property. Properly titling the assets in the name of the trust is crucial for the trust to function as intended.
Store the Trust Document Safely:
Keep the trust document in a secure location and ensure that the trustee and beneficiaries know where it is stored and how to access it when needed.
Review and Update as Necessary:
Life changes such as marriage, divorce, the birth of children, or the death of a beneficiary may necessitate updates to your trust. Review the trust periodically with your attorney to ensure it still aligns with your goals and make any necessary amendments.
By following these steps, you can effectively set up a trust in California that meets your estate planning needs, ensuring that your assets are managed and distributed according to your specific desires. It’s highly recommended to seek the assistance of an estate planning attorney to navigate the complex legal landscape, ensuring that the trust complies with California laws and effectively captures your estate planning goals.
Work with an Estate Planning Attorney in California
An estate planning attorney can help you to choose the right type of Trust for your needs and can help you to understand the potential benefits and drawbacks of setting up a trust in California. They can also help you create a trust that is valid under California law and will meet your specific goals.
Frequently Asked Questions
What information Will a Lawyer Need to Determine Whether a Trust is Right for Me?
Some of the information that your lawyer will need to determine whether a trust is right for you includes:
- Your age
- Your health
- The size and nature of your assets
- Your estate planning goals
- Who you’d want to receive your assets when you die
- Whether you want to maintain control over your assets during your lifetime or turn control over to someone else
- How much money you’re willing to spend on estate planning
What Happens if I Don’t Have a Trust?
If you die without a will, your assets will have to go through probate before they can be distributed to your beneficiaries. This can be lengthy and expensive as it takes anywhere from 8 months to several years. Your assets may also be distributed in ways that you didn’t wish.
Why not just create a will instead?
A will does not avoid probate, and it offers little asset protection. This means that your assets could be distributed in ways you didn’t wish and that creditors could potentially seize your assets to pay off your debts.
