There are several types of trusts available, but one of the most common is a living trust. A living trust is a simple contract between a settlor (the person who created the trust) and a trustee (the person who holds the assets). The trustee holds the assets for the beneficiaries (the people the assets will belong to in the future). Typically, one or two trustees are listed in the contract, and there’s another trustee – the successor trustee – listed, as well. The successor takes over if the original trustee dies or becomes incapacitated.
Trust Information: What You Need to Know
The trustee remains in control of the assets until he or she dies. When that happens, the successor steps up and takes control. The new trustee can divide the assets in the trust among beneficiaries or retain control, keeping the assets in the trust as long as he or she wishes.
If you have a living trust, your beneficiaries don’t have to deal with probate. The living trust itself is an enforceable contract, so the courts have no reason to become involved. Assets in a trust are safe from creditors and beneficiaries’ spouses, as well – they are essentially untouchable.
California Probate Code 15200 requires some assets to be transferred into a trust – otherwise, it’s considered unfunded and is invalid. In order for the trust to be valid, some assets need to be in it. From a real estate perspective, the homeowners must ensure the name of the living trust is on the grant deed.
A pour-over will ensures that assets that pass through at a person’s death go straight into a living trust. The assets are then distributed according to the living trust’s terms. (It’s kind-of a safety net in case some assets get left behind.)
Putting your house in a living trust will not change its ownership for tax assessment purposes. If you give your home to beneficiaries in a living trust, the beneficiaries will get a full stepped-up basis; as a result, they will not have to pay capital gains when they sell the house.
If you are a business owner, you can continue to manage your company while it is in a living trust. As long as you name a successor trustee in your living trust who can manage the business, operations can continue if you die or become incapacitated.
A durable power of attorney lets someone you assign take charge of the trust if you are unable to do so. If you don’t have a durable power of attorney, the person you want to take charge must get the court’s approval to do so.
To create a complete living trust package, you must have:
- The revocable living trust
- A pour-over will
- Durable powers of attorney
- Advance healthcare directives
- A trust transfer deed
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