Living trusts are a legal instrument we use in estate planning for the really broad purpose of keeping families out of probate court after a loved one passes away.
Trusts almost function like a separate business entity, but not quite. It’s more so like a contract between people serving in three separate job descriptions. Those jobs are Grantor, Trustee, and beneficiary. The Grantor is the person who puts property in to the trust. The Trustee is the person who manages that property. And the beneficiary is the person who gets to enjoy the benefit of that property.
So if we assume that you are the person creating the living trust, while you are alive, you get to fill each of those three job descriptions. You put your property into the trust, you get to manage it, and you also get to enjoy the benefits of your property.
If you were to become incapacitated at some point during your life—for example if you were to go into a coma—you would still be the grantor and beneficiary, but your designated successor trustee would step into the role of trustee. That means that their job would be to manage your property and use it to take care of you while you remain incapacitated.
After you ultimately pass away, you still keep that job of being the grantor who put property into the trust, but the other two roles are now filled by the people or entities you designated in the trust. Someone else is now the trustee, and their job is to manage the property you left behind and distribute it to the family members, friends, or charities that you designated according to the terms you created while you were alive.
So why do we go to all this trouble to create a trust? First, unlike having just a will, the trust will keep your heirs out of probate court which saves them a significant amount of time, money and headaches. Because you are avoiding probate court, you are also avoiding a public record of how your property was distributed. Trusts also avoids conflicts between family members because you set out legally-enforceable terms for the distribution of your property.
Another benefit that a trust offers and a will does not, is the incapacity planning component I mentioned. And finally, trusts allow you to set up a plan where if the unthinkable happened and you passed away leaving minor children behind, your successor trustee could use your property to take care of you children over an extended period of time until they are old enough to competently manage the property themselves.
That’s the general overview of what a living trust is and how we use them in California estate planning. If you have any questions about how a living trust can keep your family out of probate court, or if you would like to speak to an estate planning attorney in La Mesa or the Greater San Diego area, please give us a call at (619) 344-0123.