Living trusts are legal documents that California residents often include in their estate plans to give them more control over how their assets will be distributed after they pass away and to avoid the probate process. The person who creates a living trust is called the grantor or settlor, the assets placed into the trust are called the corpus and the person appointed to manage the trust is called the trustee.
Revocable living trusts
Most living trusts are irrevocable because this legal structure provides the most flexibility. The settlor who creates a revocable living trust can also be the trustee and beneficiary. They retain control of the trust’s assets, which means they can withdraw money at any time. They are also free to change the trust rules. This means they can add or remove assets, change beneficiaries or dissolve the trust whenever they wish. A revocable living trust is flexible, but it does not offer any tax benefits. This is because the Internal Revenue Service considers the assets in a revocable trust to still be the property of the settlor.
Irrevocable living trusts
An irrevocable living trust owns the assets it contains, and the settlor cannot also be the trustee. California residents usually include irrevocable living trusts in their estate plans to avoid the federal estate tax. Once an irrevocable trust has been created, the assets placed into it cannot be removed and its terms and beneficiary designations cannot be changed. This is why it is important to consider the long-term needs of beneficiaries before drafting these estate planning documents.
Peace of mind
Living trusts provide peace of mind because they allow settlors to decide for themselves how and when their assets will be distributed after they die. This can be important if beneficiaries have special needs or may not be able to handle a lump-sum inheritance responsibly. Revocable trusts allow settlors to maintain control of their assets and make changes to the trust rules whenever they wish, but they do not provide tax benefits. Irrevocable trusts are far more rigid and cannot be changed, but the assets placed into them are not subject to the federal estate tax.