Living trusts are a fundamental pillar of estate planning. But they need to be dynamic, adapting to your evolving needs and circumstances. Often, these changes are weighty enough to necessitate the altering of your living trust. If you want to amend a living trust in California, understanding the difference between revocable and irrevocable trusts is paramount to the process. The type of trust you have will dictate how you should proceed.
What Is a Living Trust
A living trust, also known as an inter vivos trust, is a legal entity that holds and manages your assets while you’re alive and can continue to do so after your passing. This legal arrangement allows you to place your assets, such as real estate, securities and personal property, into a trust while you serve as the trustee. When you die, a successor trustee will manage the trust and see that your assets are distributed according to your wishes.
One of the primary advantages of a living trust is its ability to bypass the probate process. Probate is the legal procedure of validating a will and distributing assets after someone’s passing. It can be time-consuming, costly and public. By placing assets in a living trust, they are not subject to probate, which means a smoother and more private transfer of your assets to your beneficiaries upon your death.
Revocable vs. Irrevocable Living Trusts
Living trusts are not one-size-fits-all. Instead, it can either be revocable or irrevocable.
A revocable living trust offers the settlor or grantor (the person who creates the trust) greater flexibility and control over their assets during their lifetime. When you establish a revocable trust, you can make changes, add or remove assets and even revoke the trust altogether if you wish.
This flexibility can be appealing for those who want to retain control over their assets and make adjustments as their circumstances change.
An irrevocable living trust, on the other hand, cannot be altered or revoked without the consent of its beneficiaries. But while this trust has more restrictions, it offers greater asset protection. Assets placed in an irrevocable trust are generally shielded from creditors and legal claims, providing an added layer of security.
Additionally, irrevocable living trusts can have significant tax advantages. They can be used to reduce estate taxes, as the assets in the trust are no longer considered part of the grantor’s estate for tax purposes. This can lead to substantial savings for the estate and its beneficiaries.
Keep in mind that according to the California probate code, a trust is automatically revocable if it’s not “expressly made irrevocable by the trust instrument.”
Amending a Revocable Living Trust in California
Start by carefully reviewing the existing trust document. Ensure you have a clear understanding of the changes you want to make. It’s essential to know the specific sections or provisions that need to be amended.
Under Section 15401 of the California probate code, a revocable trust can be amended or revoked in one of two ways. The trust itself may contain language or a provision that lays out how to change or revoke it. If that’s the case, you’ll adhere to those directives.
If no such language exists within the document, you’ll have to draft an amendment document that clearly states the changes you want to make to the trust. Be precise and include any necessary legal language to ensure the amendments are legally binding. That document then must be delivered to the trustee – if it’s not you.
While it’s possible to amend a revocable living trust on your own, it’s advisable to consult with an experienced estate planning attorney in California. They can provide legal guidance and ensure that your amendments comply with state laws.
Amending an Irrevocable Living Trust in California
Amending an irrevocable trust is trickier due to its unmodifiable nature – but it’s not impossible.
In order for an irrevocable trust to be changed or terminated in California without the approval of a court, the settlor and all beneficiaries must agree to the proposed changes. This unanimous written consent is often necessary for an amendment to proceed.
In some cases, a court may approve amendments to an irrevocable trust, even if not all beneficiaries agree to those changes. For instance, when any beneficiary doesn’t consent to the amendments or termination, the court can still sign off on the changes if the settlor agrees and the dissenting beneficiary is “not substantially impaired,” according to Section 15404 of the state probate code.
There may be petitions that involve beneficiaries who are not born yet or too young to consent. In those scenarios, a guardian ad litem will determine whether to agree to the changes or termination of the trust.
However, remember that the legal implications of changing an irrevocable trust can be significant. Non-compliance can open the doors to legal disputes, emphasizing the importance of adhering to all procedures. Seek legal counsel from an experienced estate planning attorney who specializes in trust law. They can guide you through the process of drafting a formal trust amendment in compliance with California law.
Amending a living trust in California is entirely possible, regardless of whether the trust is revocable or irrevocable. However, the process and rules for amending a living trust in the Golden State will vary based on its revocability. As a result, it may be wise to seek legal guidance when you’re looking to make changes to a living trust.
Estate Planning Tips
- Upstream gifting is an estate planning strategy that involves giving highly appreciated assets to older family members, like parents or grandparents, who in turn leave those assets to your children when they die. This can expedite the transfer of assets to your children – they don’t have to wait until you die to receive them – while preserving the valuable step-up in basis.
- A financial advisor can help you organize your assets and make decisions about how they’ll be distributed when you die. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Photo credit: ©iStock.com/rarrarorro, ©iStock.com/designer491, ©iStock.com/FG Trade Latin