A living trust can be a useful tool when planning your estate. But if you live in California and are considering using a living trust to protect your assets during your golden years, make sure you understand the state and federal rules that surround them. As with most financial situations, planning your living trust ahead of time can pay huge dividends. Of course, whether you’re setting up a living trust, planning for retirement or seeking help with general financial planning, it could make sense to work with a financial advisor.
How to Create a Living Trust in California
Creating a living trust in the Golden State requires a number of steps. The table below breaks down each step with a description:
|Six Steps to Create a Living Trust in California|
|Pick a Type of Living Trust||If you’re married, you’ll first need to decide whether you want a single or joint trust. A joint trust will allow you to include property that each spouse owns separately as well as joint property.|
|Take Stock of Your Property||If you’re married, you’ll first need to decide whether you want a single or joint trust. A joint trust will allow you to include property that each spouse owns separately as well as joint property.|
|Choose a Trustee||This could be you or another person. The trustee manages the assets in the trust. If you name yourself as trustee, make sure to name a successor trustee to take over after you die or in the event you become incapacitated and can no longer oversee your own affairs. You should also choose beneficiaries, which are the people or organizations who will inherit the property in the trust. The trustee or successor trustee is responsible for ensuring that assets go to the beneficiaries as the trust directs.|
|Draw Up the Trust Document||There is no single form that you have to use in California to do this, but there are some options. If you’re confident in your abilities, you can download a program online to help you write a document. Otherwise, you’ll want to get the help of either a lawyer or a financial advisor.|
|Sign the Trust||You must complete this step in the presence of a notary public.|
|Transfer Your Property to the Trust||This is known as “funding the trust” and is crucial to do. Otherwise the trust will be empty when it’s passed on to your successor trustee. This requires some paperwork, but an attorney can likely help you.|
What Is a Living Trust?
A living trust is a legal document that lets you specifically grant ownership of your assets to a beneficiary. The trustee will be responsible for managing the assets you place in the trust on both your behalf and on the behalf of your beneficiaries. The trustee is also responsible for making sure the assets in the trust are distributed to your beneficiaries according to the trust’s directives. You can name yourself as trustee or you can grant someone else that power.
There are two types of living trusts: an irrevocable living trust and a revocable living trust. An irrevocable living trust is permanent and any asset that’s placed inside of it cannot ever be taken out without express permission from everyone named in the trust.
A revocable living trust, on the other hand, is more flexible and allows for modifications and the removal of property and/or beneficiaries if needed. With a revocable living trust you’ll retain control of the assets you place in the trust, whereas with an irrevocable living trust you’ll permanently give away your assets and thus relinquish control of them. This means that taxes on the assets in an irrevocable trust apply to the trust, not to you.
How Much Does It Cost to Create a Living Trust in California?
The cost of creating a living trust in California depends on which method you use. If you do it yourself by buying a book or an online guide, it will likely cost less than $100. However, there are pitfalls to DIY estate planning. The downside of working with a professional, however, is the cost. If you choose to use an attorney to help you draft your trust documents, it could cost more than $1,000. Each attorney sets his or her own fees, so consult with your attorney to get an estimate.
If you choose to find a lawyer, make sure it is an attorney who specializes in trusts, not simply one who does estate planning, as this might mean he or she only does wills and probates. The California Bar Association has a certification for the legal specialty in estate planning, trust and probate laws, so you might consider finding an attorney with that specialization.
Why Get a Living Trust in California?
There are a number of reasons to get a living trust. One of the key reasons is that it allows your heirs to avoid going through the probate process when you die. Probate court is a potentially time-consuming process through which an estate is processed after a person dies. Creating a living trust allows your family to avoid this potentially irritating endeavor.
Californians have an especially good reason to get a living trust, as the state does not use the Uniform Probate Code. In other states, this code simplifies the process for estates going through the probate court. Since it isn’t in effect in California, having a living trust is especially important if you want to make life easier for your heirs in the Golden State.
A living trust can also be very useful if you are leaving property to a minor child. If you designate another trustee for the property, he or she can hold it in the trust until the child reaches age 18 or 21.
Finally, establishing a living trust means you won’t have to have a conservatorship placed on your assets in the event you become incapacitated. With a living trust, you’ll already have established a trustee to administer your assets.
Who Should Get a Living Trust in California?
While a living trust isn’t only for the rich, the amount of property and assets that a person has is an important part of determining if you should get a living trust. A living trust may be especially beneficial for larger estates though, as they tend to be more complex.
There are downsides to creating a living trust, though. They can be more difficult and time-consuming to arrange, and they may be more expensive. If your inheritance plan is fairly simple, a will may be sufficient, even if it does mean an inconvenient probate experience in California.
Living Trusts vs. Wills
If you decide to get a living trust, keep in mind that you will likely still need a will. There is always a chance that some piece of property or an asset won’t end up in the living trust. A will can provide direction on what to do with property that’s not included in the living trust.
Neither of these are the same as a living will, though. Instead, this document dictates what medical action should be taken if you become incapacitated.
There are a few more elements that wills can handle that trusts cannot. These include:
- Naming an executor
- Establishing guardianship for children
- Leaving instructions for paying taxes and debts
- Naming managers for children’s property
A will is also simpler to create, but it does require witnesses. The chart below summarizes some the similarities and differences between a living trust and a will.
|Living Trusts vs. Wills|
|Names a Property Beneficiary||Yes||Yes|
|Allows Revisions to Be Made||Depends on Type||Yes|
|Avoids Probate Court||Yes||No|
|Requires a Notary||Yes||No|
|Names Guardians for Children||No||Yes|
|Names an Executor||No||Yes|
Living Trusts and Taxes in California
A living trust will likely not have a huge impact on your taxes in California. That said, if you’re thinking about legacy planning you should know about the California estate tax and the California inheritance tax so that you know everything that may happen to your estate after you die.
At the state level, there is no estate tax or inheritance tax in California. But as of 2021, any estate worth more than $11.7 million for individuals ($11.58 million in 2020), and $23.4 million for couples ($23.16 million in 2020), may owe a federal estate tax regardless of using a living trust or not.
Creating a living trust in California is not a terribly difficult process, but it does take some planning. You might find it helpful to work with a financial advisor or another professional when drafting up your living trust. However, you can also download the forms online and then take them to a notary public yourself. Additionally, a living trust does not replace a will, but it can supplement it to make life easier for your heirs after you die.
Estate Planning Tips
- Whether you’re creating a trust or financial plan, it might make sense to work with a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- A common misconception is that estate planning is only for rich and old people. In reality, you should come up with a plan for your estate regardless of your financial situation. Even if you hope to have years to live, it’s important to establish an estate plan in case something happens.
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