What Is a Living Trust?
A living trust is an instrument much like a will that designates who will receive what when you’re gone. Unlike a will, the trust also takes charge of all your assets while you’re alive. You basically transfer all your assets into the trust. You then manage the trust yourself while you’re capable of doing so, but you must name a successor trustee in the event you become incapacitated or pass away.
The trustee you name should be someone you trust implicitly to carry out your stated wishes when you’re gone. The trustee by law also has a fiduciary responsibility to oversee your assets in the way you specify.
A living trust, while you’re alive, can be modified whenever you wish as your life situation changes, but once you’re gone, it becomes irrevocable. It cannot be changed. The trustee is bound by it.
One of the biggest advantages of a living trust is that it does not require a probate court to oversee the trustee, as it does with a will when the personal representative must go through probate proceedings to carry out the desires of the deceased. The trustee must still notify the probate court of the death of the estate’s grantor, or settlor, but is then pretty much on his or her own.
Also, probate proceedings become part of the public record. Anybody can view who got what and what it was valued at. A trust administration takes place outside of public view and does not become a record or document to be viewed online.
Role of the Trustee
Upon your passing, the trustee begins the administration of the trust. Under California law, the probate court and all beneficiaries and heirs must be notified that the execution of the trust is commencing. Beneficiaries and heirs then have 120 days to contest the trust.
If there are no challenges that delay the process, the trustee must then complete these steps:
COMPILE ASSETS: The trustee must inventory all assets of the deceased and take title to all those assets listed in the trust document. If the decedent acquired assets after the trust was created, or neglected to add them, they will have to go through probate court. So, when setting up a trust, it is important to review it annually to see that it contains all assets.
APPRAISE ASSETS: The trustee, usually by hiring an outside appraiser, must determine the value of the assets so the proper percentage can be distributed to the beneficiaries.
PAY ALL DEBTS AND TAXES: The trustee must also compile a list of all debt obligations and make sure creditors are paid their due. The trustee must also pay any taxes due to the state or federal government. To pay the taxes, the trustee must obtain a tax identification number (EIN). The last month’s Social Security payment usually must be repaid to the Social Security Administration (SSA).
PAY THE BENEFICIARIES AND YOURSELF: The trustee is entitled to compensation for his or her administrative work. California law has established standards for this. As the final step, the trustee must distribute assets and/or their proceeds to the beneficiaries.
The above steps are a simplified overview, but in most cases, administration of the trust can be completed in six months or so. The help and advice of outside legal counsel may be essential, especially if creditors or heirs file challenges.