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When Does It Make Sense To Create A Trust?

When Does It Make Sense To Create A Trust

In concept, trusts can be an excellent way to pass assets to your beneficiaries without making them go through the burden and expense of a California probate case.  However, this estate planning tool may not be the right answer for every situation. So, when does it make sense to create a trust?

What is a Trust?

A trust is a legal device that can be created with assets or funds to benefit named beneficiaries. Once the trust creator, or grantor, puts money or assets into the trust, it is no longer his or her legal property. A trust will be managed and overseen by a named trustee who will have duties to take care of the trust assets and distribute them according to the specific terms indicated in the trust documents. When the grantor dies, the trust assets are not considered to be part of his or her probate estate.

How to Set up a Trust

The first step in setting up your California trust is to meet with an experienced estate planning attorney. You and your counsel can examine your goals and consider the different types of trusts that may be appropriate for your situation. Once you have decided on the right kind of trust, you will need to identify your assets and beneficiaries. As you devise your trust document, you will want to consider issues such as how long you would like the trust to last, any restrictions on the use of trust payments, and whom you would like to serve as your trustee. Once you and your attorney have discussed these matters, your counsel can draft your trust document. You will then need to appoint a trustee and fund your trust.

Types of Trusts

In California, there are different types of trust you can create. Generally, trusts fall into two categories: Revocable or Irrevocable.

  • A revocable trust allows the grantor to make changes to the trust at his or her discretion. Typically, the grantor can be the trustee and a beneficiary of a revocable trust at the same time. However, because the grantor can access the trust assets, if he or she is sued or declares bankruptcy, this property will be accessible to creditors to satisfy certain debts.
  • An irrevocable trust is a trust that, for the most part, cannot be changed once it has been created. However, under California law, the court can allow changes to this type of trust under limited circumstances. Unlike a revocable trust, in many cases, creditors cannot access irrevocable trust assets when seeking to recover from a grantor. However, certain debts like alimony, child support, and taxes are almost always recoverable.

When do Trusts Make Sense?

Depending on your reasons for creating one, having a trust may be a good idea in several different circumstances. For example:

Larger Estates

When you have a significant amount of funds and property, it may be better to put these assets into a trust for the benefit of your named beneficiaries to keep them out of probate.  The estate tax exemption, currently 11.4 million for individuals, allows for the transfer of estate assets by inheritance valued up to that amount.  If you have assets and funds which exceed 11.4 million, it would be logical to place what you can into a trust to avoid the imposition of this tax.

You Need to Control How Trust Payments are Used

When you leave assets to your heirs in a will, you don’t have any control over how they will use them in the future. By contrast, when you create a trust, you can set limitations on how beneficiaries use trust payments. For instance, you could leave a large sum to your children to be used only for their college educational expenses.

You Want Privacy

When a will goes through California probate, it’s a matter of public record. However, a trust administration is private. If you would prefer to keep how your funds or estate are distributed confidential, using a trust allows for privacy.

You Want to Provide for Someone with a Special Need

California has Special Needs Trusts. This is a unique type of trust that allows loved ones to provide for the needs of someone who has a significant disability without endangering the individual’s eligibility for public benefits.

These are just a few of the reasons that a trust may be beneficial. However, to fully explore whether a trust is a good option for your circumstances, you should meet with an experienced California trust attorney.

At the Law Offices of Alice A. Salvo, we are knowledgeable and experienced California trust attorneys with the expertise you need to help you evaluate your situation and make informed estate planning decisions. Contact us today to schedule your consultation.