A Trust is an entity that hold assets. Living Trusts are set up to benefit the Trust creators, (also referred to as the “Settlors,” or “Grantors,”) during their lifetimes. Living Trusts also provide the terms for management and distribution of the assets once the Grantors pass away.
Living Trusts are typically drafted by an estate planning attorney. Once the terms of the Trust are established, the assets are transferred into the Trust. For example, if the Grantors own a home, the home will be legally transferred into the name of the Trustee; the Grantors will sign a deed transferring the title of the home to the Trustee and record the deed with the County Recorder’s office. The Grantor’s bank account(s) and other assets will also be transferred into the Trust. The Trustee then becomes the legal owner of the assets.
The Trustee is the Trust manager. Typically, the Grantors of a Living Trust are the original Trustees during their lifetimes. The Grantors/Trustees will manage their own assets. The Grantors can also appoint a family member, friend, or even a licensed fiduciary to manage the Trust assets. The Trustees makes the financial decisions regarding the Trust assets.
The Trust beneficiaries are the people who receive the benefit of the Trust assets. Typically, the Grantors are the original beneficiaries of their own assets during their lifetimes. The Grantors decide who will be the beneficiaries after the Grantors pass away. The terms of the Living Trust govern how and when the beneficiaries will receive the assets.
Once the Grantors of a Living Trust pass away, the beneficiaries receive the remaining assets. Typically, the beneficiaries are the Grantors children or relatives. In California, children do not have an automatic right to inherit their parent’s assets unless the Parent dies without a Will or Trust. A Trust can be created to benefit whoever the Grantor want to pass assets to.
The Successor Trustee is the person who takes over management of the Trust assets after the Grantors pass away. The Successor Trustee then must follow the terms of the Trust and manage the Trust assets. Sometimes this means selling the assets and distributing the proceeds to the beneficiaries immediately. Some Trusts are set up to provide for the beneficiaries over a lifetime in incremental payments. The method in which the assets will be distributed to the beneficiaries depends on the terms of the Trust. At some point the assets are distributed to the beneficiaries and the Trust terminates.
Why do people create Living Trusts? Trusts help facilitate the transfer of assets to the beneficiaries through a trusted person (the Trustee) without having to go through the lengthy probate process. Probate is the court supervision of the distribution of a person’s assets after death. Trusts can also help people reduce estate taxes and put conditions on how assets will be managed and distributed after death.