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.
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.
Creating a living trust is pretty similar in every state. Specifically in the Golden State, creating a living trust requires a number of steps.
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.
Create a detailed list of all your assets, including real estate, bank accounts, investments, personal property and any other valuable items. Collect relevant documents for each asset, such as property deeds, bank statements, stock certificates and titles.
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.
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.
Signing the document is required for the trust to be valid. While you’re not legally required in California to have the trust notarized, doing so ensures the document’s authenticity and validity.
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.
6 Steps 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 work with a lawyer, make sure you find an attorney who specializes in trusts, not simply one who does estate planning, as this might mean he or she only does wills and probate. 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.
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.
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 they should get a living trust. A living trust may be especially beneficial for larger estates, 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.
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 not included in the living trust.
Neither of these is 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:
A will is also simpler to create, but it does require witnesses. (California permits holographic wills, which do not require witnesses, but these wills are more easily challenged in court.) The chart below summarizes some of the similarities and differences between a living trust and a will.
| Task | Living Trusts | Wills |
|---|---|---|
| Names a Property Beneficiary | Yes | Yes |
| Allows Revisions to Be Made | Depends on Type | Yes |
| Avoids Probate Court | Yes | No |
| Requires a Notary | No | No |
| Names Guardians for Children | No | Yes |
| Names an Executor | No | Yes |
| Requires Witnesses | No | Yes |
6 Steps to Create a Living Trust in California" />
A living trust will likely not have a huge impact on your taxes in California. At the state level, there is no estate tax or inheritance tax in California. But as of 2024, any estate worth more than $13.61 million for individuals and $27.22 million for couples may owe federal estate tax. If the living trust is irrevocable, the assets inside the trust won’t be exposed to the estate tax. However, if the trust is revocable, it may be subject to estate tax.
Creating a living trust in California is not terribly difficult, but it takes 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 draft the document 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.
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Ben Geier, CEPF®Ben Geier is an experienced financial writer currently serving as a retirement and investing expert at SmartAsset. His work has appeared on Fortune, Mic.com and CNNMoney. Ben is a graduate of Northwestern University and a part-time student at the City University of New York Graduate Center. He is a Certified Educator in Personal Finance® (CEPF®) and a member of the Society for Advancing Business Editing and Writing. When he isn’t helping people understand their finances, Ben likes watching hockey, listening to music and experimenting in the kitchen. Originally from Alexandria, VA, he now lives in Brooklyn with his wife.
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