Before we get started, let’s define some terms.
When you design your own revocable (living) trust, you are simultaneously the trustee (the person(s) that manages the trust) and the settlor (the person who creates the trust). The term settlor is also called trustor, donor, transferor, grantor or testator.
Corpus refers to the property placed into the trust. Beneficiary: the person(s) who benefit from the trust property.
Reasons to have a revocable trust:
Avoids probate – probate in California is expensive. At the time of this writing, the probate fee schedule for $1 million is:
| Table | Probate Fee | Attorney Fee | |
| 4% on first $100,000 | $4,000 | $4,000 | |
| 3% of the next $100,000 | $3,000 | $3,000 | |
| 2% of the next $800,000 | $16,000 | $16,000 | |
| $23,000 | $23,000 | $46,000 |
This is calculated on the gross estate (assets not reduced by debt). Probate takes time – perhaps years.
- A trust can be distributed to beneficiaries per trust instructions without court oversight.
- Records for trust distribution are private, not public (probate is public).
- No bond is required unlike executors appointed in probate.
- Avoiding court appointed conservator – trust language can appoint a successor trustee due to incapacity. The document usually outlines how incapacity is determined. For instance, “if two health professionals confirm…”
- The pre-appointed successor trustee(s) can continue the management of your estate without having to wait for court appointments.
- Trusts maybe used to prevent distributions to minors; create trusts and guardianship for minors, etc.
- Assets in a trust may offer protection from lawsuits.
- Trusts may be used to set-up additional trusts upon the death of a spouse with blended families; trusts to take advantage the federal tax exclusion, etc.
- Trusts can receive life insurance and annuity proceeds.
One of the problems we see is a trust is drafted but the titles of the assets aren’t placed into the trust. Think of the trust as a glass of water. The trust is the glass but it is empty until the assets (water) flow into it.