There are many important factors to consider when deciding whether or not to set up a trust in California. A trust can be a crucial tool in estate planning and can help ensure that your assets are distributed as per your wishes. Still, setting up a trust comes with its fair share of drawbacks, and it’s vital to consider all aspects before deciding. A lawyer with experience in trust law can help you understand all the potential implications of setting up a trust and can advise you on whether it is the right option for your situation.

What is Trust, and How Does it Work?

A trust is a legal arrangement in which one person, the trustee, holds the property on behalf of another person, the beneficiary. The trustee has a legal responsibility to manage the trust property for the benefit of the beneficiary and to carry out the instructions of the person who created the Trust, known as the settlor. Trusts can be created for various purposes, including managing property during someone’s lifetime and distributing assets after death.

Trust can be either revocable or irrevocable.

  • A revocable trust is one that can be dissolved or changed by the settlor at any time
  • An irrevocable trust cannot be changed once it has been created.

Why Set Up A Trust in California – Things To Consider

Setting up a trust helps you achieve some benefits you cannot get with a will. For example, it allows you to be very specific about how, when, and to whom your assets are distributed when you die. A trust can also safeguard your interests and assets in cases of incapacity – like when you have Alzheimer’s, dementia, stroke, etc.

Additionally, you can structure a trust to shield the beneficiaries from creditors, preserve the generation-skipping tax exemption, and/or manage their state income taxes. A trust is especially important in California, where probate is expensive and lengthy. It will help save your loved one’s time, money, and a lot of hassle.

Besides, with trusts like a living trust, you can still buy, sell, and trade assets as usual. You can also move assets to and from the Trust as you please. The main difference is you can add more designees and controls to help protect your assets in case you die or become incapacitated.

Reasons to Consider Setting Up a Trust

Avoid the Lengthy Probate Process

Trust can help you avoid probate. Probate is the legal process of administering the estate of a deceased person. If the deceased person leaves behind a will, the probate court will appoint an executor to carry out the instructions in the will. When there’s no will, the court will appoint an administrator to manage the estate. The probate process can be time-consuming and expensive, so many people try to avoid it by setting up a trust.
When a property is held in a trust, it does not become part of the decedent’s estate and thus does not have to go through probate. Instead, the trustee can distribute the assets according to the terms of the Trust. As such, trusts are often used to manage real estate, investments, and other valuable assets.

Save on Probate Fees

California has high probate fees for people who only have a will. Without a trust, your beneficiaries will have to pay these fees. The probate fees are based on a percentage of the value of your estate. For instance, the first $100,000 of an estate is subject to a 4% probate fee.

Protect Your Assets

Another benefit of setting up a trust is that it can help you to protect your assets from creditors. If you only have a will, your assets could be seized by creditors to pay off your debts. However, if your assets are held in a trust, they may be shielded from creditors.

Distribute Your Assets According to Your Wishes

A trust can also help you to ensure that your assets are distributed according to your wishes. With a will, the distribution of your assets is subject to the probate process. This means that your assets could be distributed according to California’s intestacy laws, which may not be what you wanted.

Qualify for Certain Benefits

A trust can also help you to qualify for certain benefits, such as Medicaid. If you have a revocable trust, the assets in the Trust will not be counted when determining your eligibility for Medicaid. This is because the assets in the Trust are still considered to be owned by you.

Maintain Privacy Regarding your Assets

Another advantage of setting up a trust is that it can help to maintain privacy regarding your assets. With a will, the distribution of your assets is a matter of public record. However, with a trust, the distribution of your assets can be kept private. This makes it for an assigned individual to take over for you if you should become incapacitated.

Drawbacks of Setting Up a Trust in California

There are also some potential drawbacks to setting up a trust in California that you should be aware of. These include:

  • When you set up a trust, you will have to pay the cost of preparation, which can be higher than the cost of preparing a will.
  • Also, a trust doesn’t provide special asset or estate tax protection. Where necessary, creditors can gain access to assets in a trust when certain provisions are not put in place.

Work with an Estate Planning Attorney in California

An estate planning attorney can help you to choose the right type of Trust for your needs and can help you to understand the potential benefits and drawbacks of setting up a trust in California. They can also help you create a trust that is valid under California law and will meet your specific goals.

Frequently Asked Questions

What information Will a Lawyer Need to Determine Whether a Trust is Right for Me?

Some of the information that your lawyer will need to determine whether a trust is right for you includes:

  • Your age
  • Your health
  • The size and nature of your assets
  • Your estate planning goals
  • Who you’d want to receive your assets when you die
  • Whether you want to maintain control over your assets during your lifetime or turn control over to someone else
  • How much money you’re willing to spend on estate planning

What Happens if I Don’t Have a Trust?

If you die without a will, your assets will have to go through probate before they can be distributed to your beneficiaries. This can be lengthy and expensive as it takes anywhere from 8 months to several years. Your assets may also be distributed in ways that you didn’t wish.

Why not just create a will instead?

A will does not avoid probate, and it offers little asset protection. This means that your assets could be distributed in ways you didn’t wish and that creditors could potentially seize your assets to pay off your debts.

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