Many people use trusts to set aside property to give to their family members or others after death. California state law authorizes revocable living trusts, a type of trust that can be changed or even revoked entirely by the person making it at any time. Once the person dies, the trust becomes irrevocable, and the property interest passes to the beneficiaries named in the trust.
The great advantage of living trusts over irrevocable trusts is that the person making the trust can amend the terms easily. But it's still important to follow the dictates of the law when making changes to beneficiaries, adding or deleting trust property or altering other living trust terms.
What Is a Trust?
A trust is a legal tool people use for estate planning. There are generally three parties involved in a trust: the settlor or grantor, the trustee and the beneficiary. The settlor is the person making the trust, the one who decides what property to put into the trust, selects a trustee and names the beneficiaries.
The trustee is the person or entity who holds the property for the benefit of someone else. The person for whose benefit the property is held is called the beneficiary.
What Is a Living Trust?
The two general categories of trusts in California are irrevocable trusts and revocable trusts, also called living trusts. As the names indicate, the big difference between them is the type of control the settlor retains over the trust property and the terms of the trust.
Revocable and Irrevocable Living Trusts
An irrevocable trust transfers property to the trust once and for all. Once the trust is prepared and signed according to California law, the property in the trust passes out of the hands of the settlor. At that point, the settlor has no interest in the property and cannot get it back or change any of the terms of the trust. The benefit of an irrevocable trust is that, at the time the trust is made, the property moves out of the hands of the settlor and thus out of reach of any of the settlor's creditors.
In a California revocable living trust, the settlor retains control of the property and can change the terms of the trust at any time. The trust terms are legally "fixed" only when the settlor dies. In a living trust, the settlor generally names themselves as trustee and beneficiary as well. They name a successor trustee and beneficiary to take their place when they die. The settlor therefore keeps complete control over the property put into the trust and has the right to use and spend that property as if it had never been put into the trust.
Because the settlor retains control of the property, a California living trust does not protect the assets from creditors of the settlor. Creditors have the right to attach the trust property in the same ways they would if the settlor never made the trust.
How to Draft a Living Trust?
It is not difficult to create a living trust in California, and many people do so without hiring an attorney. However, it may be a good idea to get legal help to answer questions about whether to create an individual trust or a shared trust, and to design the trust terms.
Living trust forms to create the trust agreement are available online. The settlor decides what property to include in the trust, chooses one or more successor trustees and beneficiaries, and decides on any other trust terms. These are put into the trust document, then the settlor must sign it in front of a notary. The title to any real estate or vehicles that are going into the living trust must be changed to reflect that the settlor now owns the property as trustee of the trust, rather than individually.
Living Trust Amendments
It is not unusual that a settlor will, over time, decide to amend the terms of a living trust. Life changes like marriage, divorce, the birth of a child, or the death of a spouse or a beneficiary can require changes to a living trust. But sometimes the settlor simply wishes to add property to the trust or delete some property from the trust. In any of these cases, it will be necessary to amend or redo the trust.
Note that a settlor can amend an individual living trust at any time, changing any aspect of the trust and even terminating it completely. If the trust is a shared trust, both settlors must agree to any changes, although either settlor can terminate the trust.
Adding Property to a Living Trust
It is not difficult to add property to a living trust. All that is necessary is to revise the property schedule of the trust to include the new property or delete some previously named trust asset. The settlor then signs the revised property schedule and replaces the former property schedule in the original trust document.
Remember that if the added property is transferred by title, such as real property or a vehicle, it is necessary for the settlor to transfer ownership of the property to themselves as trustee. If the item doesn't need a titled document, the settlor can indicate on the Assignment of Property form that they are holding the item in trust. If property was deleted from the trust, change its title document or indicate the change in the Assignment of Property form.
Changing Other Trust Terms
When a settlor wishes to make more than one or two changes to a living trust in California, they usually create an amended trust document. This procedure is very different from that of changing a will. A person wishing to change a will in California usually revokes the old will and writes a new one. With a living trust, that creates a lot of work because it requires transferring all of the trust property back to the settlor individually, then transferring it back to the trust once again.
To avoid the expense and effort of all these transfers, a settlor can do a "restatement" of the living trust document. They create an entirely new trust document without revoking the first one, simply restating it with some amendments. The settlor retains the original date of the trust and won't need to alter ownership interest of any property that's already held in the trust.
The new trust document must be clearly identified as a restatement of the original one and explicitly state that all trust terms remain the same except for the changes made. The restated trust document should be signed by the settlor as the original trust document was signed.
Must an Attorney Be Involved?
Some settlors feel more comfortable getting legal help to make changes to a living trust, but others simply create the restatement themselves. This depends on the preferences of the settlor. If a settlor feels uncomfortable making these changes themselves or has questions, it is usually better to seek legal help.
There are no set legal fees for this type of work. That means that it is important to ask an attorney in advance about their fee structure and for an estimate of the cost.
Teo Spengler earned a J.D. from U.C. Berkeley's Boalt Hall. As an Assistant Attorney General in Juneau, she practiced before the Alaska Supreme Court and the U.S. Supreme Court before opening a plaintiff's personal injury practice in San Francisco. She holds both an M.A. and an M.F.A in creative writing and enjoys writing legal blogs and articles. Her work has appeared in numerous online publications including USA Today, Legal Zoom, eHow Business, Livestrong, SF Gate, Go Banking Rates, Arizona Central, Houston Chronicle, Navy Federal Credit Union, Pearson, Quicken.com, TurboTax.com, and numerous attorney websites. Spengler splits her time between the French Basque Country and Northern California.