A revocable living trust allows a person to designate property to be given to a beneficiary when he dies, while keeping control of such assets during his lifetime and the right to change or cancel the trust at any time. A living trust in California operates in much the same manner as a living trust in other states; however, community property laws may change what happens to a living trust if spouses divorce.
How Does a Revocable Living Trust Work?
A revocable living trust is a type of trust that goes into effect during your lifetime. The trust becomes irrevocable only when you die; until then, you have the power to alter or end the trust at any time. To create the trust, you write and sign a trust document, select a trustee and beneficiary, then legally transfer your assets to the trustee on behalf of the trust. The trustee manages the assets for the benefit of the beneficiary. A trust can be created with almost any type of property, including stocks, bonds and real estate. Those who create a living trust will often name themselves as the trustee, but in order for the trust to continue after your death, you must also name a successor trustee who will take over when you die. A California living trust needs to be signed and funded with assets, but need not be recorded with the state.
Read More: Can an Heir Sell Property When the Title Is in a Revocable Living Trust?
What Are the Pros and Cons?
Revocable living trusts can offer many advantages in California. The living trust is a lifetime transfer, not a transfer upon death; therefore, its assets typically avoid the time and expense of probate. Should you become legally incapacitated, the trust can take care of and distribute the property for you. The downside of the trust is that it will cost money and time to set up.
What Happens in a Divorce?
California's community property laws dictate what happens to a living trust, and the assets contained within it, when spouses divorce. As a default rule, each California spouse has a right to half of all property acquired during the marriage; this property is commonly referred to as marital or community property. Any gifts or inheritances received by an individual spouse during the marriage, as well as property owned by an individual spouse before the marriage began, is generally considered the separate property of that spouse. Although these are the default rules in California, they can always be changed by premarital contract or a court decision made in the interest of fairness.
How to Divide?
Many trust agreements contain specific provisions detailing what happens to the trust and its assets in the case of divorce. In the absence of such language, however, California law generally prohibits spouses who've already started divorce proceedings from changing or revoking an existing trust, leaving it to the court to sort out. In California, courts will use a method known as "tracing" to determine the character of property, such as a trust, when the court is unsure of whether it is separate or community property. If community property was used to fund the trust, the law will consider the trust to be community property and divide it between the spouses accordingly.
- State Bar of California: Do I Need a Living Trust?
- Law Office of Stephen C. Gruber: California Living Trusts
- Law Office of Stephen C. Gruber: California Community Property
- Law Offices of Jon G. Brooks: How Does a Revocable Living Trust Avoid Probate in California?
- California Divorce Mediation: Estate Planning