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How Does a Living Trust Work

A trust is a contract or agreement designed to transfer assets to someone else upon the death of the creator of the trust. It is referred to as a “living” trust because you can change it and amend it during your lifetime.

The goal of the Trust is to transfer assets to your beneficiaries without the involvement of the court system (“probate court”). The probate process is public and can be time consuming, expensive, and expose assets to Medi-Cal claims.

There are different positions associated with a Trust

  1. The first position is that the “Trustor” (aka settlor) the person who creates the Trust.
  2. The second position is that of the “Trustee” the person responsible for managing the assets that are part of the Trust. The initial trustee is usually the same person(s) who created the Trust.
  3. The third position is that of the “Successor Trustee” the person who will follow your trust terms for the management and transfer of the trust assets to the beneficiaries.
  4. The “Beneficiaries” are the person(s) who will receive your property when you die. All the personal property and real property that you own is referred to as your “Estate”. A single person or married person may leave their estate interest to whomever they wish. However, for married couples it is common for each spouse to leave outright their interest in the estate (separate and community property) to their spouse and to make the children equal beneficiaries. The Trust can manage the assets for minor beneficiaries and dictate under what circumstances and age the children will receive their inheritance.

Most trusts are designed to be “revocable” during your lifetime so that you can update them as your circumstances change. Then, when you die the Trust becomes “irrevocable” meaning that the terms of the trust can’t be changed.

Steps to Completing Your Trust

Example of a Single Person with Adult Children
Parties:
  • Adult Person
Transfer Goals:
  • Upon death the assets that are a part of the Trust transfer to the named beneficiaries
Single Person:
  • Adult Person
Trustor. The creator of the Trust agreement is called a Trustor:
  • Trustor
Single Person:
  • Adult Person
Trustee. The Trust agreement has a job associated with it called a Trustee who is the manager of the assets in the Trust. The first Trustee is the same person who created the Trust.
Children:
  • Adult children
Beneficiaries. The children are named as the Beneficiaries who receive the remainder of the assets in the name of the Trust after the death of the parent (trustor).
Trusted Adult:
  • Family member
  • Friend
Successor Trustee. In the event person (trustor) dies, then the Trust assets belong to the children (beneficiaries). Usually one of the children is named as the initial successor trustee and the other children are named as alternate successor trustees.
Parties
  • Husband
  • Wife
  • Children
Transfer Goals:
  • If Husband dies, he leaves all of his interest to the Wife.
  • If Wife dies, she leaves all of her interest to the Husband.
  • When both are dead the remainder to the Children.
Married Couple:
  • Wife
  • Husband
Co-Trustors The creators of the Trust agreement are called the Trustors:
  • Trustor
  • Trustor
Married Couple:
  • Wife
  • Husband
Co-Trustees The Trust agreement has a job associated with it called a Trustee who is the manager of the assets in the Trust. The first Trustees are the same parties who created the Trust.
Children Beneficiaries. The children are named as the Beneficiaries who receive the remainder of the assets in the name of the Trust after the death of the parents (trustors).
Trusted Adult:
  • Family Friend
  • Friend
Successor Trustee. In the event the married couple (trustors) dies, then the Trust assets belong to the children (beneficiaries). Yet, minor children can receive assets. Thus, it is the job of the successor trustee to manage the assets for the children.
NOTE: When the children become adults, the husband and wife (trustors) can amend their trust to name them as the successor trustees.

If you are ready to create a living trust, feel free to contact our office today. In office and phone consultations available.

Phone: (916) 549-1189

E-mail: MichaelJohnsonCases@gmail.com

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