As we all know, probate is a costly time consuming process that can cost literally thousands of dollars from the estate.
In order to reduce those costs, there are two primary ways to avoid the probate process. The first is to have all of your property held in trust or some other mechanism (like joint tenancy) which allows for distribution without court supervision. The second option is to have an estate that has a gross value under the limit of $13,100 of the California Probate Code which currently is $100,000.
How likely is it that you are under the probate limit? Well if you own a home, have an IRA or a retirement plan, you probably are over the limit and require some amount of tax planning for your estate.
Since most people are over the probate code minimums they need a trus. But what is a trust?
A trust is nothing more than a document which becomes a tool to transfer title to property. It may be helpful to think of a trust by way of analogy.
It is a separate legal entity apart from you. It is like a corporation and you are the stockholder. You are ultimately in control, but the trust allows you to do some things more easily than you can yourself. Also, a trust can last beyond your lifetime. It allows you to control the distribution of your property far into the future to protect you, your children and your grandchildren.
A trust can be very simple or highly complex depending on the needs of the family and the assets involved.
Here’s an example: “I give my 1955 antique mint condition Corvette to my son Michael in trust for my grandson Jason, and he can have it when he turns 30.”
In the above example, you the giver are the trustor, Michael is the trustee, Jason is the beneficiary and the 1955 antique mint condition Corvette is the property transferred to the trust. However, note there is a condition — Jason must turn 30 or else he does not get the Corvette.
Alternatively it can be a very complex document with many provisions, class gifts and restrictions on when and how the property is to be distributed. The variations on a trust are endless.
Sometimes a trustor will not allow for distributions to be made outright to a beneficiary because of age, disability, wastefulness or immaturity. They can be staggered throughout a lifetime, delayed pending achievement of some goal or skip a generation altogether.
Aren’t trusts just for really rich folks?
No. A trust can be for anyone who has an estate over the legal minimum of $13,100. It is a tool designed to facilitate the easy transfer of assets. It need not be complex and it does not have to have a lot of property in it to be valid.
The trust is merely a way to avoid the long and frequently costly process of probate. Also it keeps the family matters private, where a probate is open to the public, the distribution of property by a trustee is private.
How do they work?
Once a trust is written and property is transferred to the trust, the trustee, (usually the person who is transferring property to the trust) takes what is called “legal title” of the property. That means that they are holding the property for the benefit of someone else.
Anything of value can be placed in a trust. Usually it is the real estate of the trustor along with any other assets such as stocks, bonds, IRAs, annuities, etc.
Do I need a trustee?
Usually the trustor is the initial trustee of the trust. That way you do not lose control of your assets. However, it could be your attorney, accountant, banker, brother in law, or trusted business partner. When you set up your trust you will usually also set up a secondary trustee(s) to take over the administration of the trust after your death. Frequently this is the beneficiary, who then can transfer the property to themselves. But again it could be your attorney, accountant, banker, or partner.
Why do I fund a trust?
A trust needs to be funded in order to come into existence, to take on a legal status that allows for it to distribute the property.
A trust is funded when you transfer property to it, or when you open a savings account, checking account, IRA, annuity, life insurance policy, or put stocks and bonds in its name. (David Pisarra is a partner in the Santa Monica law firm of Pisarra & Grist, he welcomes questions, and (310) 664-9969, or e-mail at)
Originally published in the Santa Monica Daily Press print edition on April 14, 2003. Read the original PDF.