The Benefits of Trusts

How Trusts Avoid It: Assets in a trust are not part of your probate estate. Upon death, the successor trustee distributes them immediately according to trust instructions—no court involvement needed.

Savings Example:

• Estate worth $800,000
• Probate fees: ~$40,000 (5%)
• Timeline: 12-18 months
• With Trust: $0 probate fees, assets distributed in 2-4 weeks

Trusts are private. Trust documents remain confidential. Only the trustee and beneficiaries know the contents.

With a trust: You can control when and how beneficiaries receive assets:

• Stagger distributions (1/3 at 25, 1/3 at 30, 1/3 at 35)
• Provide for education only until age 30, then full distribution
• Income for life, principal to grandchildren
• Hold assets until beneficiary reaches sobriety, completes education, etc.

• Beneficiary’s creditors
• Divorce settlements
• Lawsuits
• Bankruptcy

• Irrevocable life insurance trusts (ILIT)
• Charitable remainder trusts
• Grantor retained annuity trusts (GRAT)

Key Features:

• You can change, amend, or revoke it anytime
• You typically serve as trustee (full control)
• Assets avoid probate but are still in your taxable estate
• Assets are reachable by YOUR creditors (no asset protection for you)
• Becomes irrevocable upon your death

Best For: Probate avoidance, privacy, incapacity planning, controlling distributions to beneficiaries

Key Features:

• You permanently transfer assets out of your estate
• Independent trustee (you typically cannot be trustee)
• Assets removed from taxable estate
• Assets protected from YOUR creditors (if properly structured)
• May require gift tax return

Best For: Estate tax reduction, asset protection, Medicaid planning, special needs planning

How to Fund Different Asset Types:

Real Estate:

• Execute and record a deed transferring property from yourself to yourself as trustee
• Example: “From John Smith to John Smith, Trustee of the John Smith Revocable Trust dated January 1, 2024”
• File with county recorder where property is located
• Notify title insurance company and mortgage lender

Bank Accounts:

• Provide bank with trust certification or full trust document
• Retitle accounts in trust name
• Obtain new tax ID (EIN) if required by bank (most revocable trusts use your SSN)

Investment Accounts:

• Contact brokerage firm
• Complete transfer forms
• Retitle account in trust name

Vehicles:

• In California, generally NOT recommended to put vehicles in trust (title transfer hassle)
• Instead, use DMV’s Transfer-on-Death registration (beneficiary automatically inherits, avoids probate)

Business Interests:

• LLC or corporation: Transfer membership/stock certificates to trust
• Update company records and operating agreement/bylaws
• May require consent of other owners

• Trust name and date
• Settlor identification
• Initial trustee and succession provisions (who takes over if trustee resigns, becomes incapacitated, or dies)
• Beneficiary designations (current and remainder beneficiaries)
• Distribution provisions (when and how beneficiaries receive assets)
• Trustee powers (investment authority, ability to sell property, make distributions, hire professionals)
• Administrative provisions (accounting requirements, trustee compensation, dispute resolution)
• Amendment/revocation provisions (for revocable trusts)
• Governing law clause (typically California law)

• Individual: You (settlor), family member, friend, professional fiduciary
• Corporate Trustee: Bank, trust company (typically for large or complex estates)
• Co-Trustees: Multiple people serving together (e.g., two children)

Requirements:

• Age 18 or older
• Mentally competent
• Not under conservatorship
• If corporate trustee, must be licensed in California

Investment & Management:

• Buy, sell, exchange, lease real and personal property
• Invest in stocks, bonds, mutual funds, and other securities
• Operate a business (if trust holds business interest)
• Borrow money and mortgage trust property
• Make repairs and improvements to property

Administrative:

• Hire attorneys, accountants, investment advisors, and other professionals
• Pay trust expenses and taxes
• Maintain insurance on trust property
• Open bank accounts and investment accounts in trust name
• File tax returns (trust income tax, estate tax if applicable)

Distribution:

• Make distributions to beneficiaries according to trust terms
• Exercise discretion if trust grants it (“trustee may distribute for health, education, support, maintenance”)
• Withhold distributions if trust conditions not met

How Much?

• Trust may specify: “$5,000/year” or “1% of trust assets annually”
• If trust silent: “Reasonable compensation” based on:
  • Size of trust
  • Complexity of administration
  • Trustee’s skill and experience
  • Time spent
  • What professional trustees charge in area
• Family trustees: Often serve without compensation if estate is modest
• Professional fiduciaries: Typically charge 1-2% of trust assets annually

Common Mistakes That Lead to Liability:

• Commingling trust and personal funds
• Self-dealing (buying trust property yourself, lending trust money to yourself)
• Favoring one beneficiary over others
• Poor investment decisions (e.g., leaving all assets in cash, speculating in risky ventures)
• Failing to keep beneficiaries informed
• Failing to pay taxes or debts
• Distributing assets before paying creditors

🛡️ How to Protect Yourself:

• Hire professionals: Attorney, accountant, financial advisor (trust pays for them)
• Keep detailed records: Document every decision, transaction, and communication
• Get beneficiary approval: For major decisions, obtain written consent from beneficiaries
• Follow trust terms: Don’t deviate from trust instructions without court approval
• Communicate regularly: Keep beneficiaries informed; provide annual accountings
• Obtain trustee insurance: Errors & omissions policy to cover claims

Without a Trust:

• Home goes through probate (6-18 months)
• Probate fees: ~$42,000 (5% of $850,000)
• Property records become public
• Children cannot sell or refinance during probate

With a Revocable Living Trust:

• Maria transfers home into trust (simple deed, ~$200 cost)
• Upon Maria’s death, successor trustee transfers home to children immediately
• No probate, no delays, no $42,000 fee
• Children receive full stepped-up tax basis (no capital gains if they sell)

Without a Trust:

• If both parents die, children inherit at age 18
• 18-year-olds receive $600,000 each with no restrictions
• High risk of poor financial decisions

With a Trust:

• Trust holds children’s inheritance
• Trustee (parents’ choice—sister, parents, family friend) manages money
• Trust provides for education, health, support, maintenance
• Staggered distributions: 1/3 at 25, 1/3 at 30, 1/3 at 35
• Or: Income only until 30, then full distribution

Robert’s Goals:

• Provide for Susan during her lifetime
• Ensure his children ultimately inherit (not Susan’s child)
• Avoid conflict between Susan and his children

Solution: QTIP Trust (Qualified Terminable Interest Property Trust)

• Upon Robert’s death, $2M goes into QTIP trust
• Susan receives all income for life (dividends, interest, rent)
• Trustee can distribute principal to Susan for health/support if needed
• Upon Susan’s death, remaining assets go to Robert’s two children
• Susan cannot change beneficiaries or give assets to her child

Problem with Direct Inheritance:

• SSI and Medi-Cal are needs-based (asset limit: $2,000)
• If son inherits $400,000 outright, he loses all government benefits
• $400,000 must pay for medical care, housing, food—will deplete quickly

Solution: Special Needs Trust (SNT)

• $400,000 goes into special needs trust upon Jessica’s death
• Trust assets do NOT count against $2,000 SSI limit
• Son continues receiving SSI and Medi-Cal
• Trustee uses $400,000 for “supplemental” expenses not covered by benefits:
  • Entertainment, vacations, hobbies
  • Therapy, tutoring, life coaches
  • Electronics, furniture, clothing
  • Vehicle, transportation

Without a Trust:

• If Linda becomes incapacitated, no one can access her accounts
• Family must petition court for conservatorship
• Conservatorship costs $10,000-$25,000 in legal fees
• Takes 3-6 months
• Requires annual court accountings and attorney fees
• Public process (court records are public)

With a Revocable Living Trust:

• Linda names daughter as successor trustee
• If Linda becomes incapacitated, daughter automatically takes over as trustee
• Daughter manages all trust assets for Linda’s benefit
• No court involvement, no conservatorship needed
• Private, immediate, no legal fees

Without a Trust (Using Only a Will):

• Will must go through probate
• Will becomes public record
• Anyone can see:
  • Full list of assets and values
  • Who inherited what
  • Business ownership details
• Family wealth exposed to public scrutiny

With a Trust:

• Trust does not go through probate
• Trust document remains private
• Only trustee and beneficiaries know contents
• Business succession handled confidentially

Solution: Spendthrift Trust with Discretionary Distributions

• Trust holds $500,000
• Trustee (responsible family member or professional) has full discretion over distributions
• Trustee can provide for:
  • Housing, rent, mortgage
  • Education, job training
  • Medical care
  • Basic support
• Trustee can withhold funds if child relapses, gambles, or misuses money
• Creditors cannot reach trust assets (spendthrift clause)
• Child cannot sell or assign their interest

Review & Update Every 3-5 Years or When:

• You acquire new assets (buy real estate, receive inheritance, start business)
• Family changes (birth, death, marriage, divorce)
• You move to different state
• Tax laws change significantly
• Trustee or beneficiary becomes unable to serve
• Your wishes change

Keep Trust Funded:

• Ensure all new assets acquired in trust name
• When opening new bank account: “John Smith, Trustee of the John Smith Trust dated 3/1/24”
• When buying real estate: Purchase in trust name from the start

Attorney Fees (One-Time):

• Simple revocable living trust: $2,000-$3,500
• Trust for married couple (A/B or A/B/C trust): $3,500-$5,000
• Complex trust (special needs, QTIP, tax planning): $5,000-$10,000+
• Typically includes: Trust document, pour-over will, powers of attorney, healthcare directive, consultation on funding

Funding Costs:

• Real estate deed preparation & recording: $200-$500
• Retitling bank/investment accounts: Usually free
• Title insurance endorsement (if refinancing): $75-$150

Ongoing Costs:

• Trust administration (while you’re alive): $0 if you’re trustee
• Tax returns: Revocable living trusts use your SSN while you’re alive (no separate return needed)
• Amendments: $500-$1,500 if you need to update trust

✅ Pros:

• Lower cost ($300-$800)
• Convenience (done from home)
• May work for very simple situations

❌ Cons:

• No personalized legal advice
• May not address your specific situation
• Risk of errors or omissions that invalidate trust or create tax problems
• Often lacks proper funding guidance (the most critical part!)
• No attorney-client relationship or malpractice protection
• May not comply with latest California law changes

Hiring an Attorney:

✅ Pros:

• Personalized advice for your situation
• Ensures compliance with California law
• Customized provisions (not one-size-fits-all)
• Tax planning advice
• Funding assistance
• Malpractice insurance if errors occur
• Ongoing relationship for updates/questions

❌ Cons:

• Higher cost ($2,000-$5,000+)
• Requires in-person meetings

Email: owner@terms.law

Office: Serving clients throughout California

Most clients can complete entire process via video meetings—no need to travel to an office.

You likely need a trust if:

• Your estate exceeds $150,000 (California probate threshold)
• You own real estate in California
• You value privacy (wills become public, trusts don’t)
• You want incapacity planning
• You have minor children and want to control when they inherit

• Attorney-drafted trust: $2,000-$5,000 (includes trust, will, powers of attorney, healthcare directive)
• Online DIY services: $300-$800 (but no personalized advice or attorney-client relationship)
• Complex trusts: $5,000-$10,000+ (special needs, QTIP, tax planning)

ROI: A $3,000 trust saves $15,000-$50,000 in probate fees for most California estates. It pays for itself many times over.

Most common choice: Revocable living trust. Gives you flexibility while achieving main goals (probate avoidance, incapacity planning, privacy).

You typically name yourself as trustee, which means you retain complete control. You can:

• Buy, sell, or transfer trust assets
• Spend trust money however you want
• Change the trust terms
• Add or remove beneficiaries
• Revoke the trust entirely and take assets back

Day-to-day life doesn’t change. You still use your home, manage your investments, and control everything just like before.

With irrevocable trusts: You DO give up control—that’s the trade-off for asset protection and estate tax benefits.

With a Trust: Your successor trustee automatically steps in and manages all trust assets for your benefit. No court involvement needed.

Without a Trust: Family must petition court for conservatorship. Costs $10,000-$25,000, takes 3-6 months, requires annual court oversight, and is public record.

Example: Linda develops dementia. Her daughter (named as successor trustee) immediately takes over managing Linda’s finances, paying bills, and ensuring Linda has proper care. No court, no delays, no public scrutiny.

You’ll also name a successor trustee who takes over if you:

• Become incapacitated
• Die
• Choose to resign

Common successor trustee choices: Adult child, sibling, trusted friend, or professional fiduciary (bank, trust company, licensed professional).

• ✅ Real estate (residential, rental property, land)
• ✅ Bank accounts (checking, savings)
• ✅ Investment accounts (brokerage accounts)
• ✅ Business interests (LLC membership, partnership interests, corporate stock)
• ✅ Valuable personal property (art, jewelry, collectibles)

Do NOT transfer these into trust (use beneficiary designations instead):

• ❌ Retirement accounts (401k, IRA, Roth IRA) — name trust as beneficiary, don’t transfer ownership
• ❌ Life insurance — name trust as beneficiary, don’t transfer ownership (unless creating ILIT)
• ❌ Vehicles (in California) — use DMV Transfer-on-Death registration instead

Two ways to update:

• Trust Amendment: Change specific provisions (e.g., new beneficiary, different trustee). Cost: $800-$1,500.
• Trust Restatement: Completely rewrite trust while keeping same trust name/date (avoids having to retitle assets). Cost: $1,800-$2,500.

When to update:

• Family changes (birth, death, marriage, divorce)
• Trustee or beneficiary can no longer serve
• You acquire significant new assets
• Tax laws change
• Your wishes change

Upon your death: Revocable trust becomes irrevocable and can no longer be changed.

Revocable Living Trust:

• ❌ Does NOT protect YOUR assets from YOUR creditors while you’re alive
• ✅ Can protect beneficiaries’ inheritances from THEIR creditors (with proper spendthrift provisions)

Irrevocable Trust:

• ✅ Can protect assets from YOUR creditors (if properly structured and not created to defraud)
• ✅ Protects beneficiaries’ interests from their creditors

Example: You create revocable trust and get sued. Creditor can reach trust assets. BUT when you die and assets pass to your child through trust with spendthrift clause, your child’s creditors cannot reach those assets.

Your revocable living trust can include provisions for all your children. Upon your death, you can either:

Option 1: Separate Shares

• Trust divides into separate subtrusts for each child
• Each child’s share managed independently
• Good if children are different ages or have different needs

Option 2: Single Pot Trust

• All assets remain in one trust
• Trustee distributes based on needs (education, health, support)
• Good for young children when needs are uncertain
• Can convert to separate shares when youngest reaches certain age

Example: “Upon my death, trustee shall divide trust into equal shares for my three children. Each share held in trust until child reaches age 30, with distributions for education and emergencies before then.”

If estate is under threshold:

• Can use simple affidavit process (no court hearing)
• Wait 40 days after death
• File affidavit with whoever holds assets (bank, title company)
• They release assets to heirs
• Much faster and cheaper than full probate

If estate exceeds threshold:

• Must go through full probate court process
• 6-18 months timeline
• 3-7% of estate value in fees
• Public record

Note: Real estate alone often exceeds this threshold in California. A $500,000 home requires probate—or a trust to avoid it.

Online DIY Services:

✅ Pros: Lower cost ($300-$800), convenient, may work for very simple situations

❌ Cons: No personalized advice, no attorney-client relationship, risk of errors, often inadequate funding guidance, one-size-fits-all approach

Hiring Attorney:

✅ Pros: Customized to your situation, ensures California law compliance, tax planning, funding assistance, malpractice protection, ongoing relationship

❌ Cons: Higher cost ($2,000-$5,000+), requires meetings

Recommendation:

• Use attorney if: Estate over $500k, you own real estate, minor children, complex family (second marriage, disabled beneficiary, etc.), business interests
• DIY might work if: Very simple situation, single person, modest assets, no complications—but understand the risks

Schedule a free 30-minute consultation to discuss your specific situation.