Hello. My name is Kyle Krasa and I’m an estate planning attorney in Pacific Grove, California. I’m certified by the state bar of California, as a legal specialist in estate planning trust and probate law. The purpose of this video is to give you general information about an important aspect of estate planning law so that you can be prepared when working with your own attorney. Watching this video does not establish an attorney client relationship. The law is far more complex and nuanced than can be explained in a few short minutes. As a result, before acting on any of the information contained in this video, you should consult a competent attorney who is licensed to practice law in your community. With that understanding, I hope you enjoy my video and you find it informative. Thank you.
You want to think of a living trust as simply an agreement that you’re making with yourself and every trust has three roles or three parts to play. The first part is that of the grantor and sometimes this person is referred to as the settlor or the trustor. These “o-r” words all mean the same thing. You want to think of that person as the trust maker, the person who’s going to decide what the trust is going to say. The trust maker also will take his or her own assets and for the most part with a few exceptions retitle them or transfer them into the trust. The second role is that of the trustee. You want to think of the trustee as the trust manager, the person who has complete control over all of the assets in the trust, and finally the third role is that of the beneficiary and that’s the person who gets to use and enjoy all of the trust assets.
Now when you create a revocable living trust, you will be the grantor of the trust. You’re going to decide what the trust is going to say, what’s going to happen while you’re living, and you have mental capacity. What’s going to happen in the event of your mental incapacity and what’s going to happen upon death. And then you’re going to take your assets and you’re going to transfer them into the trust. You’re also going to be the initial trustee of the trust. So you’re going to retain complete control over all of the trust assets, all of the powers that you had over your assets before you place them into the trust to buy, sell, gift loan, borrow, exchange, encumber. You still have those powers after you put the assets into the trust. And finally you’re also going to be the beneficiary of your trust as well.
So you’re going to be able to use and enjoy all of the assets. So with a living trust, you’re going to manage your own assets for your own benefit, which is what you’re doing now anyway. Now, if you’re married in a community property state like California, often a married couple will do one joint trust together. So for a married couple, you and your spouse would be co-grantors. You and your spouse will be co-trustees and you and your spouse would also be co-beneficiaries, so works in very much the same manner. Now just to make things simple, for purposes of this demonstration, let’s just assume an unmarried person with a trust. When you put your trust together and you put all your assets in the trust, it’s basically business as usual. You can do whatever you want with your trust assets just as before your income tax taxes do not change.
You’re going to file your taxes the same way on your 1040 under your social security number as you always have. Transferring assets into the trust does not make any impact on how you relate to your assets at all. So in California, sometimes we worry if there’s a change in ownership, there’s going to be a change in property tax. This is not considered a change in ownership. Your property tax will stay the same. The one difference is I always tell my clients is you want to think for purposes of titling your assets, your new last name is “,trustee.” You want to take title to the majority of your assets with a few exceptions to you in your capacity as trustee of your trust. So other than the titling purpose other than your new last name as being “,trustee” for tiling purposes, everything is exactly the same.
The difference is if you become no longer able to manage your personal or financial affairs due to incapacity. For example, let’s say you have a stroke, then your trust will name a successor trustee who would be able to do that for you. And if you have a good comprehensive trust, you’re going to name one or two alternates as well. Just in case the first person is unable or unwilling to act. If you lose capacity, your successor trustee will simply show the doctor’s note or other evidence of incapacity to the bank, to the financial institution, to the recorder’s office and will be placed directly on the signature card given full authority over your assets without having to go through court. Uh, such as a conservatorship while you’re living, you are still the beneficiary of your trust. So your successor trustee must manage all of the assets for your benefit.
You’re still the owner of the assets. The analogy that I like to bring up when it comes to the successor trustee is think of your trustee as a cashier. A cashier has access to the money in the till, but they are only supposed to access that money for specific reasons and under certain set parameters, they do have the opportunity though to pull that money from the till and put it in their pocket and run off with it. But if they did that, they’d be breaking the law. It’s the same thing with the trustee. The trustee has access to your money, they manage it, but it’s only supposed to be for a specific purpose, and they have where the legal profession refers to as a fiduciary duty to manage the money in your best interest for your benefit. Now, after you pass away, then your trust is going to name successor beneficiaries, those people who are going to receive your assets upon your death.
If your trustee is not already on title because of your incapacity, all the trustee has to present to the financial institution, to the bank, to the recorder’s office is a certified copy of your death certificate, and the successor trustee will be placed on title immediately without having to go through court through a formal probate. For example, the successor trustee then will have the fiduciary duty to distribute the assets to your beneficiaries after settling your estate. So as you can see, a revocable living trust is a very efficient mechanism for the administration and distribution of your assets in the event of your incapacity and upon your death.
I hope you enjoyed watching my video. As I mentioned at the beginning, this is not intended to be a substitute for proper legal counsel. Before acting on any of the information contained in this video, you should consult a competent attorney who is licensed to practice law in your community. Thank you.