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What You Need to Know About Trusts, Revocable Trusts and Living Trusts

In California, a trusts are often called a trusts a revocable trusts and living trusts. A revocable trust is a trust that the person who creates it can revoke during that person’s lifetime. Revocation restores the person to where he or she was before the trust was created. The living term refers to the condition of the person who creates the trust.

A revocable trust can also be amended or restated. An amendment can change just one sentence or many paragraphs, while a restatement changes the entire trust document. Only the trust’s name remains the same in a restatement.

Compare to irrevocable trust

One may ask, “Why are the terms ‘revocable’ and ‘trust’ used together so often?”  The answer is to distinguish a revocable trust from an irrevocable trust. Irrevocable trusts are permanent and cannot be changed without an order from the court. Revocable trusts can be changed or revoked.

Irrevocable trusts are created to reduce estate taxes, also known as the “death tax.” Persons with assets over ten million dollars should be concerned about the estate tax, but this is not a problem for most people. So, in California, most trusts are created to avoid probate.

Advantage of a trust

Trusts provide for the post-death transfer of assets at a minimum cost and effort. The vast majority of trusts in California are revocable trusts, which can be changed.

A living trust is a legal document in which your assets are transferred while you are alive. You name yourself the trustee and maintain control over your assets during your lifetime. Contrast this to a will which requires transfer of assets on death Here are four advantages of a trust.

Avoid Probate: A trust allows your assets to pass to your beneficiaries without going through probate. Probate is a court-supervised process that can be lengthy, expensive, and public. Avoiding probate saves time and money and keeps your affairs private.

For more information on the probate process click here.

Greater Control: You maintain control over your assets during your lifetime. You can change the terms of the trust and add or remove assets. You can even revoke the trust entirely if needed.

Flexibility: You can tailor your living trust to your needs and circumstances. For example, you can include provisions to care for your minor children or a child with special needs. Another example is if you have children who need to be financially savvy. You can distribute assets over time or based on certain conditions for these children.

Reduce taxes: A living trust can effectively minimize estate and capital gains taxes. The surviving spouse can reduce capital gains tax with a step-up in basis on the death of the first spouse. A step-up in basis is when one spouse dies, and half of the community property basis increases to fair market value as of the date of death.

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