Benefits of Executing Trusts

Trusts are popular estate planning tools that are extremely useful in the transfer of property upon death.  Trusts can also be useful for property management during the lifetime of the settlor ( the person creating the trust). This article will discuss what revocable trusts are (irrevocable trusts are not the subject of this article), the formalities of executing a revocable trust and the benefits of executing a trust.

What is a Revocable Trust

A trust is a property interest held by one person (trustee) at the request of another (settlor) for the benefit of a third party (beneficiary) (Black’s Law Dictionary 723 (2nd Pocket ed. 2001).  In the typical revocable trust situation, the settlor (the person who owns the trust property or corpus) manages and maintains the trust property for the rest of their lives. Upon the death of the settlor, a successor trustee is usually appointed to manage the trust property, and to then distribute the trust property to the beneficiaries under the terms of the trust.

Formalities of Executing a Revocable Trust

A revocable trust is created by a settlor or by married settlors who manifest an intent to create a trust.  A trust must be funded with assets and have beneficiaries to be valid. (Cal. Probate Code §15200-15205).  In most instances, the settlors’ assets are renamed, including real property and bank accounts, to reflect the name of the trust.  A trust does not have to be notarized to be valid, but it is good practice to do so.  It is advised that you seek the services of an attorney when executing a trust agreement.

Benefits of Executing a Trust

The primary reason most individuals execute trust agreements is to avoid probate. Persons executing simple wills to transfer their property upon death are subject to probate proceedings.  This means that the executor named in the will is responsible, with the assistance of an attorney, for filing the will with the court in the county where the deceased passed, initiating probate proceedings to distribute the deceased assets ( which includes filing notice for creditors’ claims),  and obtaining court approval for final distribution of the deceased estate assets to beneficiaries.  Most documents filed in probate proceedings are public information.

By contrast, assets transferred to  the revocable trust before the settlor’s death are not part of the settlor’s probate property and are not subject to probate proceedings (CEB, California Estate Planning, §6.3)  This means that statutory and extraordinary attorneys’ fees, court costs and potential creditor claims can be avoided if a valid revocable trust is executed .  Moreover, probate proceedings are public and can create tension between family members who do not take under the will.  By contrast, most trust distributions are private and involve the trustee dispersing trust assets to beneficiaries.

In addition to the cost benefit of executing a revocable trust, time can also be saved by executing a trust versus a simple will upon the decedent’s death.  Typically, the probate of a will can take a minimum of 7 months to several years.  In the case of a trust, distribution can take 1 or two months, depending on whether the trustee and beneficiaries are in agreement with the distribution and there are no extraordinary issues relating to the management of the trust.

Another benefit of executing a revocable trust is that a revocable trust can serve as an alternative to a durable power of attorney .  Most trusts include clauses that appoint a durable power of attorney for the management of trust assets if the settlor becomes incompetent.  This person is usually the successor trustee.

There are numerous benefits to executing trust agreements, particularly for individuals with real property and high net worth’s.  For more information regarding executing a trust agreement, please contact the Law Offices of Verleana D. Green.