When people create a Trust, they are simply establishing a separate legal entity that will hold title to their assets. For example, if husband and wife create a Trust during their lifetimes (referred to as a living Trust, or revocable Trust), then they will change the title to their assets from themselves (as individuals) to themselves as Trustees of their newly created Trust. If they have a house, then there will be a new deed that transfers ownership to husband and wife as Trustees.
Once the assets are held in the name of the Trust the Trust terms will control. That means during the lifetime of husband and wife they will be the Trustees, meaning they will legally control and manage the assets just as they did before the Trust was created. Husband and wife will also be the Trust beneficiaries, meaning they receive all the benefits of the assets just as they did before the Trust was created.
Once husband and wife pass away, then the assets will be managed by a new Trustee—whomever was nominated to act as successor trustee in the Trust document. And the Trust assets will ultimately pass to the successor Trust beneficiaries—the children in most cases.
Sometimes people are confused as to the role of the Trustee versus the beneficiaries. The Trustee is the legal owner, the person who manages the Trust assets. The beneficiaries are the equitable owners, the people who receive the Trust assets (including all income and gain generated from the Trust assets). The Trustee will never receive any benefit from the Trust (unless the Trustee is also a beneficiary). The Trustee is entitled to compensation, but the Trustee is not the recipient of the Trust assets.
When you create a Trust, and transfer assets to the Trust, you are separating the legal ownership from the beneficial ownership (also known as the equitable ownership). That is unique to Trusts. In your everyday life you don’t usually think about how everything you own has a legal ownership versus an beneficial ownership. We usually think of legal ownership being the same as beneficial ownership. If I own a house, I also have a right to live there, or rent the house and collect the rent. But Trusts are different. The legal owner (Trustee) manages the asset, but the beneficial owner (beneficiaries) receive all the benefits of the ownership. The Trustee may negotiate the lease of a Trust house, but the beneficiaries receive the rents (in theory anyway).
Eventually, all Trusts must come to an end in California. When a Trust terminates, the assets pass out to the final beneficiaries and the Trust ceases to exist. Each beneficiary would then need to create their own Trust document if they want to continue with a similar type of estate planning.
