Making a Living Trust in California and How It Works

Last updated on 09/04/2024

Living trusts are a legal tool used for financial planning. They are a commonly used alternative to wills that allow California individuals and families to pass their assets to heirs and avoid the probate process. If properly structured, a living trust can help reduce tax liability and save hundreds of thousands of dollars in income taxes, estate taxes, and gift taxes in some cases. Parents often create revocable, living trusts and place real estate and assets in them to be distributed to their children or other heirs after the parents die.

There are also charitable trusts, which allow grantors to leave a portion of their estate to a charity or nonprofit organization while still providing for loved ones. Charitable trusts can provide substantial tax benefits, such as reducing estate and gift taxes, while helping to create a lasting legacy.

These are the fundamental elements you need to understand about living trusts:

• Most living trusts are drafted with the assistance of an estate planning attorney after reviewing your assets and goals.
• You fund the trust by transferring the title of assets to the trust.
• A trust is a private legal document and the public does not have a right to know about the contents of the trust.
• The creator of a living trust maintains control over the trust as long as he or she is able and may make changes to it, as they wish. That makes the trust revocable. 

If, however, you are considering creating a more permanent trust that cannot be modified or revoked, you may want to explore irrevocable trusts. These trusts offer greater asset protection and can shield assets from creditors, lawsuits, or certain tax liabilities but come with the trade-off that the grantor no longer controls the assets once placed in the trust.

Many inheritance disputes involve trusts and lead to lawsuits known as trust contests. The attorneys at Albertson & Davidson, LLP help individuals, and families in California resolve disputes involving revocable living trusts. Our trust contest attorneys have litigation experience in courtrooms throughout California and can represent you effectively. We understand California laws pertaining to revocable living trusts and have recovered more than $130 million in court verdicts and negotiated settlements for our clients.

Call (877) 408-3813 to reach an Albert & Davidson trust contest lawyer ready to review your legal rights in California to challenge a living trust. We handle trust contest litigation on a contingency fee basis, which ensures that you can have skilled legal representation without any upfront costs.

How Does a Living Trust Work?

A trust is a fiduciary relationship in which a person, known as a settlor or grantor, gives a trustee authority over assets placed in the trust for the benefit of a third party—the beneficiary. A trust is a means of passing wealth from one generation to the next or to others, such as charities.

Under a revocable living trust, the trustees are typically the individuals who established the trust, such as a married couple, and they can:

• Manage and have access to the assets held by the trust – bank accounts, investments, real estate, personal property.
• Add to the trust or withdraw assets at any time.

In addition to the traditional revocable living trust, it is also important to consider other types of trusts, such as special needs trusts and asset protection trusts, depending on your specific estate planning needs. For example, a special needs trust can provide for a loved one with disabilities without jeopardizing their eligibility for public assistance programs. An asset protection trust, on the other hand, is often used to safeguard assets from potential creditors or legal claims.

A living trust can be changed or canceled by the original creators at any time for any reason.

For example, if your parents create a living trust and you are named as a remainder beneficiary, then you do not have rights to anything in that trust while your parents are alive.

Under California’s probate code, a trustee of a revocable trust only answers to the person or persons who have the power to revoke the trust. Typically, the person who can revoke the trust is the person who created it.

People who create a living trust usually keep the right to change it, modify it or revoke it if the circumstances change. That differs from an irrevocable trust which cannot be amended.

The Role of Successor Trustees in a Living Trust

A living trust also names a successor trustee, to whom the control of the trust passes upon the original trustees’ death or mental incapacity. In the case of incapacity, the successor trustee may take charge without having to go to court to get a conservatorship. Typically, the successor trustee may be one of the beneficiaries, a close relative, trusted friend, business partner, or a professional trustee.

In some cases, grantors prefer to appoint a professional trustee, such as a bank or a trust company, to ensure unbiased administration of the trust. Choosing a professional trustee can be beneficial when the estate is large or complex, or when there may be family conflicts. When a beneficiary also is named as the trustee, it can create a conflict of interest in some cases.

What Can a Successor Trustee Do?

• The successor trustee manages the assets of the trust and serves as the decedents’ representative upon their death.
• The trustee spends the assets for the benefit of the trust creator if needed and distributes all the trust assets according to the instructions establishing the trust.

A living trust becomes irrevocable upon the death or incapacity of the last of the original trust creators.

The trustee distributes assets to beneficiaries according to the decedents’ instructions without having to go to court and without court supervision. The successor trustee may be directed by the terms of the trust NOT to distribute the assets immediately. For example, the beneficiaries of the trust may be children or considered too immature to handle their inheritance responsibly. The terms of the trust may stipulate that the beneficiaries shall receive their inheritance from the trust when they reach a certain age.

Once the successor trustee distributes assets of the trust as required by its bylaws, a revocable living trust is dissolved.

Everything that is meant to be done with the trust and its assets is spelled out in the legal document creating the trust. Unlike a will, the trustee can fulfill the terms of the trustee without involving the probate court or appearing before a judge. The distribution of assets to beneficiaries via a trust avoids the cost and time required of California’s probate courts. It is done in private, usually in an estate planning attorney’s office.

Eligibility to Contest a Living Trust

To be eligible to contest a living trust, you must have a financial interest in the trust. You must stand to profit from the lawful distribution of its assets or be someone who would have inherited from the deceased if there was no trust or will, which means an immediate family member.

Many trusts have a no-contest clause, which bars any beneficiary who unsuccessfully contests the trust from receiving proceeds from the trust. Therefore, it is important to speak with an experienced trust contest lawyer who can review the terms of the trust, investigate matters and advise you about how to proceed.

Statute of Limitations for Contesting a Revocable Trust in California

In California, the beneficiaries have no standing to contest the trust until it becomes irrevocable — upon the death or incapacity of the last surviving settlor. At that point, the successor trustee is required to give notice to the deceased settlor’s heirs and all named beneficiaries. This is to include a statutorily prescribed paragraph that states the time period the recipient has to contest the terms of the trust, which is typically 120 days.

Once the notice has been mailed, the 120-day period begins. The 120-day period may be extended by up to 60 days if a beneficiary requests a copy of the trust document after receiving the initial notice.

Because revocable trusts are usually administered without court supervision, there is no guarantee that the trustee will send the required statutory notice to the beneficiaries and heirs. If notice is never provided, the statute of limitations to contest the trust remains open indefinitely.

However, we suggest moving promptly after a trust grantor’s death to ensure you contest a trust within the initial 120-day period.

Contact a Revocable Living Trust Contest Lawyer in California

If you suspect fraud or undue influence in the control or expected transfer of assets from within a revocable living trust in California, you may have the right to challenge the validity of a trust. To do so, you’ll need the assistance of a trust contest attorney who understands California law pertaining to the creation and administration of trusts.

The lawyers at Albertson & Davidson fight against the financial abuse of the elderly and manipulation of revocable living trusts throughout California. Our experience as trial lawyers and in-depth knowledge of trust, estate, and probate matters make us powerful advocates for people fighting for their rightful inheritance.

Founding attorneys Stewart Albertson and Keith Davidson focus on trust and estate litigation. Our firm’s guiding principles are embodied in the statement, “We stand, we fight, we win.” While we cannot guarantee a victory in every trust contest, our clients can count on receiving our best efforts at securing a successful outcome.

We handle many trust contests on a contingency fee basis, which means you do not pay any upfront costs. If and when we negotiate a settlement or obtain a court award for you, we will retain an agreed-upon portion of the amount recovered to cover our legal fee and expenses.

Albertson & Davidson, LLP has offices in San Diego, Carlsbad, Bay Area, Irvine, and Los Angeles, CA. Contact us online or at (877) 408-3813 to discuss your case. We are ready to fight for you.