What is a Trust?

Posted 2022-09-27

Koza Law Group, APC. Estate planning law firm, located in Carlsbad, California.

What is a Trust?

A trust is a contract that establishes a legal relationship of trust (i.e., a fiduciary relationship) between an owner of an asset and a party empowered to manage the asset (i.e., the trustee), for the benefit of one or more beneficiaries (which may include the owner of the asset and/or others).

This relationship allows the trustee to legally control the asset for the benefit of the beneficiaries. Generally speaking, the trustee is under a legal obligation to manage the assets in a manner that is in the best interest of the trust and its beneficiaries.

Often times, the creator of a trust is also the initial trustee and beneficiary of that same trust. This allows for the trust maker to manage their own assets for so long as they are alive (and not incapacitated), while also establishing a legal blueprint for the management of the assets during incapacity and after death of the trust maker. Perhaps most importantly, no court intervention is needed. In other words—probate is avoided entirely.

In fact, when the grantor (as defined below) dies or become incapacitated, the trust is designed so that the next trustee (as predetermined by the grantor) can take over without any need for court intrusions. Additionally, it identifies all successor and contingent beneficiaries from the start, the trustee already knows who is entitled to receive the benefits from the trust and can therefore act quickly and in the best interest the beneficiaries. This allows the trustee to use the trust’s assets to immediately take care of the beneficiaries without having to get a court order via the probate process.

Wills v. Trusts

Keep in mind—all wills must be probated… in court!

In Southern California, it usually takes a minimum of one year to complete the process assuming that there is no opposition or dispute raised during the process. It also requires that a public notice be filed in the newspaper so that all creditors can file claims against the estate, if necessary.

Wills must also be approved by the court. Likewise, the executor of the probate estate must be legally appointed by the court.

And don’t forget probate fees, as set forth by statute.

In short, trusts avoid the long delay caused by probate. They also avoid the requirement of having to publish a public notice to creditors, as required in probate proceedings. As mentioned, probate fees are also avoided when you have a trust. Lastly, because they are private contracts, they are managed in private and so most affairs can be handled confidentially, taking care of the beneficiaries without government intrusion and the oversight of potential creditors.

Definitions of Notable Terms:

Settlor/Grantor/Trust maker – These terms all mean the same thing. These terms refer to the person that is creating a trust. This is the original owner of the assets.

Trustee – The person managing the assets for the benefit of the beneficiary.

Beneficiary – The person (or entity) selected by the grantor to receive the benefits from the assets held by the trust. These benefits could include a distribution of the asset (or a portion thereof), or a distribution of income generated from the asset (or portion thereof), or both.

Benefits of a Trust:

Allows you to exert more control over the management and distribution of your assets including how, when, and to whom you wish to have your assets distributed.
Reduces the likelihood of costly and time-consuming litigation.
Enables you to avoid statutory probate fees and related court costs. For more information about statutory probate fees in California please see [LINK]
Allows you to keep your financial affairs private after you die.
Reduces the amount of time it takes for your beneficiaries to receive your assets.
Empowers you to decide what is best for yourself and for your beneficiaries, rather than leaving it up to a court to decide what is best. Remember, enforcement of a will requires probate. A trust does not get probated.

Do I need to be rich to have a trust?

It is a common belief that trusts are only for the rich and famous. This is simply false though.

Simply put– a trust allows the creator to exercise control over the distribution and management of their assets even after they are unable to do so on their own. This is not a right reserved only for the rich and famous. This is a tool that can help practically anyone who owns something of value.

Who can benefit from having a trust?

Generally speaking, anyone owning an asset can benefit from a trust in some kind of way. Obviously, some may benefit more than others. It is a good idea to speak with an attorney to find out if a trust makes sense for you.

A trust is an essential part of the estate planning process in California. It can offer substantial benefits. If you wish to discuss your concerns and situation, contact Koza Law Group, APC.

When should I consider estate planning?

There really is no perfect time to get a trust. Obviously, if you can benefit from having one, it makes sense to set it up sooner rather than later. A common misconception is that only older people need to worry about estate planning. This is wrong.

Anyone who has assets and cares about where those assets will go after death should consider some kind of estate planning.

Anyone who wants to make sure that there is a plan in place in the event of their own incapacity should consider some kind of estate planning.