T H E S TAT E B A R O F C A L I F O R N I A

DO INEEDALIVINGTRUST?

GET THE

L E G A L

F A C T S

O F L I F E

What is a living trust?1

What can a living trust do for me?2

Should everyone have a living trust?3How could a living trust be helpful if Ibecome incapacitated?4

How could a living trust be helpful at my death?5

Who should be the trustee of my living trust?6

How are my assets put into the living trust?7

What are the disadvantages of a living trust?8

If I have a living trust, do I still need a will?9

Will a living trust help reduce the estate taxes?10Will I have to file an income tax return for myliving trust?11What other estate planning documentsshould I have?12

What other kinds of trusts are there?13

Who should draft a living trust for me?14Should I beware of “promoters” of financial andestate planning services?15

How much does a living trust cost?16

How do I find a qualified lawyer?17

Do I need a

© 1998, 2002, 2005, 2007 The State Bar of California. No part of thiswork may be reproduced, stored in a retrieval system, or transmittedin any medium, without prior written permission.

l iv ing t rus t ?

This pamphlet was made possible, in part, through the volunteer efforts of theTrusts and Estates Section of the State Bar of California.

What is a living trust?

It is a written legal document that partiallysubstitutes for a will. With a living trust, yourassets (your home, bank accounts and stocks, forexample) are put into the trust, administered foryour benefit during your lifetime, and then trans-ferred to your beneficiaries when you die.

Most people name themselves as the trustee incharge of managing their trust’s assets. This way,even though your assets have been put into thetrust, you can remain in control of your assets dur-ing your lifetime. You can also name a successortrustee (a person or an institution) who will man-age the trust’s assets if you ever become unable orunwilling to do so yourself.

The living trust described in this pamphlet is arevocable living trust (sometimes referred to as arevocable inter vivos trust or a grantor trust). Such atrust may be amended or revoked at any time bythe person or persons who created it (commonlyknown as the trustor(s), grantor(s) or settlor(s)) aslong as he, she, or they are still competent.

Your living trust agreement:

• Gives the trustee the legal right to manageand control the assets held in your trust.

• Instructs the trustee to manage the trust’sassets for your benefit during your lifetime.

• Names the beneficiaries (persons or charitableorganizations) who are to receive your trust’sassets when you die.

• Gives guidance and certain powers andauthority to the trustee to manage and distributeyour trust’s assets. The trustee is a fiduciary, whichmeans he or she holds a position of trust and confi-dence and is subject to strict responsibilities andvery high standards. For example, the trustee cannotuse your trust’s assets for his or her own personaluse or benefit without your explicit permission.

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Instead, the trustee must hold and use trust assetssolely for the benefit of the trust’s beneficiaries.

A living trust can be an important part—andin many cases, the most important part—of yourestate plan. For more detailed information onestate planning, order a free copy of the State Barpamphlet Do I Need Estate Planning? Simplye-mail your order to pamphlets@calbar.ca.gov. Orvisit the bar’s Web site —www.calbar.ca.gov—where you’ll find the bar’s consumer pamphlets, aswell as information on ordering them. If you don’thave access to the Internet, call 1-888-875-LAWS(5297) for information on ordering the pamphletsby mail.

What can a living trust do for me?

It can help ensure that your assets will bemanaged according to your wishes—even if youbecome unable to manage them yourself.

In setting up your living trust, you may serveas its trustee initially or you may choose someoneelse to do so. You can name a trustee to take overthe trust’s management for your benefit if you everbecome unable or unwilling to manage it yourself.And at your death, the trustee—similar to theexecutor of a will—would then gather your assets,pay any debts, claims and taxes, and distributeyour assets according to your instructions. Unlikea will, however, this can all be done without courtsupervision or approval.

Should everyone have a livingtrust?

No. Young married couples without signifi-cant assets and without children, who intend toleave their assets to each other when the first oneof them dies do not need a living trust and wouldnot benefit from having a living trust. Other per-sons who do not have significant assets and havevery simple estate plans also do not need a living

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trust. Finally, anyone who wants court supervi-sion over the administration of his or her estateshould not have a living trust. The greater thevalue of your assets (particularly if you own realestate), the greater the need for a living trust. Andhaving a living trust could be important in theevent of an accident or sudden illness.

How could a living trust be helpfulif I become incapacitated?

If you are the trustee of your own living trustand you become incapacitated, your chosen suc-cessor trustee would manage the trust’s assets foryou. If your assets were not in a living trust,however, someone else would have to managethem. How this would be accomplished mightdepend on whether your assets were separate orcommunity property.

If you are married or in a registered domesticpartnership, assets acquired by either you or yourspouse or domestic partner while married or in thepartnership and while a resident of California arecommunity property. (Note: In domestic partner-ships, earned income is not treated as communityproperty for income tax purposes.)

On the other hand, any property that youowned before your marriage or registration ofyour partnership, or that you received as a gift orinheritance during the marriage or partnership,would probably be your separate property.

In California, community property could bemanaged by your spouse or registered domesticpartner if he or she is competent. If you own sepa-rate property (or are not married or in a registereddomestic partnership) and you become incapaci-tated, such assets could be managed by an agentor attorney-in-fact under a power of attorney (See#12); without planning, however, your separateproperty assets would be subject to a probate courtproceeding called a conservatorship.

During the conservatorship process, a judgecould determine that you were unable to manage

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your own finances or to resist fraud or undueinfluence. The court would then appoint someone(a conservator) to manage your assets for you. Andthe conservator would report back to the court ona regular basis.

Your conservator might be someone whomyou previously nominated. Or, if no one had beennominated, it might be your spouse, registereddomestic partner or another family member. Ifnone of those persons are available, then it mightbe the public guardian.

Conservatorship proceedings are designed tohelp protect you at a time when you are vulnerableor incapable of managing your assets. However,they are also public in nature and can be costlybecause of the substantial court intervention. Inaddition, conservatorship proceedings may be lessflexible in managing real estate or other intereststhan a well-managed living trust.

How could a living trust be helpfulat my death?

The assets held in your living trust could bemanaged by the trustee and distributed according toyour directions without court supervision andinvolvement. This can save your heirs time andmoney. And because the trust would not be underthe direct management of the probate court, yourassets and their value (as well as your beneficiaries’identities) would not become a public record. Yourheirs and beneficiaries would still have to be notifiedabout the living trust and advised, among otherthings, of their right to obtain a copy of the trust.

If your assets (those in your name alone) arenot in a living trust when you die, they would besubject to probate. Probate is a court-supervisedprocess for transferring assets to the beneficiarieslisted in one’s will.

After your death, a petition would be filedwith the court (usually by the person or institutionnamed in your will as the executor). After notice isgiven, a hearing would be held. Then your will

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would be admitted to probate and an executorwould be officially appointed. An inventory ofyour assets would be filed with the court andnotice would be given to your creditors so theycould file claims. The process would end once thecourt approved a final distribution of assets.

Probate can take more time to complete thanthe distribution of property held in a living trust.In addition, assets tied up in probate may not be asreadily accessible to the beneficiaries as those heldin a living trust. And the cost of a probate is oftengreater than the cost of managing and distributingcomparable assets held in a living trust.

Who should be the trustee of myliving trust?

Many people serve as trustees of their own liv-ing trusts until they become incompetent or die.Others decide they need assistance simply becausethey are too busy or too inexperienced or do notwant to manage their day-to-day financial affairs.

Choosing the right trustee to act on yourbehalf is very important. Your trustee will haveconsiderable authority and responsibility and willnot be under direct court supervision.

You might choose a spouse, adult child,domestic partner, other relative, family friend,business associate, or professional fiduciary to beyour trustee. The professional fiduciary could be alicensed, registered individual, or a bank or trustcompany licensed by the State of California. Youmay also name co-trustees.

Discuss your choice with an estate planninglawyer. There are many issues to consider. Forexample, would the appointment of one of yourgrown children cause a problem with his or hersiblings? What conflicts of interest would be creat-ed if you name a spouse, child, business associate,or partner as your trustee? And will the personnamed as your successor trustee have the time,organizational ability and experience to do the jobeffectively?

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How are my assets put into theliving trust?

Once your trust has been signed, an importanttask remains. To avoid court-supervised conserva-torship proceedings if you should become incapac-itated, or the probate process at your death, yourassets must be transferred to the trustee of yourliving trust. This is known as funding the trust.

Deeds to your real estate must be preparedand recorded. Bank accounts and stock and bondaccounts or certificates must be transferred as well.These tasks are not necessarily expensive, but theyare important and do require some paperwork.

A living trust can hold both separate and com-munity property. This makes it convenient forspouses and registered domestic partners to planfor the management and ultimate distribution oftheir assets in one document. (Note:While regis-tered domestic partners have many of the samerights as spouses, be aware that federal tax lawdoes not provide the same tax benefits for domes-tic partners as it does for spouses.)

If you own real estate in another state, youmight (depending on that state’s law) transfer thatasset to your trust as well to avoid probate in thatother state. A lawyer from that state can help youprepare the deed and complete the transfer. If thereal estate is located in California, a Californialawyer should prepare the deed and advise you ontransferring such property.

A lawyer can help you transfer other assets aswell. For example, you should consider changingthe beneficiary designations on life insurance tothe trust. As for the beneficiary designations on aqualified plan (such as a 401(k) or an IRA), youshould seek a qualified professional’s advicebecause there are serious income tax issues.

What are the disadvantages of aliving trust?

Because living trusts are not under direct court

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supervision, a trustee who does not act in yourbest interests may, in some cases, be able to takeadvantage of you. (In a probate, direct court super-vision of an executor reduces this risk.)

In addition, the cost of preparing a living trustcould, in some cases, be higher than the cost ofpreparing a will. However, it depends on the par-ticular estate plan. The difference in cost may notbe significant if the estate plan is complex.

Also, keep in mind that a living trust can cre-ate additional paperwork in some cases. For exam-ple, lenders may not be willing to lend to a trustand may require that real property be taken out ofthe trust (by a deed) before they will agree to aloan on that real property.

If I have a living trust, do I stillneed a will?

Yes. Your will affects any assets that are titledin your name at your death and are not in yourliving trust or some other form of ownership witha right of survivorship. If you have a living trust,your will would typically contain a pour over provi-sion. Such a provision simply states that all suchassets should be transferred to the trustee of yourliving trust after your death. (This does not mean,however, that your beneficiaries can avoid goingthrough probate for these assets.)

Your will can nominate guardians for yourminor children as well. Any assets held in a trust foryour children would still be managed by the trustee.

To find out more about wills, see the State Bar’sconsumer pamphlet entitled Do I Need a Will? Forinformation on ordering a complimentary copy ofthis pamphlet or any other State Bar consumer edu-cation pamphlet, see the response to question #1.

Will a living trust help reduce theestate taxes?

No. While a living trust may contain provi-sions that can postpone, reduce or even eliminate

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estate taxes, similar provisions could be placed in awill to accomplish the same tax planning.

Will I have to file an income taxreturn for my living trust?

No, not during your lifetime. The taxpayeridentification number for accounts held in the trustis your Social Security number, and all income anddeductions related to the trust’s assets arereportable on your individual income tax returns.

After your death, the income taxation of theliving trust is similar to a probate.

What other estate planningdocuments should I have?

A durable power of attorney for property manage-ment could be helpful if you ever become incapaci-tated. It deals with assets that were not transferredto your living trust before you became incapacitatedand any assets that you receive afterward. Withthis power of attorney, you appoint another indi-vidual (the attorney-in-fact) to make financial deci-sions on your behalf.

This power of attorney, however, cannot replacea living trust because, among other things, it expireswhen you die. It cannot provide instructions for thedistribution of your assets after your death.

You might also consider setting up an advancehealth care directive / durable power of attorney for healthcare. This allows your attorney-in-fact to make healthcare decisions for you when you can no longer makethem for yourself. In your advance health caredirective, you may state your wishes regarding life-sustaining treatment, organ donation and funeralarrangements as well. A health care directive alsoallows an authorized agent to access your medicalinformation, which could be important in light ofstrengthened federal privacy laws.

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What other kinds of trusts arethere?

Testamentary trusts and irrevocable trusts aretwo other types of trusts:

• Testamentary trusts are trusts that are basedon instructions in your will; such trusts are notestablished until after the probate process. They donot address the management of your assets duringyour lifetime. They can, however, provide foryoung children and others who would need some-one to manage their assets after your death.

• Irrevocable trusts are trusts that cannot beamended or revoked once they have been created.These are generally tax-sensitive documents. Someexamples include irrevocable life insurance trusts,irrevocable trusts for children, and charitabletrusts. A qualified estate planning lawyer canassist you with such documents.

Who should draft a living trustfor me?

A qualified estate planning lawyer can helpyou prepare your living trust, as well as a will andother estate planning documents (see #17).

While other professionals and business repre-sentatives may be involved in your estate plan-ning, a living trust is a legal document, whichshould be prepared by a qualified lawyer.

In addition, the State Bar urges you to seekadvice only from professionals who are qualifiedto give estate planning advice. Many professionalsmust be licensed by the State of California.

Ask the professional about his or her qualifica-tions. And ask yourself whether the advisor mighthave an underlying financial incentive to sell you aparticular investment, such as an annuity or lifeinsurance policy. Such a financial incentive couldbias that professional’s advice.

A living trust is often held out as an enticement

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or “loss leader” by offices that are not staffed withcompetent and qualified estate planning lawyers.Unfortunately, some sellers of dubious financialproducts gain the confidence and private financialinformation of their victims by posing as providersof trust or estate planning services.

Should I beware of “promoters” offinancial and estate planning services?

Yes. There are many who call themselves“trust specialists,” “certified planners” or othertitles that suggest the person has receivedadvanced training in estate planning. California isexperiencing an explosion of promotions byunqualified individuals and entities which onlyhave one real goal—to gain access to your financesin order to sell insurance-based products such asannuities and other commission-based products.To better protect yourself:

• Consult with a lawyer or other financialadvisor who is knowledgeable in estate planning,and who is not trying to sell a product whichmay be unnecessary—before considering a livingtrust or any other estate or financial planningdocument or service.

• Always ask for time to consider and reflecton your decision. Do not allow yourself to bepressured into purchasing an estate or financialplanning product.

• Know your cancellation rights. Californialaw requires that sellers who come to your hometo sell goods and services (not including insuranceand annuities) that cost more than $25 must giveyou two copies of a notice of cancellation form tocancel your agreement. You, the buyer, may cancelthis transaction up until midnight three businessdays later. You have 30 days to cancel insuranceand annuity transactions.

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• Be wary of organizations or offices that arestaffed by non-lawyer personnel and that promoteone-size-fits-all living trusts or living trust kits. Anestate plan created by someone who is not a quali-fied lawyer can have enormous and costly conse-quences for your estate. Do not allow yourself tobe pressured into a quick purchase.

• Be wary of home solicitors who insist onobtaining confidential and detailed informationabout your assets and finances.

• Find out if any complaints have beenfiled against the company by calling local andstate consumer protection offices or the BetterBusiness Bureau.

• Insist on the person’s identification and adescription of his or her qualifications, education,training and expertise in estate planning. Also,keep in mind that legal document assistants arenot permitted to give legal advice. And paralegalsmust work under the direct supervision of alawyer. (As a precaution, ask to speak directly tothe supervising attorney if you are not given anopportunity to do so.)

• Always ask for a copy of any document yousign at the time it is signed.

• Report high-pressure tactics, fraud or mis-representations to the police or district attorneyimmediately.

How much does a living trustcost?

It depends on your individual circumstancesand the complexity of documentation and planningrequired to achieve your goals and objectives. Thecosts may vary from lawyer to lawyer. Generally,the costs will include the lawyer’s charges for dis-cussing your estate plan with you and for preparing

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a living trust agreement, your will, power of attor-ney or other necessary legal documents; supervisionover their execution; and services or instructions forfunding your living trust.

It is crucial to keep in mind that a living trustis a very important part of your estate plan. Avoidbeing lured by promotions for extremely low-costliving trusts without checking out those who aremaking the offer.

If you retain a lawyer, you should understandwhat services are to be provided and how muchthey will cost. California law generally requires thata lawyer explain, in writing, the nature of the servic-es to be rendered, the cost of those services and thepayment terms. Some lawyers charge a flat fee forestate planning services. Others charge on an hourlybasis or use a combination of both types of fees.

How do I find a qualified lawyer?

If you do not know a lawyer who is qualifiedto help you with your estate plan, ask someonewhose judgment you can trust—a friend, an asso-ciate or an employer, for example. Or call a localState Bar-certified lawyer referral service. For anonline list of certified lawyer referral services, visitthe State Bar’s Web site at www.calbar.ca.gov/lrs.Or, for the phone numbers of certified services inyour county, call 1-866-44-CA-LAW (442-2529).Out-of-state callers can call 415-538-2250 to hear thesame message. Or check the Yellow Pages of yourtelephone directory for a listing under “AttorneyReferral Service.”

State Bar-certified lawyer referral services,which must meet minimum standards establishedby the California Supreme Court, can help youfind the right lawyer for your situation. Most ofthese services offer half-hour consultations for amodest fee. Attorneys who are members of certi-fied lawyer referral services must carry insurance,agree to fee arbitration for fee disputes, meet stan-dards of experience and be State Bar members ingood standing.

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Some lawyers who work in the trust and estateplanning area are “certified specialists in estate plan-ning, trust and probate law.” This means that theyhave met certification standards set by the State Barof California. Not all lawyers who have such experi-ence and expertise in estate planning, however, havesought such certification. For a list of specialists andmore information on the certification program, go towww.californiaspecialist.org. Or call the State Barat 415-538-2120. You can also request free brochureson the bar’s certified specialist program.

If you do decide to hire a lawyer, make surethat you understand what you will be paying for,how much it will cost and when you will beexpected to pay your bill.

For more information, see the State Bar pam-phlet How Can I Find and Hire the Right Lawyer?You can order this pamphlet and other State Barconsumer pamphlets free of charge by sending ane-mail to pamphlets@calbar.ca.gov. Or, to find outhow to order the State Bar’s consumer publicationsby mail, call 1-888-875-LAWS (875-5297). Or visitthe State Bar’s Web site—www.calbar.ca.gov—where you’ll find the pamphlets, as well as infor-mation on ordering them.

The State Bar of California

Office of Media and Information Services

180 Howard Street

San Francisco, CA 94105-1639

415-538-2000

Publications: 1-888-875-LAWS (5297)

pamphlets@calbar.ca.gov

www.calbar.ca.gov

The purpose of this pamphlet is toprovide general information on thelaw, which is subject to change. It isnot legal advice. Consult a lawyer ifyou have a specific legal problem.

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T H E S TAT E B A R O F C A L I F O R N I A

DO INEEDALIVINGTRUST?

GET THE

L E G A L

F A C T S

O F L I F E

What is a living trust?1

What can a living trust do for me?2

Should everyone have a living trust?3How could a living trust be helpful if Ibecome incapacitated?4

How could a living trust be helpful at my death?5

Who should be the trustee of my living trust?6

How are my assets put into the living trust?7

What are the disadvantages of a living trust?8

If I have a living trust, do I still need a will?9

Will a living trust help reduce the estate taxes?10Will I have to file an income tax return for myliving trust?11What other estate planning documentsshould I have?12

What other kinds of trusts are there?13

Who should draft a living trust for me?14Should I beware of “promoters” of financial andestate planning services?15

How much does a living trust cost?16

How do I find a qualified lawyer?17

Do I need a

© 1998, 2002, 2005, 2007 The State Bar of California. No part of thiswork may be reproduced, stored in a retrieval system, or transmittedin any medium, without prior written permission.

l iv ing t rus t ?

This pamphlet was made possible, in part, through the volunteer efforts of theTrusts and Estates Section of the State Bar of California.

What is a living trust?

It is a written legal document that partiallysubstitutes for a will. With a living trust, yourassets (your home, bank accounts and stocks, forexample) are put into the trust, administered foryour benefit during your lifetime, and then trans-ferred to your beneficiaries when you die.

Most people name themselves as the trustee incharge of managing their trust’s assets. This way,even though your assets have been put into thetrust, you can remain in control of your assets dur-ing your lifetime. You can also name a successortrustee (a person or an institution) who will man-age the trust’s assets if you ever become unable orunwilling to do so yourself.

The living trust described in this pamphlet is arevocable living trust (sometimes referred to as arevocable inter vivos trust or a grantor trust). Such atrust may be amended or revoked at any time bythe person or persons who created it (commonlyknown as the trustor(s), grantor(s) or settlor(s)) aslong as he, she, or they are still competent.

Your living trust agreement:

• Gives the trustee the legal right to manageand control the assets held in your trust.

• Instructs the trustee to manage the trust’sassets for your benefit during your lifetime.

• Names the beneficiaries (persons or charitableorganizations) who are to receive your trust’sassets when you die.

• Gives guidance and certain powers andauthority to the trustee to manage and distributeyour trust’s assets. The trustee is a fiduciary, whichmeans he or she holds a position of trust and confi-dence and is subject to strict responsibilities andvery high standards. For example, the trustee cannotuse your trust’s assets for his or her own personaluse or benefit without your explicit permission.

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Instead, the trustee must hold and use trust assetssolely for the benefit of the trust’s beneficiaries.

A living trust can be an important part—andin many cases, the most important part—of yourestate plan. For more detailed information onestate planning, order a free copy of the State Barpamphlet Do I Need Estate Planning? Simplye-mail your order to pamphlets@calbar.ca.gov. Orvisit the bar’s Web site —www.calbar.ca.gov—where you’ll find the bar’s consumer pamphlets, aswell as information on ordering them. If you don’thave access to the Internet, call 1-888-875-LAWS(5297) for information on ordering the pamphletsby mail.

What can a living trust do for me?

It can help ensure that your assets will bemanaged according to your wishes—even if youbecome unable to manage them yourself.

In setting up your living trust, you may serveas its trustee initially or you may choose someoneelse to do so. You can name a trustee to take overthe trust’s management for your benefit if you everbecome unable or unwilling to manage it yourself.And at your death, the trustee—similar to theexecutor of a will—would then gather your assets,pay any debts, claims and taxes, and distributeyour assets according to your instructions. Unlikea will, however, this can all be done without courtsupervision or approval.

Should everyone have a livingtrust?

No. Young married couples without signifi-cant assets and without children, who intend toleave their assets to each other when the first oneof them dies do not need a living trust and wouldnot benefit from having a living trust. Other per-sons who do not have significant assets and havevery simple estate plans also do not need a living

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trust. Finally, anyone who wants court supervi-sion over the administration of his or her estateshould not have a living trust. The greater thevalue of your assets (particularly if you own realestate), the greater the need for a living trust. Andhaving a living trust could be important in theevent of an accident or sudden illness.

How could a living trust be helpfulif I become incapacitated?

If you are the trustee of your own living trustand you become incapacitated, your chosen suc-cessor trustee would manage the trust’s assets foryou. If your assets were not in a living trust,however, someone else would have to managethem. How this would be accomplished mightdepend on whether your assets were separate orcommunity property.

If you are married or in a registered domesticpartnership, assets acquired by either you or yourspouse or domestic partner while married or in thepartnership and while a resident of California arecommunity property. (Note: In domestic partner-ships, earned income is not treated as communityproperty for income tax purposes.)

On the other hand, any property that youowned before your marriage or registration ofyour partnership, or that you received as a gift orinheritance during the marriage or partnership,would probably be your separate property.

In California, community property could bemanaged by your spouse or registered domesticpartner if he or she is competent. If you own sepa-rate property (or are not married or in a registereddomestic partnership) and you become incapaci-tated, such assets could be managed by an agentor attorney-in-fact under a power of attorney (See#12); without planning, however, your separateproperty assets would be subject to a probate courtproceeding called a conservatorship.

During the conservatorship process, a judgecould determine that you were unable to manage

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your own finances or to resist fraud or undueinfluence. The court would then appoint someone(a conservator) to manage your assets for you. Andthe conservator would report back to the court ona regular basis.

Your conservator might be someone whomyou previously nominated. Or, if no one had beennominated, it might be your spouse, registereddomestic partner or another family member. Ifnone of those persons are available, then it mightbe the public guardian.

Conservatorship proceedings are designed tohelp protect you at a time when you are vulnerableor incapable of managing your assets. However,they are also public in nature and can be costlybecause of the substantial court intervention. Inaddition, conservatorship proceedings may be lessflexible in managing real estate or other intereststhan a well-managed living trust.

How could a living trust be helpfulat my death?

The assets held in your living trust could bemanaged by the trustee and distributed according toyour directions without court supervision andinvolvement. This can save your heirs time andmoney. And because the trust would not be underthe direct management of the probate court, yourassets and their value (as well as your beneficiaries’identities) would not become a public record. Yourheirs and beneficiaries would still have to be notifiedabout the living trust and advised, among otherthings, of their right to obtain a copy of the trust.

If your assets (those in your name alone) arenot in a living trust when you die, they would besubject to probate. Probate is a court-supervisedprocess for transferring assets to the beneficiarieslisted in one’s will.

After your death, a petition would be filedwith the court (usually by the person or institutionnamed in your will as the executor). After notice isgiven, a hearing would be held. Then your will

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would be admitted to probate and an executorwould be officially appointed. An inventory ofyour assets would be filed with the court andnotice would be given to your creditors so theycould file claims. The process would end once thecourt approved a final distribution of assets.

Probate can take more time to complete thanthe distribution of property held in a living trust.In addition, assets tied up in probate may not be asreadily accessible to the beneficiaries as those heldin a living trust. And the cost of a probate is oftengreater than the cost of managing and distributingcomparable assets held in a living trust.

Who should be the trustee of myliving trust?

Many people serve as trustees of their own liv-ing trusts until they become incompetent or die.Others decide they need assistance simply becausethey are too busy or too inexperienced or do notwant to manage their day-to-day financial affairs.

Choosing the right trustee to act on yourbehalf is very important. Your trustee will haveconsiderable authority and responsibility and willnot be under direct court supervision.

You might choose a spouse, adult child,domestic partner, other relative, family friend,business associate, or professional fiduciary to beyour trustee. The professional fiduciary could be alicensed, registered individual, or a bank or trustcompany licensed by the State of California. Youmay also name co-trustees.

Discuss your choice with an estate planninglawyer. There are many issues to consider. Forexample, would the appointment of one of yourgrown children cause a problem with his or hersiblings? What conflicts of interest would be creat-ed if you name a spouse, child, business associate,or partner as your trustee? And will the personnamed as your successor trustee have the time,organizational ability and experience to do the jobeffectively?

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How are my assets put into theliving trust?

Once your trust has been signed, an importanttask remains. To avoid court-supervised conserva-torship proceedings if you should become incapac-itated, or the probate process at your death, yourassets must be transferred to the trustee of yourliving trust. This is known as funding the trust.

Deeds to your real estate must be preparedand recorded. Bank accounts and stock and bondaccounts or certificates must be transferred as well.These tasks are not necessarily expensive, but theyare important and do require some paperwork.

A living trust can hold both separate and com-munity property. This makes it convenient forspouses and registered domestic partners to planfor the management and ultimate distribution oftheir assets in one document. (Note:While regis-tered domestic partners have many of the samerights as spouses, be aware that federal tax lawdoes not provide the same tax benefits for domes-tic partners as it does for spouses.)

If you own real estate in another state, youmight (depending on that state’s law) transfer thatasset to your trust as well to avoid probate in thatother state. A lawyer from that state can help youprepare the deed and complete the transfer. If thereal estate is located in California, a Californialawyer should prepare the deed and advise you ontransferring such property.

A lawyer can help you transfer other assets aswell. For example, you should consider changingthe beneficiary designations on life insurance tothe trust. As for the beneficiary designations on aqualified plan (such as a 401(k) or an IRA), youshould seek a qualified professional’s advicebecause there are serious income tax issues.

What are the disadvantages of aliving trust?

Because living trusts are not under direct court

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supervision, a trustee who does not act in yourbest interests may, in some cases, be able to takeadvantage of you. (In a probate, direct court super-vision of an executor reduces this risk.)

In addition, the cost of preparing a living trustcould, in some cases, be higher than the cost ofpreparing a will. However, it depends on the par-ticular estate plan. The difference in cost may notbe significant if the estate plan is complex.

Also, keep in mind that a living trust can cre-ate additional paperwork in some cases. For exam-ple, lenders may not be willing to lend to a trustand may require that real property be taken out ofthe trust (by a deed) before they will agree to aloan on that real property.

If I have a living trust, do I stillneed a will?

Yes. Your will affects any assets that are titledin your name at your death and are not in yourliving trust or some other form of ownership witha right of survivorship. If you have a living trust,your will would typically contain a pour over provi-sion. Such a provision simply states that all suchassets should be transferred to the trustee of yourliving trust after your death. (This does not mean,however, that your beneficiaries can avoid goingthrough probate for these assets.)

Your will can nominate guardians for yourminor children as well. Any assets held in a trust foryour children would still be managed by the trustee.

To find out more about wills, see the State Bar’sconsumer pamphlet entitled Do I Need a Will? Forinformation on ordering a complimentary copy ofthis pamphlet or any other State Bar consumer edu-cation pamphlet, see the response to question #1.

Will a living trust help reduce theestate taxes?

No. While a living trust may contain provi-sions that can postpone, reduce or even eliminate

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estate taxes, similar provisions could be placed in awill to accomplish the same tax planning.

Will I have to file an income taxreturn for my living trust?

No, not during your lifetime. The taxpayeridentification number for accounts held in the trustis your Social Security number, and all income anddeductions related to the trust’s assets arereportable on your individual income tax returns.

After your death, the income taxation of theliving trust is similar to a probate.

What other estate planningdocuments should I have?

A durable power of attorney for property manage-ment could be helpful if you ever become incapaci-tated. It deals with assets that were not transferredto your living trust before you became incapacitatedand any assets that you receive afterward. Withthis power of attorney, you appoint another indi-vidual (the attorney-in-fact) to make financial deci-sions on your behalf.

This power of attorney, however, cannot replacea living trust because, among other things, it expireswhen you die. It cannot provide instructions for thedistribution of your assets after your death.

You might also consider setting up an advancehealth care directive / durable power of attorney for healthcare. This allows your attorney-in-fact to make healthcare decisions for you when you can no longer makethem for yourself. In your advance health caredirective, you may state your wishes regarding life-sustaining treatment, organ donation and funeralarrangements as well. A health care directive alsoallows an authorized agent to access your medicalinformation, which could be important in light ofstrengthened federal privacy laws.

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What other kinds of trusts arethere?

Testamentary trusts and irrevocable trusts aretwo other types of trusts:

• Testamentary trusts are trusts that are basedon instructions in your will; such trusts are notestablished until after the probate process. They donot address the management of your assets duringyour lifetime. They can, however, provide foryoung children and others who would need some-one to manage their assets after your death.

• Irrevocable trusts are trusts that cannot beamended or revoked once they have been created.These are generally tax-sensitive documents. Someexamples include irrevocable life insurance trusts,irrevocable trusts for children, and charitabletrusts. A qualified estate planning lawyer canassist you with such documents.

Who should draft a living trustfor me?

A qualified estate planning lawyer can helpyou prepare your living trust, as well as a will andother estate planning documents (see #17).

While other professionals and business repre-sentatives may be involved in your estate plan-ning, a living trust is a legal document, whichshould be prepared by a qualified lawyer.

In addition, the State Bar urges you to seekadvice only from professionals who are qualifiedto give estate planning advice. Many professionalsmust be licensed by the State of California.

Ask the professional about his or her qualifica-tions. And ask yourself whether the advisor mighthave an underlying financial incentive to sell you aparticular investment, such as an annuity or lifeinsurance policy. Such a financial incentive couldbias that professional’s advice.

A living trust is often held out as an enticement

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or “loss leader” by offices that are not staffed withcompetent and qualified estate planning lawyers.Unfortunately, some sellers of dubious financialproducts gain the confidence and private financialinformation of their victims by posing as providersof trust or estate planning services.

Should I beware of “promoters” offinancial and estate planning services?

Yes. There are many who call themselves“trust specialists,” “certified planners” or othertitles that suggest the person has receivedadvanced training in estate planning. California isexperiencing an explosion of promotions byunqualified individuals and entities which onlyhave one real goal—to gain access to your financesin order to sell insurance-based products such asannuities and other commission-based products.To better protect yourself:

• Consult with a lawyer or other financialadvisor who is knowledgeable in estate planning,and who is not trying to sell a product whichmay be unnecessary—before considering a livingtrust or any other estate or financial planningdocument or service.

• Always ask for time to consider and reflecton your decision. Do not allow yourself to bepressured into purchasing an estate or financialplanning product.

• Know your cancellation rights. Californialaw requires that sellers who come to your hometo sell goods and services (not including insuranceand annuities) that cost more than $25 must giveyou two copies of a notice of cancellation form tocancel your agreement. You, the buyer, may cancelthis transaction up until midnight three businessdays later. You have 30 days to cancel insuranceand annuity transactions.

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• Be wary of organizations or offices that arestaffed by non-lawyer personnel and that promoteone-size-fits-all living trusts or living trust kits. Anestate plan created by someone who is not a quali-fied lawyer can have enormous and costly conse-quences for your estate. Do not allow yourself tobe pressured into a quick purchase.

• Be wary of home solicitors who insist onobtaining confidential and detailed informationabout your assets and finances.

• Find out if any complaints have beenfiled against the company by calling local andstate consumer protection offices or the BetterBusiness Bureau.

• Insist on the person’s identification and adescription of his or her qualifications, education,training and expertise in estate planning. Also,keep in mind that legal document assistants arenot permitted to give legal advice. And paralegalsmust work under the direct supervision of alawyer. (As a precaution, ask to speak directly tothe supervising attorney if you are not given anopportunity to do so.)

• Always ask for a copy of any document yousign at the time it is signed.

• Report high-pressure tactics, fraud or mis-representations to the police or district attorneyimmediately.

How much does a living trustcost?

It depends on your individual circumstancesand the complexity of documentation and planningrequired to achieve your goals and objectives. Thecosts may vary from lawyer to lawyer. Generally,the costs will include the lawyer’s charges for dis-cussing your estate plan with you and for preparing

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a living trust agreement, your will, power of attor-ney or other necessary legal documents; supervisionover their execution; and services or instructions forfunding your living trust.

It is crucial to keep in mind that a living trustis a very important part of your estate plan. Avoidbeing lured by promotions for extremely low-costliving trusts without checking out those who aremaking the offer.

If you retain a lawyer, you should understandwhat services are to be provided and how muchthey will cost. California law generally requires thata lawyer explain, in writing, the nature of the servic-es to be rendered, the cost of those services and thepayment terms. Some lawyers charge a flat fee forestate planning services. Others charge on an hourlybasis or use a combination of both types of fees.

How do I find a qualified lawyer?

If you do not know a lawyer who is qualifiedto help you with your estate plan, ask someonewhose judgment you can trust—a friend, an asso-ciate or an employer, for example. Or call a localState Bar-certified lawyer referral service. For anonline list of certified lawyer referral services, visitthe State Bar’s Web site at www.calbar.ca.gov/lrs.Or, for the phone numbers of certified services inyour county, call 1-866-44-CA-LAW (442-2529).Out-of-state callers can call 415-538-2250 to hear thesame message. Or check the Yellow Pages of yourtelephone directory for a listing under “AttorneyReferral Service.”

State Bar-certified lawyer referral services,which must meet minimum standards establishedby the California Supreme Court, can help youfind the right lawyer for your situation. Most ofthese services offer half-hour consultations for amodest fee. Attorneys who are members of certi-fied lawyer referral services must carry insurance,agree to fee arbitration for fee disputes, meet stan-dards of experience and be State Bar members ingood standing.

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Some lawyers who work in the trust and estateplanning area are “certified specialists in estate plan-ning, trust and probate law.” This means that theyhave met certification standards set by the State Barof California. Not all lawyers who have such experi-ence and expertise in estate planning, however, havesought such certification. For a list of specialists andmore information on the certification program, go towww.californiaspecialist.org. Or call the State Barat 415-538-2120. You can also request free brochureson the bar’s certified specialist program.

If you do decide to hire a lawyer, make surethat you understand what you will be paying for,how much it will cost and when you will beexpected to pay your bill.

For more information, see the State Bar pam-phlet How Can I Find and Hire the Right Lawyer?You can order this pamphlet and other State Barconsumer pamphlets free of charge by sending ane-mail to pamphlets@calbar.ca.gov. Or, to find outhow to order the State Bar’s consumer publicationsby mail, call 1-888-875-LAWS (875-5297). Or visitthe State Bar’s Web site—www.calbar.ca.gov—where you’ll find the pamphlets, as well as infor-mation on ordering them.

The State Bar of California

Office of Media and Information Services

180 Howard Street

San Francisco, CA 94105-1639

415-538-2000

Publications: 1-888-875-LAWS (5297)

pamphlets@calbar.ca.gov

www.calbar.ca.gov

The purpose of this pamphlet is toprovide general information on thelaw, which is subject to change. It isnot legal advice. Consult a lawyer ifyou have a specific legal problem.

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