What is a living trust? An individual or couple (let’s call them John and Susan) transfers property to someone they trust (let’s call her Mary) for the benefit of others (let’s call them David and Mary). John and Susan are the parents, David and Mary are their children.
Let’s attach legal terms to our cast of characters. John and Susan are the Grantors of the trust. Mary is the Trustee of the trust and David and Mary are the beneficiaries of the trust. The property that they give to Mary is called the “corpus” (body) of the trust.
There are two principal types of trusts, irrevocable and revocable. With an irrevocable trust, once property is transferred into the trust, the Grantor can’t get it back. With a revocable trust, the Grantor has the right to remove any of the assets transferred to the trust. These trusts are also called “living” trusts or “family” trusts. They can be changed while John and Susan are still alive, and they are family oriented. Living trusts are always revocable, so long as both spouses are still alive. If a single person sets up a living trust, it’s revocable until he or she passes away.
Back to John and Susan. They have retired, own their own residence and vacation rental property, and have a brokerage account. They want to be sure that when they pass away, their children will have immediate access to all of their assets, and will be able to take care of the family finances, especially if either John or Susan is disabled.
They could put their children on the deeds to their residence and vacation home. And make the children beneficiaries on their various bank and brokerage accounts. But now the children have as much control over the real property as John and Susan. What if either of them gets sued? Is John and Susan’s property at risk? Potentially, yes. If either of them gets divorced, will there be a battle over the ownership of the property? This alternative might not be a good move for John and Susan, even if David and Mary appear to be pillars of their church and community.
John and Susan could just do a will. But then the children would have to go through a court-supervised probate before getting any control after both John and Susan are gone. In California, probate proceedings take at least six months.
Where is the middle ground? The revocable living trust strikes a balance between the ability of John and Susan to keep control, with their ability to pass control to their children when they don’t want to or no longer can do it themselves any more. If there are income-generating properties, it gives parents a chance to train their children in proper management.