A California revocable living trust is a legal contract that can be changed or canceled by the grantor. As long as the grantor is alive and of sound mental capacity, the income earned by the property held in trust belongs to the grantor. The property or assets transfer to beneficiaries upon the grantor’s death.
Simply put, revocable living trusts allow individuals to continue to own and control their property while alive, then transfer it to whomever they designate without the need for probate. Revocable trusts are a widely used, flexible estate planning tool.
California Requirements for Revocable Living Trusts
- For a trust to exist, there must be property.
- A grantor willingly transfers property and assets.
- Terms of the trust are created by the grantor.
- A designated trustee must be appointed who receives legal title to property placed in trust.
- The trustee manages and distributes income from the trust based on California rules set down for revocable trusts
- The Trustee follows the terms of the trust as established by the grantor.
- The beneficiary named receives direct or indirect benefits from the trust’s use of income or the principal accrued by the trust property.
- The grantor and trustee must both be legally competent.
- The trust document is signed and certified by a notary.
Are Revocable Trusts Taxable?
Yes.
When looking at the tax implications of setting up a living trust, it is wise to consult with an estate planner or estate tax accountant familiar with the tax laws of California.
With that said, here are some general considerations.
- For federal income tax purposes, all income of a revocable living trust is taxed directly to the grantor at the grantor’s tax rate. This is because the grantor is considered the owner of the trust’s assets. (IRC Sec. 671.)
- No gift is generated by establishing or funding a revocable living trust since the gift is not completed until the trust becomes irrevocable.
- Since the grantor has not disposed of any assets, the entire trust is included in the grantor’s estate for federal estate tax purposes. (IRC Sec. 2038)
When does a Revocable Living Trust become irrevocable?
A revocable living trust becomes irrevocable when the grantor gives up their right as trustee or upon the grantor’s death. Generally speaking, a grantor cannot revoke a living trust if they should become mentally incapacitated.
Benefits of a Revocable Trust
First and foremost, trusts made revocable are just that. One never knows when you may change your mind about leaving what and to whom. But there are other benefits to consider when deciding on a revocable trust.
Like any trust, a revocable trust in California ensures that your final wishes are followed without a lengthy probate process.
- Probate in California is expensive.
- Revocable trusts can eliminate the need for a will.
- You retain control of your assets. As such, a revocable trust can determine your quality of life at the end of your days as well as what happens to your stuff when you’re beyond caring.
- You retain control over how and under what circumstances trustees allocate money for minor children.
- Terms of the document continue as written should you become incapacitated.
Let’s Talk Trusts
The Law Offices of Michael K Lanning, APLC, have the expertise you need to help you decide if a revocable trust fits with your estate planning goals. Estate planning can be a challenging process. Maybe trusts are a part of it, maybe not—there’s only one way to find out. Contact us at 310-820-1600 or go to our website to learn more and set up a consultation.
We serve West Los Angeles, Santa Monica, Pacific Palisades, Manhattan Beach, and the surrounding Los Angeles communities.
The Law Offices of Michael K. Lanning, APLC
11777 San Vicente Blvd.
Suite 750
Los Angeles, California, 90049
