Living trusts are an effective means of providing for the transfer of your assets once you pass from this life.  Any person, single or married, who owns real estate or personal property assets having a value greater than $100,000 will substantially benefit by creating a Living Trust during their lifetime, which provides for how that person's estate will be distributed.  A Living Trust, as opposed to a testamentary trust, is created during a person's lifetime.  If the Living Trust is "revocable" it can be amended many times prior to the death of the settlor (the person who has created the Living Trust).  Or, the settlor can revoke the entire Trust.  Today, Living trusts are often used because they allow assets to be passed to heirs without going through the lengthy and expensive process of probate.  By avoiding probate the estate can avoid the substantial fees that the California Probate Code allows the estate's attorney and executor to receive.  Probate fees are based on the total value of the estate and extraordinary fees may be allowed by the probate court if real property has to be sold or if creditor claims against the estate require special handling.   Living Trusts are also desirable as a means of keeping information concerning the estate assets and the identity of the heirs entirely private. Probate, in contrast, is a public proceeding where all of this information is available to the general public. 

When initially created, the settlor (the person who creates the Living Trust) usually serves as the trustee.  If the settlor is married and the Living Trust includes the spouse's property as well (which is usually the case), then the spouse will be the initial co-trustee.   When two or more co-trustees are serving, the trust instrument may provide that either Trustee alone may act on behalf of the Trust. The trust instrument may also provide that the other co-trustee shall act as sole trustee if the other settlor becomes incompetent.

Settlor
This is the person who sets up the trust.  In practice, this person is also often sometimes called the trustor.

Trustee
This is the person who will manage the trust assets according to the terms of the Trust. Initially, the Settlor who created the Trust serves as the initial Trustee of the Trust.  When funding the Trust with the Settlor's assets, title is taken (for example) as "John Smith Trustee of the John Smith Trust." 

Successor Trustee
The Successor Trustee is the person nominated in the Trust who will manage the Trust assets when the Settlor dies, or becomes incapacitated and can no longer serve in that role.  On the Settlor's death or incapacity, if he/she was the Trustee at the time, the Successor Trustee will immediately have the same powers as the Settlor had as Trustee to buy, sell, borrow, or transfer the assets inside the Trust.  The Successor Trustee also has the fiduciary duty and obligation to distribute the Trust’s assets according to the terms of the Trust. The Successor Trustee can not amend or change the Trust. The Trust becomes completely irrevocable upon the Settlor's death. The Successor Trustee has the right to manage the assets in the Trust, but the Successor Trustee must do so prudently and for the benefit of the remainder Beneficiaries. At the Settlor’s death, the Successor Trustee automatically takes over and does not have to wait for a court order (as is the case in probate).  The Successor Trustee pays any debts, expenses and taxes directed to be paid by the terms of the written Trust document, and then distributes the property to the Trust Beneficiaries according to the terms of formula provided for in the Trust. 

Beneficiaries
These are the people, charities or institutions that will receive a distribution from the Trust’s assets.  During the lifetime of the Settlor, he/she is the original beneficiary of the Trust.  Those beneficiaries who receive distributions from the Trust after the Settlor has died are Remainder Beneficiaries because they are receiving what "remains" in the Trust. 

To establish a Living Trust, an individual Settlor declares in a written document that he is transferring title to his assets from himself to the Trustee of the Trust (often the same person), to administer those assets for the benefit of himself and at least one other person. The Trust usually also names the Remainder Beneficiaries who will treceive the Trust's assets after the Settlor dies. The Remainder Beneficiaries get nothing until the Settlor dies.

A Corporate Trustee such as a bank may also be used.  The advantage to this approach is that a Corporate Trustee can act in perpetuity, whereas an individual cannot and must be replaced.  All Successor Trustees must provide accurate and detailed records of all transactions involving the Trust assets for as long as the Trust exists. Those records become what is known as an "accounting" of the Trustee, which may be required bu a Remainder Beneficiaries or by a court.  Corporate Trustees are familiar with the processes and reporting requirements in trust administration.   But, those skills come with an added cost that the Settlor may wish to avoid.  A Settlor who is considering appointing a Corporate Trustee should confirm beforehand what fees the Corporate Trustee charges and whether the Trust estate is of a large enough size (value-wise) for the Corporate Trustee to handle. 

To establish a basic Living Trust, the Settlor executes and acknowledges before a notary pubic an instrument called a declaration of trust.  Typically, the Settlor names himself or herself as the original trustee, and transfers assets to that trust (i.e., the transfer is actually made from the Settlor to himself, as Trustee). Because the Settlor and Trustee are the same person, the Settlor maintains full control over his assets.  The Trust document sets out the powers of the Trustee (including the Successor Trustee) and the specifics of the distribution of assets to the Remainder Beneficiaries.  If a Remainder Beneficiary is a minor, the Trust document wil also direct how thos assets are to be held (usually in Trust) and ultimately distributed (upon the beneficiary reaching a certain age or upon completing a certain event, like graduating from college). 

In the case where spouses have made a joint Living Trust, no distribution of the Trust assets takes place until the Surviving Spouse dies.  At that point, the nominated Successor Trustee assumes his/her responsibilities and, after the debts and obligations of the deceased  Settlor are taken care of, the successor Trustee distributes the Trust assets to those beneficiaries identified in the Trust, according to the Trust's directions.   Trusts often allow for a distribution "in kind," which means that non-monetary assets can be transferred to the beneficiaries without first selling or reducing them to cash.   So, for example, if a major Trust asset is real property, the Successor Trustee is normally given the option to simply transfer title to that real property to the Beneficiaries, according to the percentages specified in the Trust.  In many cases, the entire process may take only a few weeks, and there are no lawyer or court fees to pay.  When all of the Trust property has been distributed to the beneficiaries, the Living Trust ceases to exist.  Sometimes, however, if a dispute arises that pertains to the Trust, the Trust's administration will span however long it takes to resolve the dispute. 

The foregoing is a highly simplified description of how a Living Trust operates.  If spouses have a Living Trust, after the first spouse passes, there are several options by which to handle the administration of the Trust, that Wilcox & Peirano will be happy to patiently explain.