FAQ 2 - Trusts and How They Work

This section explains what trusts are, why many Californians use them, and how they fit into an overall estate plan. It also clarifies the difference between revocable and irrevocable trusts, who controls them, and how they can save time, money, and stress for families.

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Important Information for Readers

• The information on this page applies to California residents only. Estate planning laws differ from state to state.

• These questions and answers provide general educational guidance, not legal advice for any particular estate.

• Probate rules and tax laws can change, so always confirm current thresholds and laws.

• For personalized help, contact Estate Planning Attorney David Salvin at davidsalvinesq@gmail.com for a free consultation.

 

Q1. What is a trust, and why do you need one?

A trust is a legal document that gives detailed instructions for how your estate should be managed and distributed. You (the trustor or settlor) place property and assets into the trust and name a trustee to handle it for your beneficiaries according to your written rules.

Unlike a will, a trust takes effect as soon as it’s signed and funded. That means it can protect your assets and help loved ones avoid costly delays if you become incapacitated or pass away.

Why it matters: A trust lets you decide who inherits, when, and under what conditions, while keeping the process private and out of court.

Example: When Brian and Karen created a living trust and savings passed directly to their children without going through probate because they had a trust. The process stayed private and finished in weeks instead of months or years.

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Q2. When do you need a trust in California?

In California, probate may be required if your entire estate (everything your own) exceeds roughly $208,500+ or if you own any real estate.  A trust allows those assets to transfer automatically without court supervision.

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You should strongly consider creating a trust if you:

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• Own property in California

• Have assets worth $208,500 or more

• Want to avoid probate delays and legal costs

• Have minor children or dependents who need financial protection

• Have a blended family or wish to control how assets are divided

• Have a special-needs beneficiary receiving public benefits

• Prefer to keep your estate private and out of public record

Tip: Even modest estates with one property can benefit from a trust. It’s often the only way to ensure a smooth, private, transfer without court interference.

 

Q3. Revocable Living Trusts (RLTs)

A revocable trust is the most common estate-planning tool for California homeowners. You,  the grantor, retains full control of the trust and may amend or revoke the trust at any time.

Benefits:

• Avoids probate

• Maintains privacy

• Handles incapacity

• Easy to update​

 

Tip: Think of a revocable trust as a “legal bucket” that protects your assets from probate. You can put thing in the bucket or take items out whenever you want.  It allows you to maintain full control over all your assets.

 

Example: A parent adds their Costa Mesa home to a revocable trust. When they pass away, the children inherit without opening a probate.  A trust makes the transfer of estate assets smooth and easy.

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Q4. What is an Irrevocable trust, and when would someone use one?

An irrevocable trust is a legal arrangement that cannot be easily changed or revoked once it’s signed and funded. When you transfer property into this type of trust, you give up ownership and control of those assets. The trustee (not you) manages the assets according to the trust’s terms for the benefit of others.

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More importantly, it is considered by State and Federal authorities to be a final transfer of assets and this may trigger reassessment for property taxes and long term capital gains tax which becomes payable immediately.

Why people use them: Irrevocable trusts are sometimes used for advanced planning goals such as estate-tax reduction, asset protection, or Medi-Cal eligibility. They may also hold life-insurance policies, gifts to charity, or assets intended to be excluded from your taxable estate.

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Pros of an Irrevocable Trust

• Estate-tax savings: Assets removed from your name are generally not included in your taxable estate.

• Creditor protection: Because you no longer own the property, certain creditors may not reach it.

• Asset management: Ensures responsible management for beneficiaries who are young or financially inexperienced.

• Life-insurance planning: An Irrevocable Life-Insurance Trust (ILIT) can exclude insurance proceeds from estate taxes.

• Charitable giving: Offers potential income-tax deductions or long-term legacy benefits through charitable trust structures.​

 

Cons and Cautions

• Loss of control: Once established, you cannot freely change or dissolve the trust or retrieve assets.

• Tax rigidity: Income inside an irrevocable trust is taxed at very high federal rates, often reaching the top bracket with minimal income.

• Administrative complexity: Requires a separate tax ID number, yearly Form 1041 filings, and ongoing CPA or legal oversight.

• No flexibility for life changes: Divorce, remarriage, or new children do not automatically adjust who benefits.