Whenever someone finds out that I’m an estate attorney, one of the first questions they ask me is “What is a trust?” usually followed by “And do I need one?” Answers to these seemingly simple questions are actually a bit involved. So, I decided to write a series of articles explaining trusts.

So, What is a Trust?

Let’s begin by defining what a trust is. A trust is a legal document which dictates what happens to your assets during your lifetime, in case of incapacity, and after your death. Typically, a trust is created during a person’s lifetime and is revocable, meaning it can be partially changed or completely revoked, unless specified as irrevocable. You’ll sometimes see it referred to as revocable living trust, a living trust, or a revocable trust. They all mean the same thing.

Why Have a Trust?

The primary advantage of a trust is that assets transferred into the trust during your lifetime will avoid probate after you pass. This can be beneficial in a state like California, where probate proceedings take a long time, cost a lot of money and require the court’s involvement. And, unlike a will, administering a trust after a person’s death takes a shorter period of time, is mostly done privately, and without court’s involvement.

What Should be Included in a Trust?

Here is a list of basic provisions that all trusts should have: Name Settlors: Settlors, also known as grantors or trustors, are the creators of the trust. The trust document should clearly identify this person or people. Typically, the settlor is also the trustee (discussed below), but that’s not required. Name Trustees: A trust instrument should clearly identify the current and successor trustees. A trustee is the manager of the trust property. The trust document will indicate the type of powers that the trustee has (e.g. sell trust property, distribute assets to beneficiaries, etc.). The trust should also indicate who will be the successor trustees or how they will be selected, if the current acting trustee or co-trustees can no longer serve. Since the creator of a trust (settlor) is often the first trustee, the successor trustee will typically act only after the initial settlor’s incapacity or death. Name Beneficiaries: Every trust document should name the beneficiaries of the trust. If there is only one beneficiary named, I always recommend an alternate beneficiary be named as well. After listing the primary and secondary beneficiaries, I help clients craft a general clause that states what happens if all the beneficiaries predecease the settlor (i.e. everything will go to the settlor’s heirs or to the Red Cross). If the beneficiaries are minors, the trust should indicate at what ages distributions are to be made to the beneficiaries (e.g. when the child turns 25 years old) or to whom can the child’s distribution be made (e.g. to the child’s guardian in lieu of paying the minor child). Identify Trust Property: It’s important to identify all the trust assets in the Schedule of Assets (which typically lists the real estate, business holding and other assets of the settlors). It’s also important to realize that the character of the property that the settlors put in trust should continue to be the same. For example, if one spouse puts in the trust his or her separate property, then it remains his or her separate property inside the trust and should be identified as such on an appropriate schedule of assets. So, in case of a divorce, the spouses’ assets can be linked to being the separate property of the specific spouse. Name Who Can Revoke or Change the Trust: A critical step is to note who can change or revoke your trust. Typically, the settlors want to be the only ones with the power to do this. But in some circumstances it may be wise to allow your successor trustee or a third party to have the ability to change or revoke the trust. If, for example, you were to become incapacitated and needed your trust to be changed to allow you to apply for government benefits, then you may wish to give that authority to another person. While this a lot to understand, you’ve got the basics down. Stay tuned for Part II of this three part series, which explains more details about trusts.