Questions About Revocable Living Trusts in California

By Stephanie Kurose, J.D.

Questions About Revocable Living Trusts in California

By Stephanie Kurose, J.D.

A revocable living trust is a legal mechanism that allows the trust's creator, or "grantor," to transfer almost any type of asset into the trust, which is then managed on behalf of the designated beneficiary. Revocable living trusts in California work the same way as living trusts in other states. The only difference is that community property laws in California may affect how the trust operates if a married couple divorces.

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How a Revocable Living Trust Works

A revocable living trust is a way for a grantor to transfer ownership of certain assets into the trust that will be given to the trust's beneficiary or beneficiaries upon the grantor's death. A beneficiary can be a person or entity. The "trustee," also designated by the grantor, manages the assets according to the terms of the trust agreement. For a revocable living trust, the grantor and trustee are generally the same person. However, the grantor/trustee must also designate a successor trustee to manage the trust upon the grantor's death or legal incapacitation.

Almost any type of asset can be transferred into a trust, including real property, money, stocks, bonds or mutual funds, and automobiles. The grantor/trustee can alter or cancel a revocable living trust while they are still alive. The grantor can add, change, or remove designated beneficiaries, add or remove assets, or amend the terms of the trust agreement. When the grantor dies, the trust becomes irrevocable and the successor trustee cannot change or cancel it.

Revocable Living Trust During a Divorce

California is a community property state, which generally means that each spouse has a right to half of all marital property—property acquired during their marriage—in the event they get a divorce. Any property owned by a spouse before they got married, as well as any gift or inheritance, is considered separate property and remains with the original owner upon divorce.

Many California trusts contain specific provisions detailing what happens to the trust's assets in the event of a divorce. However, in the absence of such language, California's community property laws can change how a living trust operates. It is generally prohibited under state law for either spouse to change or revoke a trust once they have started the divorce proceedings. To determine how to divide the trust's assets, a court traces the property back to either separate or marital. If marital property funded the trust, a court considers the trust marital property and divides its assets equally between the spouses. To avoid this outcome, the trust agreement should explicitly state what happens in the event of a divorce.

Benefits of a Revocable Living Trust

One of the main benefits of a living trust is that it avoids the probate process. Probate is the court process of settling a deceased's estate and can be lengthy and time-consuming. When assets are placed in a living trust, they are automatically passed to the designated beneficiary upon the grantor's death and do not need to go through probate. Living trusts allow the grantor to dictate on their own terms how they want their property distributed.

Revocable living trusts are helpful estate planning tools that allow a person to manage their assets during their lifetime and provide direction for the management and distribution of those assets upon their death. Living trusts operate very similarly in California as they do in other states.

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