How to make a living trust in California

Your estate planning documents are some of the most important legal papers you’ll create during your lifetime. They let you protect and provide for your loved ones, give back to charities you care about, and control the legacy you leave behind. And if you live in the Golden State, you may already know that estate planning experts often recommend having a living trust instead of a traditional last will and testament. One reason is that assets you transfer to a trust during your lifetime don’t have to go through probate (like they would if you had a will), which can be an expensive and time-consuming process in California.

In this article, we’ll go over the basics of a living trust and explain how to set one up in California.

What is a living trust?

A living trust is a legal entity that you can use to distribute your property to people and organizations after you pass away. Once you establish the trust, you “fund” it by transferring your assets into it.

There are two types of living trusts: revocable trusts and irrevocable trusts. Click the links to learn more.

There are some drawbacks to living trusts. They take time and effort to set up, and they need ongoing management from you over the course of your lifetime. But there are also several benefits to living trusts. One of the biggest is that any assets you have in a living trust don’t have to go through the probate process before passing on to your beneficiaries. In California, especially, having a living trust can save your loved ones time, money, and a lot of hassle.

Why is it important to have a living trust in California?

Living trusts are particularly beneficial for California residents because:

1. California has high probate fees for individuals who only have a will. For example, the first $100,000 of an estate is charged a probate fee of 4%. These fees could be charged twice, by both the estate attorney and the estate executor. And this money is taken out of your estate before your beneficiaries receive their inheritance.
2. California probate can take anywhere from 8 months to several years. These delays have only increased due to COVID court closures and IRS slowdowns.

Living trusts help avoid the costly delays of probate by skipping the process entirely. Creating a living trust is a fantastic way to ensure a quick, smooth transition of your property to your beneficiaries.

Living trust vs. will: What’s the difference?

Here are the main differences between a will and a trust:

1. A will generally requires less time and maintenance than a trust.
2. Assets in a trust don’t have to go through the probate process, but wills do.
3. Trust proceedings are private, while will proceedings are not.
4. A living trust is put in place during your lifetime, while your will takes effect only after you die.

The ability to skip the probate process makes living trusts an attractive option for many people in California.

How to create a living trust in California

Creating a living trust in California is a six-step process.

1. Make a list of your assets
2. Choose a trustee
3. Choose your beneficiaries
4. Draw up your Declaration of Trust
5. Sign it in front of a Notary Public
6. Transfer your property to the trust

Let's review each step in detail:

1. Take stock of your assets.

Make a list of all your assets, including all your physical and financial property. Here’s a list of property you’ll likely want to include in your trust:

• Real estate (like your house)
• Bank and brokerage accounts
• Other valuable assets, like expensive jewelry or artwork

There are certain assets that you shouldn’t transfer into your living trust. This includes:

• Vehicles, like cars, boats, and campers. This is because they depreciate in value and people often buy and sell them frequently, which can be a hassle to track.
• Non-probate assets, like your life insurance policies and retirement accounts (401(k)s and IRAs). If you’ve properly set your beneficiaries, these assets are already able to pass to your beneficiaries without going through probate, so you shouldn’t transfer them to your trust.

2. Choose a trustee.

A trustee is the person who manages the assets in a trust. For revocable living trusts, many people choose to name themselves as the trustee. If you do this, you should name a successor trustee in your trust document as well. Your successor trustee will take over managing your trust assets if you pass away or become incapacitated.

3. Choose your beneficiaries.

Your beneficiaries are the people or organizations you choose to receive the assets in your trust. When you pass away, your successor trustee will distribute the trust assets to your beneficiaries and close out the trust.

You can name beneficiaries for each of the trust’s assets. You can even name a nonprofit organization as a beneficiary! Be sure to include the charity’s full name, business address, and Employer Identification Number (EIN). You can find a charity’s EIN by doing a quick internet search or checking the IRS’s Tax Exempt Organization Search database.

If you use FreeWill to create your revocable living trust, our online platform makes it easy to name beneficiaries for each of the assets in your trust.

4. Draw up your Declaration of Trust.

There’s no single standardized Declaration of Trust document in California. As long as your document includes the correct legal language and is properly executed, it’s considered valid by the State of California.

To create a living trust document in California, you have a few options:

1. Use an online platform. You can use an online resource like FreeWill to create your California living trust for much cheaper than the cost of an attorney. FreeWill's living trust documents are affordable, valid in all 50 states, and tailored to your situation. Create your living trust today.
2. Hire an estate attorney to draft your documents for you. This option will cost more than a DIY trust. But if you have a complex estate, it can be helpful to have an attorney create a plan that’s right for you. You may also save money by drawing up your plan in advance (for example, using an online provider like FreeWill), and then taking this summary to an estate attorney for review.

5. Consider signing your trust document in front of a notary public.

To make your trust valid in California, you simply need to sign the trust document — that’s it! You don’t need to have your document witnessed or notarized to make it valid. However, many people choose to sign their document in the presence of a notary public to help authenticate the document.

Many locations have notaries, including banks, libraries, law and accounting firms, and even your local print shop. You can call your location of choice to check the hours their notary is on duty, and either schedule an appointment or walk in.

6. Transfer your property to the trust.

Once you sign your trust document, you need to transfer ownership of your property to this legal entity. You should list your trustee as the owner of your property on the new deed or title. If you are the trustee of your trust, you still need to change deeds and titles to name you as the owner in your capacity as trustee. For example, say you need to change your house deed so it lists you, the trustee, as the owner. Instead of “John Smith,” the new deed should read “John Smith, Trustee of the John Smith Revocable Trust.”

To work as intended, your trust needs to contain your property. As you acquire new assets throughout your lifetime, be sure to transfer them to your trust.

Can you change or revoke a living trust?

As long as you have mental capacity, you can make changes to a revocable living trust or revoke it at any time during your lifetime.

If you need to make a small change to your revocable trust document, you can use a trust amendment document and include it with your original Declaration of Trust. If you have a lot of revisions, you may want to consider rewriting your document, which is known as a trust restatement.

If you want to revoke a revocable living trust, you’ll first have to transfer all your assets out of it. Then you should fill out a legal document, called a revocation of trust, that states you are revoking your trust. You can usually get a copy of this form from your local probate court. You can also hire an estate attorney to draft the document for you. Then sign and date the document.

Making changes to an irrevocable living trust is much more difficult and usually requires the approval of a judge or the trust’s beneficiaries. If you want to change or revoke an irrevocable living trust, consider working with a qualified estate attorney.

Estate and inheritance tax in California

Any assets you put in a revocable living trust are still considered part of your taxable estate, meaning they’re subject to estate and inheritance taxes when you pass away.

Inheritance tax is a tax someone has to pay when they inherit property or assets from an estate. California doesn’t collect an inheritance tax, and neither does the US federal government.

Estate tax is a tax that is levied from your estate before your assets are passed on to your beneficiaries (if the value of your estate is above a certain amount). California doesn’t collect estate tax at the state level. The 2023 US federal estate tax exemption is $12.92 million for individuals and $25.84 million for married couples. This usually means your estate won’t owe any federal estate tax if your property is valued below this amount.

Estate taxes only apply to very large estates and don’t impact most Americans. If you think your estate may be subject to estate tax, consider speaking with a qualified attorney. They may recommend an irrevocable trust to help minimize estate tax.

If you have a living trust, do you still need a will?

Yes — even if you have a living trust, it’s a good idea to make a will. With a will, you can account for several things that aren’t covered in your trust, like naming guardians for your minor children and stating your funeral wishes. With a will, you can also leave instructions for any of your property that wasn’t transferred to your trust before you passed away.

A common strategy for people with a living trust is to create an accompanying “pour-over will.” A pour-over will functions as a kind of “safety net,” capturing any property you didn’t transfer to your trust while you were alive and “pouring it” over to your trust when you pass away. Learn more about pour-over wills and how to make them.

Having a living trust creates peace of mind

All Americans should have a valid, up-to-date estate plan. For California residents, living trusts are a smart option to protect your estate and save your loved ones time, money, and effort. And with online platforms like FreeWill, creating a Declaration of Trust document has never been easier.

You can log in to our secure website, fill out a guided questionnaire, and receive a California trust document specific to your wishes. Create your California living trust today.