Successor Trustees in California Trust Administration
The successor trustee is responsible for administering the trust in accordance with your wishes. They can use their own discretion when making important decisions about the trust’s funds, but they cannot revoke the trust’s charter or take trust assets for their own use. Instead, successor trustees are bound by a “fiduciary duty” requiring that they act only in the best interests of the trust and its beneficiaries.
The Different Types of Trusts
The California Probate Code provides a broad definition of what constitutes a trust. According to the Probate Code’s section on trust law, a “trust may be created for any purpose that is not illegal or against public policy.” People create trusts for a variety of reasons: to condition the inheritance of their heirs, to separate personal assets from estate assets, and to set aside funds for charitable purposes.
In estate planning, most trusts established under California law fall into either of the following two categories:
- A revocable living trust. A revocable living trust is a trust that is established during the grantor’s lifetime. Since the trust is revocable, the grantor can revoke the trust or alter its terms at any time. Assets held by a revocable living trust are removed from the grantor’s estate after death and are, therefore, exempt from probate.
- An irrevocable living trust. Irrevocable living trusts are also established during the grantor’s lifetime, but they cannot be revoked without consensus from the grantor, trustees, and beneficiaries. Grantors can retain an interest in trust assets, but they cannot control them.
The most common types of revocable and irrevocable living trusts include, but are not limited to, the following:
Revocable Living Trusts
A revocable living trust is a broad category of trust that can be leveraged to retain control of trust assets while ensuring that inheritances are not subject to probate. Revocable living trusts can receive and manage assets, including the following:
- Your home
- A vacation property
- Commercial real estate
- Motor vehicles
- Home appliances
- Personal possessions
Some people form revocable living trusts to protect very specific kinds of assets, like firearms or an art collection. These trusts are sometimes subject to more rules and regulations than other categories of revocable living trusts but may contain better protections for trust-controlled assets.
Medicaid Asset Protection Trusts
Medi-Cal has strict income limits that make it difficult for most people with significant savings to qualify. However, the costs of long-term care are high—high enough that many people cannot pay out of pocket for a nursing home without having to sacrifice their children’s inheritances.
Medicaid trusts let grantors meet Medicaid asset limits by transferring properties, accounts, and income to a special type of irrevocable trust.
Grantor Retained Annuity Trusts
A grantor retained annuity trust (GRAT) is an irrevocable trust that facilitates the transfer of large financial gifts to family members.
Most GRATs are established for a very specific length of time. Once the trust is active, it pays annuities to the grantor, who is entitled to recover the amount of their initial transfer. After it expires, the trust’s remaining assets are distributed to beneficiaries.
GRATs can minimize or negate gift tax-related penalties, but they carry built-in risks that warrant some consideration.
Special Needs Trusts
A special needs trust (SNT) is an irrevocable trust that provides money, resources, and assets to maintain or improve the quality of life of a person with special needs. If an SNT is structured properly, it lets the beneficiary receive substantial support without losing access to critical public benefits.
Life Insurance Trusts
A life insurance trust, or “Irrevocable Life Insurance Trust,” is used to hold the proceeds of a life insurance policy. The grantor works with their appointed trustee to set conditions for payouts, which minimizes the risk of transferring large sums of money to a young, vulnerable, or financially irresponsible beneficiary.
Pet Trusts
A pet trust helps ensure that a furry or winged family member receives the love that they deserve if you can no longer provide for their needs. Pet trusts are, in most cases, the only way to guarantee that specially allocated funds are actually used for a pet’s betterment.