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Thursday, March 14, 2024

Are All Trusts Living Trusts? A San Diego Estate Planning Lawyer Explains

The word "trust" gets used quite broadly, creating potential confusion. While a "living trust" is a widely discussed instrument for estate planning, it's crucial to understand that not every trust is a living trust. Below our San Diego estate planning lawyers break down the key distinctions.

What is a Trust?

Simply put, a trust is a legal arrangement where someone (the grantor) places assets (property, investments, etc.) under the management of another, who serves as trustee for the benefit of named beneficiaries. Trusts provide flexible control over asset distribution and come in several forms.

Two Primary Trust Categories

  • Revocable Trusts (often called Living Trusts): Revocable Living Trusts are created during the grantor's lifetime. Grantors often act as their own trustee initially, retaining control. These trusts can be changed or dissolved easily. Their biggest advantage is serving to allow you to designate who will control your assets during any time you cannot.  This includes any time you become unavailable, disabled, or when you pass away.  Living Trusts smooth transitions and avoid probate.
  • Testamentary Trusts: These types of trusts are established within a person's will and only go into effect after their passing. Because they arise only upon death, testamentary trusts don't avoid probate. They primarily are used under different levels of court supervision to control how assets pass to beneficiaries (such as minor children).

Other Trust Types

To further illustrate the variety, here are a few additional trust types:

  • Irrevocable Trusts: Once created, the grantor’s ability to withdraw assets from the trust and to alter the trust's terms is very limited. These can offer certain tax and asset protection advantages within a specialized plan.
  • Special Needs Trusts: Designed to benefit individuals with disabilities while allowing them to maintain public benefit eligibility.  When these type of trusts created by third parties they are often called Supplemental Needs Trusts.  Special Needs Trusts created by an individual who is either receiving or hoping to receive disability-based public benefits is referred to either as a Special Needs Trust or a D4A Trusts after the Federal Codes section which allows them to be created 42 U.S.C. § 1396p(d)(4)(A).
  • Charitable Trusts: Used for philanthropic purposes with potential tax benefits for grantors. With the exception of operating charities, the most common types of Charitable Trusts are Charitable Remainder Trusts, Charitable Unitrusts and Charitable Lead Trusts.

Why the Focus on Living Trusts?

Probate avoidance is a significant concern for most Californians. Likewise, most San Diegans want to avoid being under a court conservatorship if they are unable to act for themselves. Living trusts offer a relatively straightforward way to achieve this, making them a common tool within estate plans.

Is a Trust Right for You?

Choosing the right type of trust (or if any trust is needed) depends on your goals and situation. A San Diego estate planning lawyer can assess your needs and advise on the following:

  • If probate avoidance is your primary concern
  • How potential incapacity factors into your situation
  • If you have minor children or beneficiaries with special needs
  • Whether you seek advanced tax strategies
  • Whether you are concerned with asset protection for yourselves or to protect your assets after you are gone.

Seek Clarity With Experienced Guidance

Ready to explore your estate planning options? Our firm assists clients in creating secure plans tailored to their needs. Schedule a consultation to learn more about how trusts can serve you. Simply contact our office at 619-281-1888 to schedule a consultation with our San Diego estate planning lawyers.  


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