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Creating a Trust in La Mesa

As you age and start to think about what will become of your estate when you are no longer living, the creation of a trust may be an important consideration. A trust can help you to ensure that your loved ones are provided for when you’re gone, and may also provide certain tax benefits, as well. To learn more about trusts in California, or to create a trust today, contact the law offices of Garmo & Garmo, LLP. We have over 20 years of experience helping clients in the San Diego and surrounding areas make smart plans for the future.

What Is a Trust?

A trust is the legal name for an arrangement in which assets are held by another party (called the trustee) for the benefit of a beneficiary or beneficiaries. The trustee is a third party who will not benefit from the trust, and who has a fiduciary relationship with the trustor (the person who creates the trust). Trusts are used to provide benefits or assets to beneficiaries, to protect the private finances of a party (wills are public documents; trusts are private), to avoid probate, to take advantage of the tax benefits of certain trust types, or to hold assets for children who are under 18 years of age or persons with special needs.

Parties in a Trust

A trust arrangement will have at least three parties: the grantor, the trustee, and a beneficiary.

  • A grantor–also called a settlor–is the person who makes the trust and places assets in the trust (known as the trust fund). Depending on the type of trust that is formed, the grantor may retain some control over the trust. For example, if the trust is revocable, the grantor maintains the right to move assets in and out of the trust, amend the trust, or even cancel the trust.
  • The trustee is the person appointed by the grantor to manage the trust and distribute assets to the beneficiary or beneficiaries. The trustee must manage and distribute assets per the terms of the trust, which are established by the grantor. The trustee is a fiduciary, which means that they are legally bound to act in a manner that is in the best interests of the other party. The trustee must make decisions that are in the best interests of the beneficiary of the trust; if this duty is breached, an action could be brought against the trustee.
  • Finally, the trust is created for the purpose of distributing assets to beneficiaries. This might include a grantor’s child, partner, dependent, or another entity, such as a charitable organization. Different types of trusts may be used for different beneficiaries.

Types of Trusts

There are many different types of trusts, which is one of the reasons working with an experienced California trust attorney, who can guide you through the various types of trusts and which is most appropriate for your financial situation, is so important. Some of the most common trust types include:

  • Living trusts. A living trust is a type of trust that you can change during the course of your life, and you are typically named as the trustee on the trust. Similar to a will, you will put most assets, like a home, money in bank accounts, real estate, vehicles, etc., into your living trust. When you die, these items will be distributed according to your wishes. The biggest benefits of creating a living trust is that the trust is private, and by creating a living trust, your estate will avoid the probate process.
  • Irrevocable trustsWhile a living trust is revocable, which means that it can be changed at any time during the lifetime of the creator of the trust, an irrevocable trust cannot be changed. This means that once property is put into the trust, the creator of the trust cannot take it out.
  • Special needs trusts. Special needs trusts are unique because they are created with a different intent than normal trusts: to allow a person with special needs to benefit from the trust while also remaining eligible for federal programs, such as Social Security Disability Insurance or Medicaid. In order to do this, the trust is set up and managed by a trustee who purchases items for the beneficiary, but does not provide the beneficiary with control of the trust or trust fund withdrawals.
  • Charitable trust. A charitable trust is what it sound likes – a trust that is established for the purpose of benefiting a particular charity or organization. Not only are charitable trusts beneficial because they allow the trust creator to give to organizations in need, but they can also provide financial benefits for the creator, too.

There are multiple types of trusts, and the list above only names some of the most common trust types.

Trust Formation and Litigation

Forming a trust is a legal process that not only requires understanding your assets and the laws surrounding adding those assets into a trust, but also the tax penalties/benefits you could be facing, as well as which type of trust is best for you and your beneficiaries. For all of these reasons, working with a seasoned California trust lawyer who knows California law is strongly encouraged.

In addition to the basic difficulties associated with trust creation, another complication that you may face at some point is a dispute about a trust. Because trusts are essentially contracts between trust creators and trustees, there are times when a contractual agreement or fiduciary duty is breached. Some of these disputes might include disagreements over whether or not a trust is valid and legal, whether or not a trustee is performing their duties as stated by the trust agreement, disagreements about interpretation of trust language, or misappropriation of funds by trustees. Of course, these issues may be accompanied by other will and estate disputes, ranging from proving the validity of a will to removal of a personal executive of an estate to contested guardianship proceedings or allocation of assets and more.

When any sort of trust dispute arises, you need an aggressive and knowledgeable attorney on your side. The outcome of a trust dispute case could have a huge effect on your financial well-being and future; it is important that you work with someone who understand the issue you’re facing, has handled cases like yours in the past, and isn’t intimidated by the possibility of litigation.

You Must Keep Updating Your Living Trust

Your Living Trust is a live entity that needs regular updating. It is not something that you set up once and then forget about it. You must make sure to update your living trust as and when there are changes in your personal circumstances.

The updating will save you and your family avoidable and unwieldy expenses. Depending upon how long it has been that you set up the living trust or last updated it, you must answer these questions to see if the trust needs updating presently.

  • Is your Living Trust 5-7 years old?
  • Have there been changes such as Birth, death, marriage, or divorce in your family?
  • Has your spouse passed away, and do you have a Married Couple Trust?
  • Are you inclined to change the names of your trustees?
  • Are you inclined to change your estate’s disposition?
  • Have you owned, through purchase or refinance, any real estate since the establishment of your trust?
  • Are you in need of long-term care?

Why is Review and Service of Trusts Important?

All trusts created prior to the New Estate and Gift Tax Legislation of 2010 can take advantage of the new portability laws. For this, they may need to go in for a review or amendment.

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 brought in major changes in the law by the imposition of tax on wealth transfer from one to the next generation. There has been an increase in exemptions in the case of both estate tax and gift tax.

However, the two exemptions are tied, giving an individual the option to avail the exemption while they are living, or at their death. The built-in portability option in the law provides an option to the surviving spouse to hold on to their deceased spouse’s unused exemptions under estate tax by filing a return for federal estate tax.

Is an Amendment or a Restatement Necessary for Your Trust?

Your attorney may advise a Trust Amendment or a Trust Restatement, depending on the revisions that need to be made to your trust and the complexity of those revisions. For trusts that are not in the need of any big changes, the recommendation would be a trust amendment. Smaller changes like a previously selected trustee leaving the trust or a change in the arrangement of beneficiaries call for an amendment.

On the other hand, a trust restatement is the need when a trust created a while ago is now outdated, or if almost the entire contents of the trust need updating. A trust review by an attorney can identify whether there is a need for an amendment or a restatement for your trust.

Survivor’s Trust Restatement

Typically, the spouses are co-trustees or joint bank account holders, because of which, the passing of one spouse may not have any immediate adverse impact on the surviving spouse. The surviving spouse can navigate the day-to-day of dealing with payment of bills, bank, mortgage companies, and others, without any additional difficulties than earlier.

But apart from the day-to-day tasks of signing checks and depositing or withdrawing funds, there are other things that need to be done, to maintain the effectiveness of the trust. The structure of these trusts does not lend itself much to flexibility, and these types of trusts can become difficult to manage for the surviving spouse, especially if the estate is a modest one.

To retain the legal effectiveness of the trust, the surviving spouse must ensure appraisal of the assets to clearly identify and assign assets of the deceased spouse into the by-pass trust and file the IRS form 706 for federal estate tax return.

Due to the irrevocable nature of its constitution, the surviving spouse does not have the authority to bring about any changes in the trust’s terms and conditions. The absence of trust restatement would force the surviving spouse to continue to manage with the old and ineffective trust terms created when the tax laws were very different.

Contact Our Experienced Law Firm Today

Creating a trust can be an important part of your future. At the law offices of Garmo & Garmo, LLP, we care about you, and will competently guide you through the process of creating a trust that provides you with peace of mind. If you currently have an existing trust, are a trustee, or are the beneficiary of an existing trust and have encountered a legal problem, we want to hear about it and provide you with legal advice today.

Our California trust attorneys always put our clients first, and are very good at what they do. We have a long history of success and client satisfaction, and are very familiar with the California court system. If you are looking for a legal advocate whom you can count on, call our law offices today or send us a message.

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Garmo & Garmo, LLP office update (January 4, 2021)

Garmo & Garmo, LLP’s physical office is open to assist you with your legal needs.  We are following the strict guidelines established by the Centers for Disease Control (CDC), State of California and County of San Diego.  Unless necessary, in-person meetings will not be held in our office.  Our office can conduct phone meetings or video meetings with clients/visitors.  Please note the local San Diego courts are open for most business operations. 

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