Understanding the Most Common Types of Trusts 

Setting up a trust is an important part of estate planning. If you want to ensure your assets are handled and shared just the way you want, a trust is the way to go.  

At Davidson Estate Law, we believe in a personalized approach to establishing a trust simply because no two families are exactly alike. Our goal is to eliminate stress and make the process easy for you.  

In this guide, we shall explore the most common types of trusts, share insights on California laws, and explain how teaming up with Davidson Estate Law could be the best legal decision you ever made. Shall we begin? 

What Is a Trust?

A trust is a legal arrangement where one party, known as the trustee, holds and manages assets on behalf of another party, known as the beneficiary.

Trusts can serve various purposes, from protecting assets to reducing tax liabilities. They are an essential tool in estate planning, offering flexibility and control over how your assets are handled. 

The Most Common Types of Trusts

Revocable Living Trust

A revocable living trust is one of the most popular types of trusts. It allows you to retain control over your assets and make changes or revoke the trust as needed. In the event of your passing, the assets in the trust pass directly to the beneficiaries without going through probate. 

Benefits: 

• Avoids probate 

• Provides flexibility 

• Allows for easy amendments 

• Maintains privacy of financial affairs 

• Facilitates smooth management during incapacitation 

Irrevocable Trust

Unlike a revocable trust, an irrevocable trust cannot be altered or revoked once it is established. This type of trust is often used for tax planning purposes and to protect assets from creditors. 

Benefits: 

• Reduces estate taxes 

• Offers asset protection 

• Can help qualify for Medicaid 

• Protects beneficiaries who are minors or have special needs 

• Shields assets from legal judgments 

Testamentary Trust

A testamentary trust is created through a will and takes effect only after the grantor's death. It is often used to manage and distribute assets to minor children or individuals who may need assistance managing their inheritance. 

Benefits: 

• Provides control over asset distribution 

• Can include specific instructions for asset management 

• Useful for minor beneficiaries 

• Offers continued oversight of assets 

• Can set conditions for beneficiaries to meet before receiving assets 

Charitable Trust

A charitable trust is designed to benefit a charitable organization. It can be established during your lifetime or through your will. There are two main types: charitable remainder trusts and charitable lead trusts. 

Benefits: 

• Provides a charitable donation 

• Offers potential tax deductions 

• Can provide income for the grantor or other beneficiaries 

• Can leave a lasting legacy 

• Offers flexibility in choosing beneficiaries and how the funds are used 

Special Needs Trust

A special needs trust is specifically designed to provide for a beneficiary with disabilities without jeopardizing their eligibility for government benefits. The trust can cover expenses not met by public benefits, such as medical care, education, and recreational activities. 

Benefits: 

• Protects government benefits eligibility 

• Ensures long-term care for the beneficiary 

• Flexibility in covering additional expenses 

• Customizable to meet the specific needs of the beneficiary 

• Protects against financial exploitation and misuse of funds 

Laws Governing Trusts in California

California has specific laws and regulations related to trusts. Here are some key points to consider: 

Community Property Laws

In California, community property laws affect how assets are distributed between spouses. Generally, assets acquired during marriage are considered community property and are subject to equal division upon divorce or death. When creating a trust, you must consider how community property laws impact your estate plan. 

Probate Code Section 15400

Under California Probate Code Section 15400, a revocable trust can be revoked or amended by the grantor unless the trust expressly states otherwise. This provision ensures that you retain control over your assets and can make changes as your circumstances evolve. 

Medi-Cal Planning

For those concerned about long-term care costs, California's Medi-Cal program can provide essential assistance. An irrevocable trust can help protect your assets and ensure you qualify for Medi-Cal benefits without exhausting your savings. Proper planning can make a significant difference in preserving your estate for your loved ones. 

Setting up the right kind of trust is necessary for a solid estate plan. Whether you want it to protect your assets, get tax breaks, or take care of loved ones, there's a trust for you. With Davidson Estate Law, you partner with experienced estate planning attorneys who can help you establish a foolproof trust.  

Contact an Attorney Today

At Davidson Estate Law, our team provides personalized estate planning services customized to your needs. We have a deep understanding of trust laws in California. We will work closely with you to create a comprehensive estate plan that protects your assets, minimizes tax liabilities, and ensures your wishes are carried out. Give us a call if you’re based in Oakland, California, Walnut Creek, Berkeley, San Francisco, El Cerrito, Alameda, or anywhere in the Bay Area.