What the heck is a living trust?

VIDEO TRANSCRIPT:

Hi everybody, this is Robert Mansour. I'm a lawyer in the Los Angeles area, and one of my areas of practice is wills and trusts. One of the things that people often struggle with is they say, "Well, what is this living trust? It's so strange. What is a living trust?" Here's what it is:

It's a piece of paper. All right? Actually, it's a lot of pieces of paper, but essentially it's a contract at the end of the day. It's a contract where you, or perhaps you and somebody else like a spouse, you outline what happens with all of your "stuff."  The reason I use the term "stuff" is a lot of people freak out about their assets and they say, "Well, I can't do estate planning because I don't have an 'estate.' That's for really rich people."

I say, "Look, if you have any stuff, bank accounts, a house maybe, some investments, that's your stuff, and you don't have to be a millionaire in order to do estate planning." So, a living trust is a contract where you outline what happens with your stuff, and you can decide who gets what under what conditions, and anything in your trust is governed by your rules.

So, that means that you have to actually put things in your living trust when you create it. So, you have this document - it says who gets what, who's in charge of your stuff, who gets it when you pass away...who's in charge if you're incapacitated - All of these rules and regulations, but the living trust governs the assets that are in the trust.  So, let's talk about what that means.

You have to put things in your trust by changing title to your assets. So, you can't just create a living trust and everything "magically" is governed by it. You actually have to physically go to the bank and change title to your assets. So, if you have bank accounts, investment accounts, etc., any regular accounts, stocks, things of that nature, you have to change title to your asset right there in the middle.

So, a sample would be "Sam Jones and Betty Jones, trustees of the Jones family trust dated December 14, 2008." When you do that, that asset is now in your trust, so it's in your trust. Now, who are the people who are the characters of the trust? The cast of characters, I call it.

Number one cast of characters is the "Settlor." At the very top, you can see that. The Settlor is you. If there's more than one person like a husband and wife, you are the Settlors. Now, long ago they used to call this person the "Trustor" or the "Grantor." Those are some older terms that you might see (still very common terms by the way). So, what is this cast of characters or what does this particular character do? This particular character creates and controls the trust. So, that's you.

Next in our line of characters is the "Trustee." The trustee manages the trust, and usually you are the first trustee unless there's a compelling reason for you not to be your trustee.

The next persons or the people in this cast of characters are the "successor trustees." They're kind of like your "vice presidents," the people who take over in case you can't handle things anymore. These successors are people that you pick in advance. You can say, "I want my son Jimmy to be first trustee. I want my daughter Vivian to be second trustee, etc." This person steps in for the trustee and start managing everything in the name of the trust. Remember I told you, everything in the name of the trust is governed by it, so the successor trustees are in charge of everything that is in the trust.

The final people involved here are the beneficiaries at the very bottom of the schematic. These are the people who benefit from the assets, and that's usually you. You're the initial beneficiary of your own trust, and then after you pass away, other people become the beneficiaries of your trust. For example, your children, or any other loved ones that you've decided to pass on your assets to. So, there you have it. That's essentially the people in charge of the living trust.

Now, what we are doing is we are creating another way for assets to pass. So, at the very top you can see here I've indicated, you have essentially created a new way for your "stuff" to pass to others.  So, in the first, on the left hand side of the screen, you can see that the initial way that things generally pass is through the probate system, which means that the court has to supervise the transfer of your assets from you to other people. Now that's not all assets, but many assets have to go through that system, and there's very expensive fees involved in that, taxes, etc., and finally everything goes to your heirs. However, it's a public process and it's very expensive.

On the right hand side of the screen, you can see we've taken everything that is our stuff - our investments, our checking accounts, our heirlooms, our house, our bonds, our stocks, and these are passing through a new funnel called the living trust, the contract that we created, and everything passes through here and goes to the beneficiaries according to the rules that you've set out.

Now the on the left hand side of the screen, that process is very cumbersome, very expensive, whereas on the right hand side of the screen, you've created a brand new way for everything to pass. The courts, and the government, and everybody's okay with this, so long as you set it up while you still have capacity to do so.

So, there's a brief introduction to living trusts - that you're creating a new funnel for which your assets can pass, through which your assets can pass. If you'd like to discuss living trust, wills, powers of attorney, or anything else that has to do with estate planning, please don't hesitate to contact my office.

My name is Robert Mansour. You can find my website at MansourLaw.com. Or you can call me at 661-414-7100. Thanks for taking some time for this brief lesson today, and we'll see you next time.