During their lifetimes, the creators of a revocable living trust (also known as Trustors, Grantors, or Settlors) are typically the ones administering the trust. As the party in charge of administering the trust, they are also known as the Trustee. While the Trustor is competent and alive, administration is typically very informal. More often than not, the Trustor may not see or experience any difference in life prior to, or after, the creation of the trust.

Obstacles

It's important to remember the steps needed to ensure that the trust will help the Trustor achieve the estate planning objectives--usually probate avoidance and that beneficiaries are properly provided for.

Some of the biggest stumbling blocks faced by Trustors is the failure to properly re-title assets in the name of the trust and updating beneficiary designations on assets such as retirement accounts and life insurance policies so that they can be distributed without the need for probate. Because of the technicalities involved, an estate planning lawyer often provides guidance to the Trustor on how assets should be dealt with to avoid probate.

Other Considerations

All income of a revocable living trust is reported on Trustor's personal income tax returns. In addition, while a Trustor of a revocable living trust is also the Trustee, no other beneficiary of the trust has the power to compel the Trustee. California Probate Code Section 15800 provides as follows:

Except to the extent that the trust instrument otherwise provides or where the joint action of the settlor and all beneficiaries is required, during the time that a trust is revocable and the person holding the power to revoke the trust is competent:

(a) The person holding the power to revoke, and not the beneficiary, has the rights afforded beneficiaries under this division.

(b) The duties of the trustee are owed to the person holding the power to revoke.

One of the beauties of utilizing revocable living trusts in California is that for all practical purposes, the creator experiences no change in day-to-day life. The primary hurdle is to ensure that assets are properly titled in the name of the trust; however, this is typically a one-time event that is taken care of at the time of the creation of the trust. Once the trust is in place, a Trustor should take care to ensure that subsequently acquired assets are placed into the trust, as appropriate.

In California, a trust is revocable unless the document provides otherwise. California Probate Code Section 15400 states:

Unless a trust is expressly made irrevocable by the trust instrument, the trust is revocable by the settlor. This section applies only where the settlor is domiciled in this state when the trust is created, where the trust instrument is executed in this state, or where the trust instrument provides that the law of this state governs the trust.

The ability to revoke a trust also includes a Trustor's right to modify the terms of the trust as well. This is specifically provided for under California Probate Code Section 15402, which provides:

Unless the trust instrument provides otherwise, if a trust is revocable by the settlor, the settlor may modify the trust by the procedure for revocation.

*Settlor is synonymous with the term "Trustor" or "Grantor". It simply means the person who created the trust.

Because there can occasionally be confusion after the Trustor's death as to whether additional writings are valid amendments to the revocable trust, the terms of the trust should include specific provisions regarding how an amendment should be made.

Describing the specific procedures can also help to show the Trustor's intent to make a valid and enforceable amendment. Some common requirements include:

• The need for the Trustor to create a writing which specifies the modifications he or she is making to the trust.
• That the amendment be delivered to the Trustee.

The latter requirement is often informal since a Trustor is typically also the Trustee while he or she is competent and alive. 

Amendments v. Restatements

Amendments to revocable living trusts are sometimes created in the form of a "restatement". An amendment to a trust normally refers to a document which purports to modify a few provisions of an existing document. As a result, to understand the complete terms of the trust, one would need to have the original terms of the trust as well as the amendments to it to understand how the trust works.

A restatement, on the other hand, is an amendment to a trust which re-writes the entire document. With a restatement, there's no need to reference look at prior documents since the restatement itself contains all of the terms of the trust. A restatement is often preferred when one wants to make numerous changes to an existing trust document.

If you have a revocable living trust, you may find yourself needing to have an amendment prepared if you or your family experience major life changes. Luckily with modern word processing tools, this process is painless. Discussing your ideas with an estate planning lawyer will often allow you to accomplish your goals in the most efficient manner possible.

A spouse can transfer his or her separate property and 1/2 of community property and quasi-community property. Problems arise when a spouse tries to transfer more than 1/2 of the community and quasi-community property by a Will or otherwise.

Forced / Widow's Election

When a deceased spouse attempts to transfer by Will more than his or her 1/2 interest in community property, the transfer is voidable by the surviving spouse. Although rarely used nowadays, in situations where one spouse is particularly wealthy, he or she may utilize a strategy to specify in the Will that all of the community property is to be held in an irrevocable trust for the benefit of the surviving spouse during her lifetime. The Will may further provide that the surviving spouse can either agree to this arrangement, or make an election to enforce the surviving spouse's right in 1/2 of the community property and give up the right to the lifetime benefit of the deceased 1/2 interest in community property.  This is known as a "forced" or "widow's" election.

Aggregate vs Item Theory of Community Property

Sometimes the problem of transferring a specific item of community property may be handled by having spouses agree to using the  aggregate theory of community property. The aggregate theory of community property essentially is the idea that each spouse owns 1/2 of the community property by value rather than by item. Therefore, under the aggregate theory, a spouse may bequeath 1/2 of his or her assets without making mention of a specific asset. Under the item theory, a spouse only has the power to dispose of his or her 1/2 interest in any particular community property asset. California's default rule is to follow the item theory unless the spouses agree in writing otherwise.

Although the subject of a deceased spouse transferring a surviving spouse's interest in community property may be fairly infrequent, this concept highlights an important point. A person may not dispose of assets that he or she does not actually own.

Some assets get transferred at the time of your death simply by operation of law. For example, assets that you own with others as joint tenants automatically become theirs upon your death. Other assets are transferred by virtue of beneficiary designations that you've used on those assets. A prime example would be the beneficiary you've named to receive your retirement account upon your death.

The threat of probate is occasionally overstated. However, relying solely on using the joint tenant form of title or beneficiary designations may fail to accomplish the objective of avoiding probate. For example, without further action, when the last surviving joint tenant on a property dies, it will need to be probated.

Beneficiary designations on accounts generally have the benefit of permitting one to name one or more alternate beneficiaries in case the primary beneficiary dies. Therefore, there's generally some ability to plan for contingencies. That being said, the naming of alternate beneficiaries may not be adequate to cover all of the potentialities of how your asset may need to be transferred. For example, if all of the beneficiaries you've named on a retirement account pass away, that asset may need to be probated at the time of your death to allow your heirs at law to claim it (which, by the way, may not be what you want).

Usually clients are advised to name their revocable living trust as either the primary or secondary beneficiary of assets that utilize beneficiary designations. This may depend on the client's marital status and other circumstances. Naming a trust as the beneficiary of retirement accounts involves consideration of the minimum distribution rules, so it's important to consult with a qualified professional when making changes.