What is a Trust, and How Are Trusts Created in California?
WHAT IS A TRUST?
In California (as in other U.S. states), the law establishes various ways in which the property of a deceased person (a “decedent”) passes to his or her heirs. When the decedent leaves only a will, or dies without any valid estate planning documents, the decedent’s property (called the “estate”) usually goes through probate–a court-supervised procedure for identification, valuation, and distribution of a decedent’s estate.
People who want to avoid probate proceedings often establish a trust–although trusts can have other benefits too.
Simply stated, a trust is a vehicle through which title to property is held by a “trustee,” who manages the property for the benefit of one or more other persons (each, a “beneficiary”). The person or people who create a trust are called “trustors,” “grantors,” or “settlors,” and while they remain alive, the settlors of a trust often act as the trustees, and also can be beneficiaries of the trust.
WHO OWNS TRUST PROPERTY?
In most cases, the Trustee holds legal title to the property in a trust, but this doesn’t mean the Trustee can do “whatever (s)he wants” with the trust estate, or that the estate “belongs” to the Trustee. In fact, Trustees are agents, and they owe a fiduciary duty to the Settlors and the Beneficiaries (whether or not the Settlors and the Beneficiaries are the same people). Among other duties, Trustees have a legal obligation to handle and manage the trust estate with reasonable care and responsibility. They cannot misappropriate the estate–which means that Trustees cannot take the trust property or use it for their own private benefit, even temporarily, unless the terms of the Trust authorize them to do so. Even then, Trustees are bound by the terms of the trust.
The Trustee manages the trust property on behalf of the Beneficiaries, and makes distributions of the property to the Beneficiaries when the terms of the trust require or permit the Trustee to do so. The Beneficiaries generally cannot manage or make decisions about the trust property themselves (except where the trust permits it); however, they own a beneficial interest in the trust estate–which is a legal interest that (generally) can be protected, pursued, enforced, and defended in court. When a Trustee mismanages or steals trust property, Beneficiaries often need to hire a lawyer and go to court to pursue their rights.
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