What Kinds of Trusts Can Exist in California?
WHAT IS A TRUST?
In the law, a “trust” is a legal relationship that relates to property. People think of a trust as a “thing,” but in reality, a trust is a set of relationships, defined with respect to property.
The property that is held in a trust is called the trust estate or trust corpus.
A trustee is a person who holds legal title to the trust estate, and who has the power and authority to manage the trust estate in accordance with the trust documents.
The trust documents (usually a Trust Agreement) are created by the person who establishes the trust; this person usually is called the trustor or settlor. A trust can have one settlor, or more than one settlor (in the case of a marital trust or family trust, the settlors are often [though not always] a married couple).
The beneficiaries are the people or entities who have interests in the trust estate. Those interests can be current, future, definite, or prospective/potential.
In California, the operation and management of trusts, and the duties of Trustees, generally are governed by the Probate Code. However, it’s important to note that the word “trust” also is used in connection with entities or arrangements that are not considered “trusts” under the California Probate Code. These include investment trusts, certain types of trust funds, voting trusts, business trusts, and constructive trusts (among others).
WHAT TYPES OF EXPRESS TRUSTS ARE SUBJECT TO THE CALIFORNIA PROBATE CODE?
California recognizes express trusts (sometimes also called “voluntary trusts”), which are created intentionally by the settlor(s), and implied trusts (aka “involuntary trusts”), which are created by operation of law. To simplify the explanation, today we’re talking only about express trusts.
Testamentary trusts are express trusts that become effective only after the settlor’s death. These trusts can be created in a will, or in a separate trust agreement that states it does not become effective until the settlor dies.
Inter vivos trusts become effective during the lifetime of the settlor(s); in most (though not all) cases, the settlor is also the trustee of an inter vivos trust until the settlor dies or becomes incapacitated. (“Inter vivos” is Latin, and means “during life.”)
The California Probate Code governs the creation and administration (management) of both testamentary and inter vivos trusts, and the rules for each type of trust are quite similar (identical, in many cases).
Express trusts also can be either:
Private trusts, which are established for the benefit of specific persons (or entities), who can be identified and are named (or identified by certain stated characteristics, such as “my living children”) in the trust agreement.
Charitable trusts, which are established for charitable purposes. Charitable trusts can, but do not have to, name a specific, ascertainable beneficiary.
Totten trusts – which technically fall into a separate category altogether, and are outside the scope of this article. If you have questions about Totten Trusts, please contact a trust specialist for an individual consultation.
Trusts can be revocable, meaning that the Settlor can cancel, revoke, or terminate the trust, or remove portions of the trust estate, at will, or irrevocable, which means that once the trust is created, the Settlor loses the ability to cancel, revoke, or terminate it (unless a legal exception happens to apply).
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