California Living Trust: Complete Setup Guide and Key Benefits

7 steps to create a California living trust

Creating a trust in California involves several key steps. Here’s what you need to know about one.

1. Pick between a single or joint living trust

An individual trust gives one person complete control over their assets. A joint trust is shared between spouses or partners. Couples often choose a joint trust to combine their estate plan if they plan to distribute to the same beneficiaries.

2. Decide what assets to include in the trust

Most California residents include the following assets in their living trust.

• Real estate: Primary residence, vacation homes, rental properties
• Financial accounts: Bank accounts, investment portfolios, brokerage accounts
• Business interests: LLC ownership, partnership shares
• Personal property: Vehicles, jewelry, artwork, collectibles

Keep your asset list updated as you acquire or sell property to maintain an effective estate plan.

3. Choose a trustee and successor trustee

Selecting a trustee and successor trustee is like gathering a dependable crew for your ship. The trustee must be trustworthy and capable of managing the trust’s assets. 

With a revocable living trust, you’ll typically name yourself the trustee, then identify a successor trustee with the necessary qualities to ensure the smooth running of the trust in the event of your death or incapacity.

4. Designate beneficiaries

Your trust’s beneficiaries can include family members, friends, charities, or other organizations designated by the trust creator. Don’t forget about contingency planning to ensure that the ship will reach a safe harbor, no matter what storms it may encounter.

5. Create the living trust document

To create your revocable living trust legal document, you can use an online service like LegalZoom or work with an attorney. Our service even gives you access to attorney support and guidance as you craft your own estate plan. For those who have complex assets or want to create an irrevocable trust, it’s best to work with an attorney who can steer the process.

6. Have the trust document notarized

It is common practice in California to sign your trust and have it notarized in front of a notary public. 

7. Transfer property to the trust

The final step is often the most complicated: To transfer personal property into your trust, you need to update various documents. Common examples include homes, bank accounts, investments, and other valuable assets. To retitle a home into a trust, update the deed or title to list the trust as the property owner. For bank accounts and investments, contact each financial institution and complete their required trust transfer forms.

Advantages of a revocable living trust in California

From protecting privacy to streamlining asset distribution, a revocable living trust can provide peace of mind for Californians planning for the future.

Avoiding probate

One of the critical advantages of having a living trust in California is that it may help you avoid the legal process of distributing your assets. California probate is one of the nation's most expensive processes, charging statutory fees based on your estate value:

• 4% on the first $100,000
• 3% on the next $100,000
• 2% on the next $800,000
• Additional declining percentages on amounts above $1 million

For estates under $184,500, California offers a streamlined small estate affidavit process. However, a living trust avoids probate entirely regardless of estate size, making it the most comprehensive probate-avoidance strategy available.

Avoiding guardianship and conservatorship

A revocable living trust lets you assign a successor trustee or co-trustee to manage assets if you become incapacitated. This helps your family avoid guardianship and conservatorship, both of which involve the courts. By appointing someone in advance, you can protect your estate from court intervention and keep control in the hands of someone you trust.

Provisions for minors

A living trust can also outline provisions for minors to ensure their inheritance is wisely managed. The trustee who manages the trust after your death can control your assets until they reach an appropriate age. That’s why a living trust is a great way to safeguard assets for your children. 

Drawbacks of a revocable living trust in California

While a living trust offers benefits, it also comes with certain drawbacks that California residents should consider: higher upfront costs, ongoing maintenance requirements, and limited asset protection from creditors.

Cost

Establishing a living trust can be more costly than creating a will. On average, setting up a living trust can cost anywhere from $2,000 to $4,000, depending on the complexity of your estate. In contrast, writing a will usually runs from $200 to $400. That said, some options exist to reduce these costs, such as working with an online estate service like LegalZoom to craft a DIY trust.

Time and effort

Managing a living trust requires ongoing attention to ensure it stays properly funded and current. If you have a complex estate and don't feel you have time to manage your trust and keep it adequately funded, you may consider hiring a trustee who can manage it and give it the attention it needs.

Generally, you'll need to:

• Transfer new assets into the trust as you acquire them
• Update beneficiary designations after major life events
• Retitle property and accounts in the trust's name
• Review and update trust provisions periodically

Lack of asset protection

A revocable living trust does not protect your assets from creditors during your lifetime. Since you maintain control over trust assets, creditors can still reach them to satisfy debts.

For asset protection, you'd need an irrevocable trust, which offers creditor protection and estate tax benefits but requires permanently giving up control of your assets.

Living trusts and estate taxes in California

California does not have an estate tax or an inheritance tax, which means that the state will not tax your estate after your death,  but there are other state tax considerations to consider, such as property taxes and income taxes. Any retirement accounts, pensions, or 401(k) are all still subject to state income tax. 

Your estate also still has to deal with the federal estate tax. As of 2024, federal estate taxes go into effect if your estate is valued at roughly $13.6 million or higher. For estates that are larger than that, the top tax rate is 40%.

A revocable living trust won’t protect your assets from the estate tax, but there are other strategies to minimize estate taxes:

• Qualified Terminable Interest Property (QTIP) trusts allow a surviving spouse to receive income from the trust and defer taxes until the second spouse’s death.
• Irrevocable trusts permanently transfer assets out of your estate, reducing its taxable value.
• Making charitable gifts provides an immediate tax deduction, and assets donated to charity are removed from the estate.
• Placing a life insurance policy in an irrevocable life insurance trust (ILIT) keeps the benefits out of the taxable estate.

Living trust vs. will in California

Both living trusts and wills distribute assets after death, but they differ significantly in cost, privacy, and probate requirements.

A last will is quicker and easier to set up, but it needs to go through the court probate process after your death. A living trust means more paperwork and ongoing maintenance, but allows your loved ones to avoid the potential hassle of probate court. Here’s a quick comparison.

• Probate: Living trusts help assets bypass probate court, while wills must go through probate, which can delay distribution.
• Asset transfer: For living trusts, assets must be transferred to the trust’s name. With a will, you do not have to retitle assets. However, a will can cover any extra property that you forgot to transfer into the trust.
• Incapacity planning: A living trust includes provisions if you’re incapacitated, whereas a will does not cover incapacitation.
• Maintenance: Living trusts require ongoing management and updates, but wills do not need adjustments after setup.
• Privacy: Trusts remain private after your death, whereas wills become public record in probate court.

The role of an estate planning attorney

While you don't need to have an estate planning attorney to set up your living trust, the advice of an estate attorney or a legal professional can be invaluable, especially for more complicated estates. They can offer legal counsel and ensure the proper execution of estate planning documents and their effective maintenance over time, including navigating the probate court process.

An estate planning attorney will help ensure that your living trust is adequately funded, reflects your intention, and adheres to all legal requirements. 

LegalZoom offers a variety of estate planning services with the option to access guidance and advice from an experienced attorney. Start your estate plan today and provide for your loved ones when you’re gone.