Trusts & Ownership of Property
For both tax-planning and other reasons, many legal and financial advisors recommend that their clients create a trust to manage their assets. A trust creates a legal relationship between the individual(s) who placed assets into the trust (the trustor(s)), the persons managing the trust (the trustees) and those for whom the trust assets are destined (the beneficiaries). The trust is created and governed by a written document that describes the powers of the trustees and dictates how the trustees are to transfer the assets to the beneficiaries, who can be the next generation, a charity or an unrelated party.
One advantage of a trust is that the trustees can manage the assets of the trust and pass those assets on to future generations without the supervision of the courts, as would occur in the probating of a will. A will is still required to make sure that all of the assets of the decedent are disposed of properly, but usually does not need to be probated. By investing in the creation of a trust, the trustors reduce the future costs to the beneficiaries when a death occurs. Also, a trust is a private document and usually does not have to be recorded or submitted to the courts.
A revocable trust, which comes from the Latin "to call back," means that the trustors can change the provisions of or dissolve the trust at any time prior to their death or incapacity. When death or incapacity occurs, the trust often becomes irrevocable, from the Latin meaning "cannot be called back," and the provisions of the trust as of that date become binding on the trustees and the beneficiaries. Whether a trust is revocable or irrevocable has implications for the Assessor.
A revocable trust is not considered a change of ownership, since it can be changed or dissolved at any time and the original trustors are considered to have beneficial use of the property. However, when a trust is, or becomes, irrevocable, a change of ownership may have occurred, which can trigger reassessment under Proposition 13. Of course, various exclusions exist such as interspousal and parent-to-child (and in some cases, grandparent to grandchild) transfers apply to trusts (unlike corporations and partnerships) and may exclude the real property held by the trust from reassessment.
As with most legal procedures, trusts can be complicated. Anyone considering placing assets in a trust should consult with a legal or financial advisor. Basic information about trusts is also available in publications available at public libraries.