Legal Question in Wills and Trusts in California
Mr. Timothy McCormick, by the way thank you for all of your outstanding and expertise opinions abd answers, I am very grateful.
You said, "anyone of mental competence having reached the age of majority, may serve as a trustee with full powers as granted by the trust instrument". Are you saying that while the settlor is still alive he can have someone else run the show for him? Doesn't the trust instrument go into effect after the settlor dies? Would it be the same as electing a durable power of attorney and giving that person full run of the show? Thank you
1 Answer from Attorneys
I am saying exactly that. The trust goes into effect the moment that title to any property or assets of any kind are transferred into the trust. It is actually extremely unusual for a trust to "come to life" so to speak, only after the settlor dies. In most cases that would defeat a great many of the benefits of most trusts. The most common form of trust is a revocable inter vivos trust, and most commonly the settlor elects to be trustee of the trust, naming a successor trustee or trustees to take over upon the settlor's death. This structure has tremendous estate planning benefits for anyone with real property and/or over $100,000 in assets, because the property put in the trust is no longer part of the settlor's estate when they die. The successor trustee then either manages or distributes the assets in accordance with the trust terms, for the benefit of the heirs. The property and assets never go through probate, because there is nothing in the deceased settlor's estate. Even though it is far and away most common that the settlor becomes the initial trustee for that kind of trust, there is no reason whatsoever that the settlor cannot appoint any other person they want to be the initial trustee. There are also a huge number of other, less common trust structures, and some of them actually require the settlor to surrender control in order to satisfy the tax or other benefits that the trust is set up to achieve. One example is the blind trust politicians commonly set up to manage their investments while in office, to avoid conflict of interest. They certainly cannot be the trustee of that trust. Lastly, just to clear up your terminology, a durable power of attorney does exactly that - it gives that person run of the show immediately. A normal power of attorney is exactly co-extensive with the power of the grantor of the power. The main consequence of that is that when the grantor dies or is incapacitated, the attorney in fact's power ends. A durable power goes into effect immediately and then continues on in spite of the grantor's death or incapacity. What you are thinking of is a springing power of attorney. That is the kind that only springs to life once the grantor is incapacitated mentally or physically. Because trusts need a trustee at all times once anything is put into the trust, a "springing" trustee would make little sense. Long ago when there were no benefits to a trust going into effect in your lifetime, sometimes a will would be prepared that bequeathed everything to a trust to manage and pay income to several generations of heirs. Under modern estate and taxation law, however, there is no reason to wait and many disadvantages to waiting until death for a trust to come into existence. So there must be a trustee, and it can be the settlor or anyone they choose.