What is a living trust?
A living trust (sometimes called an “inter vivos” or “revocable” trust) is a written legal document through which your assets are placed into a trust for your benefit during your lifetime and then transferred to designated beneficiaries at your death by your chosen representative, called a “successor trustee.”

How Do Living Trusts Avoid Probate?
For many Americans, a significant goal of estate planning is to avoid probate. A revocable living trust, unlike a will, offers a fast, private, probate-free way to transfer one’s property after death. Although a living trust is not a complete substitute for a will (it doesn’t allow you to name a guardian for a child, for example), it is definitely a more efficient way to transfer property at death, especially large-ticket items such as a house.

What can a living trust do for me?
It can help ensure that your assets will be managed according to your wishes, even if you become unable to manage them yourself.

In setting up your living trust, you may serve as its trustee initially or you may choose someone else to do so. You can name a trustee to take over the trust’s management for your benefit if you ever become unable or unwilling to manage it yourself. And at your death, the trustee (similar to the executor of a will) would then gather your assets, pay any debts, claims and taxes, and distribute your assets according to your instructions. Unlike a will, however, this can all be done without court supervision or approval.

How are my assets put into the living trust?
Once your trust has been signed, an important task remains. To avoid court-supervised conservatorship proceedings if you should become incapacitated, or the probate process at your death, your assets must be transferred to the trustee of your living trust. This is known as funding the trust.
Deeds to your real estate must be prepared and recorded. Bank accounts and stock and bond accounts or certificates must be transferred as well. These tasks are not necessarily expensive, but they are important and do require some paperwork.

A living trust can hold both separate and community property. This makes it convenient for spouses and registered domestic partners to plan for the management and ultimate distribution of their assets in one document. (Note: Although registered domestic partners have many of the same rights as spouses, be aware that federal tax law does not provide the same tax benefits for domestic partners as it does for spouses.)

If you own real estate in another state, you might (depending on that state’s law) transfer that asset to your trust as well to avoid probate in that other state. A lawyer from that state can help you prepare the deed and complete the transfer. If the real estate is located in California, a California lawyer should prepare the deed and advise you on transferring such property.
A lawyer can help you address the transfer of other assets as well. In addition, you should consider changing the beneficiary designations on life insurance to the trust. As for the beneficiary designations on a qualified plan (such as a 401(k) or an IRA), you should seek a qualified professional’s advice as distributions after death are subject to different income tax treatment depending on the designation.

Will a living trust help reduce the estate taxes?
No. While a living trust may contain provisions that can postpone, reduce or even eliminate estate taxes, similar provisions could be placed in a will to accomplish the same tax planning.

What are the disadvantages of a living trust?
Because living trusts are not under direct court supervision, a trustee who does not act in your best interests may, in some cases, be able to take advantage of you. (In a probate, direct court supervision of an executor reduces this risk.)

In addition, the cost of preparing a living trust could, in some cases, be higher than the cost of preparing a will. However, it depends on the particular estate plan. The difference in cost may not be significant if the estate plan is complex.

Also, keep in mind that a living trust can create additional paperwork in some cases. For example, lenders may not be willing to lend to a trust and may require that real property be taken out of the trust (by a deed) before they will agree to a loan on that real property.