A PRIMARY REASON for establishing a Revocable Inter Vivos Trust is to AVOID A PROBATE of your estate upon death. To the extent that your property is held in your Revocable Inter Vivos Trust, then that property will not be subject to probate upon your death.
But what does it mean to “hold your property in trust”? With only a few exceptions, the legal titles to all of a Settlor’s assets must be changed from the Settlor’s name as an individual to the Trustee’s name as the Trustee of the Revocable Inter Vivos Trust before a probate of those assets can be avoided.
For example, if William Jones wishes to change the ownership of real property from his name as an unmarried man to himself as Trustee of his Revocable Inter Vivos Trust, which he created on February 18, 2007, he must execute a grant deed with the following or substantially similar language:
GRANTOR: William Jones, an unmarried man
HEREBY GRANTS TO:
GRANTOR: William Jones, Trustee of The William Jones 2007 Trust, Created UDT Dated 2/18/2007
The legal title or registration to a person’s other assets, such as those assets held in joint tenancy or which pass by a designation of a beneficiary (like the proceeds of a life insurance policy or a 401(k) plan), need not be transferred to the Trustee to avoid a probate of those assets. However, there may be very good reasons to sever the joint tenancy title to these assets and transfer one’s interest in that property to the Trustee.
In addition, your trust could be a beneficiary of your life insurance policy or retirement plan, although with regard to retirement plans, you must be very careful when designating beneficiaries because of unintended income tax consequences, especially when you designate your trust as a beneficiary of a retirement plan, including an IRA or 401(k) plan.
WARNING! It is important to remember that, even if most, if not all, of your property is held in your trust, you should still always execute a Last Will & Testament. The reason is that, if upon your death, there are assets that are not held in your trust (i.e., due to oversight, neglect, or an inheritance late in your life that never is transferred into your trust), the provisions of a Last Will & Testament can direct the Executor to convey those assets to the Trustee of your trust so that they will be distributed in accordance with your wishes. If you have no Last Will & Testament in place at the time of your death—even if you have a trust in existence—the law treats you as having died intestate (dying without a valid will & testament in effect). As a result, the assets that are not held in your trust at your death will be transferred to your heirs at law, rather than to the beneficiaries of your trust. In addition, a probate of those assets may be necessary. The identities of your heirs at law are determined with reference to California law and not with reference to your trust. Therefore, if your heirs at law are NOT the beneficiaries of your trust, those heirs will receive the property that is not held in your trust at your death (if you do not have a Last Will & Testament in place).
Another PRIMARY REASON for establishing a Revocable Inter Vivos Trust is to avoid a conservatorship of your estate if you become incapacitated. (See "What is a conservatorship?" in the FAQ list.) The terms governing your Revocable Inter Vivos Trust provide that, if you become incapacitated, the person whom you have designated to act as Successor Trustee will become Trustee of the trust. This is a powerful benefit to you and your estate because conservatorship-related expenses and fees are quite substantial.