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Frequently Asked Questions about California Trusts (III)

5. About Taxes
(1). What about Taxes?
Living trusts are essentially tax neutral while the trustor is living (i.e., for income taxes) and provide no special estate tax savings that cannot otherwise be achieved through the use of a will. During the trustor's lifetime, all income is taxed to the trustor; no separate income tax return is required as long as the trustor is also acting as a trustee. A living trust provides no income tax advantages.

(2). Do you need a federal tax number for the trust?
No. A federal tax number is not needed for a trust for a married couple until one of the trustors dies, or both trustors resign as trustees or become incompetent. For a trust for a single person, a federal tax number will be required after the trustor dies. Until death or resignation, the trustors’ Social Security numbers will be used as the trust tax number.

(3). Does your tax status change when you create a revocable living trust?
No. As long as you are the trustee of your trust, any income generated by assets owned in your living trust are taxed as if they were still held in your name and reported on your personal 1040 form. No special taxpayer identification number and no special tax forms are required.

(4). Will your property taxes increase if you transfer your real estate into a trust?
No. State law stipulates a special exemption for property placed into a trust for the benefit of the Grantor.

6. Miscellaneous
(1). Are living trusts valid in all 50 states?
Yes. A living trust is valid in all states and in most foreign countries.

(2). Do you really need to read all of the pages of the trust before you sign it?

Yes, although the trust may be lengthy, you are expected to be familiar with its basic provisions and you should ask your attorney for an explanation of any parts of the trust that you do not understand. If a trustor does not understand the provisions of the trust, it might be declared an invalid agreement if it is challenged in court.

(3). Do trust documents become public information when someone dies?
California law requires that notice be given to trust beneficiaries and the decedent’s heirs if all or part of the trust becomes irrevocable after the death. The beneficiaries and heirs are then given an opportunity to request a copy of the trust. The trust might become public information if there is a court challenge to the trust, in which case a copy of the trust will be filed with the court.

(4). Does the Trust Provide Protection from Creditors?
No. Assets owned by the living trust are treated as the trustor’s own assets if there are creditor problems. A trust does not insulate your assets from the legitimate claims of creditors.

(5). When should you update a trust?
You can change or amend your trust as often as you wish. You should change your trust by giving the trustee a signed, written amendment to the trust in the following situations:
● there is a change in your marital status;
● the birth or adoption of a child;
● you move to another state;
● there is a significant change in your financial status;
● one of your beneficiaries dies;
● there is the death or incapacity of a named trustee.
We suggest, after two or three changes, you make an "amendment in entirety" incorporating all of your changes into one document.

(6). How does the trust end?
A living trust is dissolved when all of the assets have been distributed or it may be revoked by the Grantor(s) at anytime.

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