The California Trust Code — Division 9 of the Probate Code — governs how trusts are created, funded, managed, and ended in this state. It sets the requirements for a valid trust, imposes fiduciary duties on trustees that courts actively enforce, gives beneficiaries specific rights to information and accountings on tight deadlines, and lays out the routes for modifying or terminating a trust when circumstances change. The rules are detailed, but the structure is coherent: trustees owe real loyalty, beneficiaries have real remedies, and the court is available when the trust stops working.
What Makes a Trust Valid
A California trust exists only when a settlor with the intent to create a trust actually transfers property into it. The Probate Code is explicit on both halves: a proper expression of intent and the existence of trust property.1Justia. California Probate Code Chapter 1 – Creation and Validity of Trusts A signed trust document with nothing inside it does not do the job.
The trust instrument identifies the settlor, names a trustee, lists the beneficiaries, defines the trustee’s powers, and describes how distributions are made. California recognizes several trust types, and the choice has consequences:
- Revocable trusts. The settlor keeps full control and can amend or dissolve the trust at any time. This is the standard estate planning vehicle because it avoids probate while leaving you free to change course.
- Irrevocable trusts. Once created, the settlor generally cannot unilaterally reclaim the assets. In exchange, these trusts can offer creditor protection and estate tax benefits that a revocable trust cannot.
- Special needs trusts. Structured so a disabled beneficiary can receive supplemental support without losing eligibility for programs like Medi-Cal or Supplemental Security Income.
Funding the Trust
Funding means retitling assets so the trust, rather than you individually, owns them. Bank accounts, brokerage accounts, and real estate all need to move. An unfunded trust is an empty container, and anything left outside it is likely headed to probate — the exact outcome the trust was meant to avoid.
Real property gets transferred by a grant deed or quitclaim deed, not a “trust deed,” which is an unrelated instrument used as security for a loan.2BOE.ca.gov. Property Ownership and Deed Recording California’s recording statutes permit rather than require recording, so an unrecorded deed is valid between the parties. In practice, record it anyway, because a later recorded document affecting the property could take priority.
Transferring real property into a revocable trust does not trigger a property tax reassessment, as long as the trust remains revocable by the settlor. A reassessment can occur later if the trust becomes irrevocable and the settlor is no longer the sole present beneficiary.3BOE.ca.gov. Property Tax Rule 462.160 – Change in Ownership – Trusts
Trustee Duties Under the Probate Code
Accepting the trustee role means taking on fiduciary duties that courts enforce. A trustee who violates them can be removed, surcharged for losses, or both.
Duty of Loyalty
The trustee must administer the trust solely in the interest of the beneficiaries.4California Legislative Information. California Probate Code PROB Section 16002 No self-dealing, no using trust property for personal benefit, no transactions where your interests conflict with the beneficiaries’. The Probate Code specifically prohibits a trustee from profiting through trust property or engaging in any transaction where the trustee holds an adverse interest.5California Legislative Information. California Probate Code PROB Section 16004 This is where most trustee litigation begins.
Duty of Prudent Investment
California has adopted the Uniform Prudent Investor Act. Trustees must manage trust assets the way a careful investor would, considering the trust’s purposes, its distribution requirements, and the beneficiaries’ needs. The law expects diversification, a reasonable balance between risk and return, and decisions made in light of the overall portfolio rather than any single asset in isolation.6Justia. California Probate Code 16045-16054 – Uniform Prudent Investor Act
Duty to Inform and Account
Trustees must keep beneficiaries reasonably informed about the trust and its administration.7California Legislative Information. California Probate Code PROB Section 16060 On top of that general duty, the code requires a formal accounting at least once a year, when the trust terminates, and whenever there is a change in trustee. Accountings go to each beneficiary entitled to current distributions and to each beneficiary who could receive discretionary distributions.8California Legislative Information. California Probate Code Section 16062 Beneficiaries can waive the accounting requirement, but a trustee should get the waiver in writing. The accounting itself should detail income, expenses, gains, losses, and distributions during the period.
Beneficiary Rights and Deadlines
The code gives beneficiaries real tools, not just the right to wait for distributions.
The 60-Day Notification
When a settlor dies, or on certain other triggering events, the trustee must serve a formal notification on all beneficiaries within 60 days. The notice must identify the settlor, state the date the trust was signed, give the name and contact information of each trustee, state where the trust is being administered, and tell the beneficiary they can request a complete copy of the trust terms.9California Legislative Information. California Probate Code PROB Section 16061.7 If you are a beneficiary and the notice never came, that gap is itself worth investigating.
The 120-Day Window to Contest
The notification starts a hard clock. A beneficiary generally has 120 days from receiving the trustee’s notification to bring a contest challenging the trust’s validity, or 60 days from receiving a copy of the trust terms, whichever period expires later. Missing the window can permanently bar a challenge, even on legitimate grounds. If you receive a notification and have any concerns about undue influence, capacity, or fraud, see an attorney immediately rather than waiting to see how administration unfolds.
Information and Accountings
Beneficiaries are entitled to annual accountings and may request reasonable information about the trust at any time.7California Legislative Information. California Probate Code PROB Section 16060 A trustee who refuses to provide information is violating the code, and a beneficiary can petition the court to compel disclosure.
Spendthrift Clauses and Creditor Protection
Many California trusts include a spendthrift clause, which bars a beneficiary from assigning their interest and shields it from most creditors. When the trust says a beneficiary’s interest cannot be voluntarily or involuntarily transferred, California generally enforces that protection and keeps creditors from reaching trust assets before distribution.10California Legislative Information. California Probate Code Section 15300
The protection has limits. Probate Code Sections 15304 through 15307 carve out exceptions for certain creditors, typically including children or spouses owed court-ordered support and, in some circumstances, government tax claims. The protection also does not apply to the settlor’s own creditors when the settlor is also a beneficiary.
Revocable trusts offer essentially no creditor protection during the settlor’s lifetime. Because the settlor can revoke the trust and reclaim the assets, courts treat those assets as still belonging to the settlor for creditor purposes. For meaningful asset protection, the trust generally needs to be irrevocable and the settlor must not retain a beneficial interest.
No-Contest Clauses
A no-contest clause threatens to disinherit any beneficiary who challenges the trust. California enforces these clauses, but only in narrow circumstances. Under Probate Code Section 21311, a no-contest clause can be triggered only by:
- A direct contest filed without probable cause.
- A challenge to a property transfer, arguing the assets did not actually belong to the settlor at the time of transfer, where the clause expressly reaches that type of challenge.
- A creditor’s claim filed against the trust, again only if the clause expressly covers it.
Probable cause is the key protection. If the facts known to you at the time of filing would cause a reasonable person to believe there was a reasonable likelihood of success, you have probable cause, and the no-contest clause cannot be enforced against you even if you lose.11California Legislative Information. California Probate Code Section 21311
Modifying or Terminating a Trust
California provides several routes to change or end a trust, depending on who is available to consent and whether the settlor is still alive.
Modification by Agreement
If the settlor and all beneficiaries agree in writing, they can modify or terminate an irrevocable trust without going to court.12California Legislative Information. California Probate Code PROB 15404 When the settlor has died or can no longer participate, the beneficiaries alone can petition for modification or termination if they all consent.13California Legislative Information. California Probate Code Section 15403 Revocable trusts can be amended or revoked by the settlor at any time without anyone else’s agreement.
Court-Ordered Modification
When unanimous consent is not available, a trustee or beneficiary can ask the court to intervene. Courts can modify a trust when unforeseen circumstances have arisen, or when continuing under the original terms would defeat or substantially impair the trust’s purpose. The court works to honor the settlor’s intent while adapting to the new reality.
Small Trust Termination
A trustee or beneficiary can petition for termination when the trust’s value has become so low relative to administrative costs that continuing would defeat its purposes. If the trust principal does not exceed $100,000, the trustee can terminate the trust without court approval.14California Legislative Information. California Probate Code PROB 15408
Trustee Compensation
Trustees are entitled to be paid. If the trust document sets compensation, that amount controls. When the document is silent, the trustee is entitled to “reasonable compensation under the circumstances.”15California Legislative Information. California Probate Code Section 15681 Reasonable depends on the complexity of the trust, its size, the trustee’s skill and experience, and the time involved.
Professional fiduciaries and corporate trustees typically charge a percentage of assets (often 1 to 2 percent annually) or hourly rates. Family members serving as trustees sometimes waive compensation, but they are not obligated to. If the compensation set in the instrument turns out to be unreasonably high or low given the actual duties, a court can adjust it. Courts can also modify compensation when the trustee’s responsibilities turn out to be substantially different from what the settlor anticipated.
Tax Rules That Intersect With the Trust Code
Taxes are not part of the Probate Code, but they shape how trusts are drafted and administered in California.
A trust that earns $600 or more in gross income during the year must file a federal income tax return on IRS Form 1041.16IRS. 2025 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 Trust tax brackets are compressed far more aggressively than individual brackets, so income retained inside the trust hits the top federal rate at a very low threshold. The structural consequence is a strong incentive to distribute income to beneficiaries, who pay at their own usually lower rates. A revocable trust during the settlor’s lifetime does not file a separate return; the settlor reports the income on their personal return.
Basis is the other place where trust choice matters. Assets held in a revocable trust receive a step-up in basis at the settlor’s death because they remain part of the taxable estate. In Revenue Ruling 2023-2, the IRS held that assets transferred to an irrevocable grantor trust do not receive a stepped-up basis at the grantor’s death when those assets are not included in the grantor’s gross estate.17IRS. Internal Revenue Bulletin 2023-16 – Revenue Ruling 2023-2 That creates a trade-off: an irrevocable trust can pull assets out of your taxable estate and shield them from creditors, but the beneficiaries may inherit a lower basis and face significant capital gains tax when they sell.
Federal estate and gift tax exemption amounts also affect planning. For 2026, the exemption is $15,000,000 per person following the One, Big, Beautiful Bill signed on July 4, 2025, and the annual gift tax exclusion is $19,000 per recipient.18Internal Revenue Service. What’s New – Estate and Gift Tax
Medi-Cal and the Limits of a Revocable Trust
If long-term care under Medi-Cal is a possibility, trust structure matters. Assets in a revocable living trust are counted as available resources for Medi-Cal eligibility, because the settlor can revoke the trust and access those assets. Putting your home and savings into a revocable trust does not shield them from Medi-Cal’s asset limits.
Irrevocable trusts can potentially keep assets out of the Medi-Cal calculation, but only if structured properly and funded well in advance. Medi-Cal applies a look-back period for asset transfers, and moving assets into an irrevocable trust shortly before applying can produce a penalty period of ineligibility. Special needs trusts are specifically designed to supplement a disabled beneficiary’s needs without disqualifying them from public benefits. Where government benefits are part of the picture, trust type and timing are decisions worth making with professional guidance.