In order to understand the fundamentals of a trust in California, you may want to consider the following illustration. Suppose you own a valuable diamond ring. You do not owe payments on the ring and there are no liens against it. It is not collateral for any loan. You own the ring outright, as is said. Under the law, you have a simple, undivided property interest in the ring. Since this ring is your property, you have title to it: you can wear it, store it, sell it or otherwise use it or dispose of it in any manner.
Now, suppose you decide that this ring is of such importance that it should be used only in a particular manner and by particular persons. To do this, you may wish to place the ring in a trust. Under California law, you can create a trust by transferring your property, to a person for safekeeping, called a trustee, to be enjoyed by other persons, called beneficiaries.
This transfer of property to the trustee divides the title of the ring into two parts: legal title and equitable title. The trustee whom you appointed holds legal title to the property. However, the beneficiaries also have claim on the property. They are said to have an equitable interest in the property because the value of the ring belongs to them. As the original owner of the property, you are the settlor and the trustee must follow your instructions regarding the use of the property by the beneficiaries.
The purposes for creating trusts are many and varied. Some may create trusts to avoid unnecessary taxation and probate administration. Others may place property in trust for the benefit of persons who may be unable to manage property but nonetheless need particularized care and provisions for their health and maintenance. A trust may be created for any lawful purpose or any purpose that is not against public policy.
This information is provided for educational purposes, and should not be interpreted as legal advice.