December 20, 2013

A Living Trust is Not a Person

A corporation is, in legal terms, a person. This is probably most famously, or infamously depending upon your political persuasion, stated in  the United States Supreme court case Citizens United v. Federal Election Commission, 558 U.S. 310, which held that corporations have 1st amendment political speech rights. 

This notion of corporate personhood means that a corporation is a separate legal entity. Therefore a corporation can do a host of activities that a natural person can do, e.g. enter into contracts, own real property, be sued by a third-party, sue a third-party, engage in political speech, etc.

For example, if Abel and Baker band together to form a corporation to own real estate, Whispering Meadows, Inc. for instance, said corporation is one person and Abel and Baker are two separate people. Thus, the "persons" involved in the transaction are (1) Abel, (2) Baker and (3) Whispering Meadows, Inc.  

This is in stark contrast to a living trust. As stated in numerous California opinions over the years, a living trust is not a separate legal entity. "Unlike a corporation, a trust is not a legal entity." Galdjie v. Darwish 7 Cal.Rptr.3d 178, 187 (2003). Thus a living trust and the person that created the trust, the settlor, or the legal owner of trust property, the trustee, are not a separate person or persons apart from the trust. They are essentially the same person.

A common myth is that a living trust is considered a separate legal entity. Clearly, as stated above, such is not true.