Category Archives: Living Trusts

What’s a Testamentary Trust?

IRA moneyDear Liza:  I’ve read that I could create a trust for my children in a Will, then name that trust as a beneficiary of my retirement account.  That way, as I understand it, my successor Trustee could manage those retirement assets for my children until they grow up. But if I do that, will my estate have to go through probate before that trust can be established? Yes, in order to establish a trust that’s created by a Will, your estate would have to go through probate first.  What you are describing is called a ‘testamentary trust’ because the trust is created by a Will. The order issued by the court at the end of the probate will incorporate the terms of that trust.

To avoid probate altogether, you should use a living trust to create a trust for the benefit of your children, and put your assets in that trust before you die. You can name that trust as a beneficiary of your retirement account, and, after your death, the successor Trustee will work with the plan administrator for that retirement account to transfer the assets into the trust for your children.  That being said, if your children are over eighteen, it’s easier to name them directly as beneficiaries, rather than work through the medium of a trust–which has a slightly different set of rules for how the required minimum distributions are calculated.

What Do I Put In a Living Trust?

Dear Liza:  I am trying to prepare a living trust on behalf of my father.  He owns his home and vehicles outright and also has two bank accounts.  I am the POD beneficiary of all of his accounts, as well as being a secondary signer on his checking and savings accounts.  My confusion comes from not knowing what assets should be put in the living trust.  Should it just be the home, since that has the highest value?  Or should the cars and bank accounts also be included?  Or can everything but the house be designated in the pour-over will that I also intend to create? Your father’s living trust has just one purpose: to allow his estate to avoid probate upon his death.  If your father’s assets are owned by the trust, not by him, when he dies, then his estate won’t need to go through probate.  Not all items are subject to probate, though: retirement accounts, life insurance policies and bank accounts with designated beneficiaries (that’s what a POD account is), go directly to the named beneficiary. Cars can be transferred via the DMV, and so don’t need to go through probate either. So, for your Dad, that leaves his house. You should transfer legal ownership of the house to his trust by filing a trust transfer deed with the county.  When you record the deed, you’ll also need to file a Preliminary Change of Ownership Form (PCOR).  This form tells the county assessor what kind of transfer just happened; the assessor wants to know if they can raise property taxes on that property, which they can’t, because a transfer to or from a living trust is NOT a change of ownership under Proposition 13. That pour-over Will is just a backup for your Dad. If he doesn’t transfer his house to the trust, and then dies, the Will says transfer whatever property he owned at death to this trust  (that’s the pour-over part). But, if the value of that property is more than $150,000, you’ll need to go through probate to make the transfer.  Put another way, the Will makes sure that all of your father’s assets get distributed as directed by the trust, but it won’t help his estate avoid probate first.

 

 

 

I Inherited a House, Now What?

Dear Liza: My 90 yr. old mother recently died and I inherited her home, her only significant asset.  I  am preparing the Affidavit-Death of Trustee.  Does this put the title to the house in my name or do I also need a Quitclaim deed?  Do I need to create a new trust of my own or can it be left in the current one as I am a co-trustee? Sorry to hear about your Mom.  You are now engaging in what’s called “Trust Administration.”  The Affidavit Death of Trustee says that you are now the successor Trustee of your mother’s trust. (That means you have the legal authority to act under the trust with respect to the real property.) The next step for you is to then record a Trustee’s Deed transferring the property from that trust to yourself as an individual. (That gets the house to you outright and free of her trust.) If you want to set up a living trust, do that.  Then you’ll transfer the house from your own name to yourself, as Trustee of the new trust by recording a Trust Transfer Deed.  You can’t just leave the house in your mother’s trust, because now that she’s died, that trust is irrevocable and can’t be amended or changed.  Also, as Trustee, you’re just the manager of the assets, not the owner. You can use Nolo’s resources to create your own trust or work with an estate planner, that’s up to you.

Trusts and Pour Over Wills

Dear Liza,  My husband and I are having a disagreement about how to set up our living trust. (We are using online trust software.) He says that our will designates how to disperse the trust, after both of us die and the two designated trustees who are in charge of the trust will need to follow the will’s direction and that the trust is merely a holder of property and we don’t “need” to add all the beneficiaries to the trust document, that the will suffices. I say that we need to designate all the beneficiaries in the trust itself and clarify that all the property in the trust, unless specifically designated otherwise, will be inherited equally by our six children and that the will is for designating who gets the red pot or the carpet, etc., that sort of thing. Who’s right? So, one of the really nice things about being an estate planning attorney is that I hardly ever have to weigh in on marital disputes. On this one, though, I’m on your side. As a general rule, a living trust is designed to hold your property that would otherwise be subject to a probate proceeding at the death of the second of you–usually your house and your large brokerage and bank accounts. The assets in that trust pass by the terms of the trust itself. The ‘Trustees can’t follow the instructions in the Will, they have to follow what the trust says.

 The Will, in this scenario, is designed to transfer any assets that you owned at death that weren’t in the trust into the trust at that point. That’s why this Will is often called a ‘pour-over’ Will– like the saucer under a teacup, it picks up the property you’ve left outside of the trust and pours it into the trust (the cup) after your death. Often, too, your tangible personal property (jewelry, furniture, red pot, clothes, etc) are distributed under the terms of the Will, but sometimes these assets also pass into the trust to be distributed there.  So, make the trust the document that contains your wishes for the distribution of your estate, and let the Will just do the cleanup job for you.

Do I Need a Will and a Trust?

Dear Liza, is it necessary to have both a last will and testament if you have a living trust? Yes, that’s the way it is usually done. There are two main reasons for this.  First, if you have minor children, the Will is where you nominate guardians for them.  But also the Will provides an important way to make sure your trust is the one set of instructions for who gets what and how it’s managed.

 Here’s why: your trust holds the property that you transfer into it during your lifetime. You do this by either recording a deed (for real property) that transfers ownership from you as an individual to you as Trustee, or, in the case of a brokerage or bank account, by filing out paperwork that states that the account is owned by you, as Trustee.  (These are called Change of Title Forms at most institutions; sometimes Trust Account Applications or something similar.) However, most people don’t actually transfer all of their assets into such a trust.  When they die, often there are everyday checking and savings accounts, cars, or other assets outside of that trust.  Sometimes they have simply forgotten to transfer accounts that should have gone into the trust or refinanced a house and taken that house out of the trust in the process, then forgotten to put it back in. So, that’s where the Will comes in–it’s usually a special kind of Will, called a ‘pour-over Will’–and it says that all such property should be poured into the trust/transferred into the trust after a person’s died. That way all of a person’s property will be distributed via the trust.  A note of caution: if too much property is held outside of the trust, you will need a probate proceeding before you can transfer ownership to the trust (the trigger amount varies from state to state). So, don’t rely on that Will to make things work–make sure that your major assets are held by the trust during your lifetime.

Amending or Restating A Living Trust

Hi Liza,  I have a living trust and I’m the trustee in the trust.  I have a will in the trust.  I wanted to make some changes to the will and I’ve been told by my lawyer that I would have to
make another trust if I want to change the people in my will.  If the will doesn’t have to go to probate why can’t I just make the changes in the will and have my designated
trustee distribute my estate after I’m dead?  One of the people in my will has died, one is in a nursing home and two I haven’t heard from in years.  This doesn’t make
any sense to me.  Can you explain this to me? Well, truthfully, now I’m a tiny bit confused. It sounds like you have a trust, and in that trust you leave assets to various people. (I think that’s what having a “will in the trust” means.) Assuming that you are the Grantor of that trust (the person who established it) and it’s a revocable trust, you can certainly amend the trust to reflect your current intentions. It is common that we lose touch with people over the years, or change our minds about what we want to do with our assets over time. To make a small change to an existing document you would have your lawyer draft a trust amendment for you to sign, changing whatever sections of the existing trust needs revising. If you are making a lot of changes, you’d do what’s called a Restatement of Trust, which is like having an all-new trust with all current terms, but with the same name as the old trust, so you don’t need to retitle assets that are already in it. Maybe that’s what your lawyer meant by a “new trust.”

What Happens if We All Die? The God-Forbid Clause

Dear Liza: I set up a living trust and back up will naming my 3 minor children as beneficiaries.  What if one day, me, my husband and all children die at the same time in an accident? 
Both my parents and in-laws do not live in US.  If none of me, my husband and children survives, I want our estate to pass to our families in Asia.  What is the best way to set this up in my will and living trust? Here’s what you do: put in a section that says that if you, your husband, and all of your children (and their issue–your grandchildren, great grandchildren, and so on…) don’t survive you, that you want your estate split equally between your husband’s surviving parents and siblings and your surviving parents and siblings. I call this the “God Forbid Clause” since it covers an unexpected, but not impossible, scenario.  You can leave your estate to anyone you choose to of course–family, friends, charities.  The important thing is to be specific if you have specific people that you want to benefit. If you don’t really know who to leave your assets to at this point, you  could be more lawyerly and less specific and say “your legal heirs” and this would then be determined under the laws of the state in which you executed your estate planning documents.  If you name specific people you would say where they presently live. And you would let your Trustee and Executor know how to find them by giving them a list of where your parents/siblings live and how to reach them. If your family lives abroad, the tax treatment of their inheritance will depend upon the laws in that jurisdiction.

Can Mom change the Trust after Dad dies?

Dear Liza: My father died several years ago, after my mother passes the children inherit equally per both their wills and the Family Trust.  Can my mother change the terms of the trust now?  The documents state that the estate will be equally shared by the surviving children when our mother passes.  She has decided this means that she can give everything in the homes to one sibling and that when she passes  the homes will be sold and divided between all of the surviving children.  It seems to me this is not what Dad wanted.  Hmm. So, here’s a not very satisfying answer: MAYBE. It all depends on what your parents set up before your father died.  Some family trusts do indeed leave everything in a revocable trust for the benefit of the surviving spouse. If that’s what your parents did, then, yes, your mother is free to change the terms of that trust and she is free to give things away during her lifetime as well because the trust assets are all hers. If, however, your parents set up what’s called an “A/B” trust, your mother’s assets would be in a revocable trust that she would be free to change, but your father’s assets (up to the limit of whatever the estate tax exemption was in the year that he died) would be held in an irrevocable trust, which your mother would not be able to change during her lifetime. In California, where I practice, state law requires that you and your siblings would have to be notified after your father died if such an irrevocable trust was established upon his death. Notice requirements differ from state to state, however. Best to find out what your state requires. Your father’s Will probably leaves his tangible personal property (such as clothes, books, etc) to your mother, and then pours whatever else he owned at death into the family trust. So that’s the document that matters in determining what your mother can, and can’t, do now.

Naming Kids as Beneficiaries

Dear Liza: Do you have any recommendations on naming children as secondary beneficiaries for life insurance/investments? Why, as a matter of fact, I do! If your children are minors (under 18 in most states), your estate plan should establish some way of managing money for them until they are old enough to handle money responsibly. This is usually accomplished by creating a trust for them until a certain age, say twenty-seven. Until then, you would name a trustee to manage and distribute the child’s assets for them; after that, the money’s theirs to manage and invest. If you have created a living trust, you would name that trust as the beneficiary for your life insurance and the secondary beneficiary for your retirement accounts — that way, the money will be available to your children, but be managed by your trustee.

You can instead use a Will as your main estate planning document and your Will can set up exactly the same structure of a trust for children managed by a trustee until the children reach a certain age. However, if you use a Will, your estate will go through probate BEFORE the trust for the kids can be funded (don’t worry, the kids will have access to your estate during the probate process). Think of this as two roads to the same place — one road (the living trust)  just gets you there faster.

If, however, you name minor children directly as beneficiaries on those forms, and you die while they are still minors, a guardian of the estate will have to appointed to manage these assets, and, when a child reaches the age of 18, they money will be all theirs.

If your children are adults, you can and should name them directly. It makes it easier for them to deal with these assets after your death and there are special advantages to doing this with respect to retirement accounts.

Can I Put Our House Into a Living Trust If I Have a Mortgage?

Dear Liza: Can we put our house into a living trust if we have a mortgage? Yes, you most certainly can. Almost everyone who does a living trust also has a mortgage. Federal law prohibits a lender from accelerating your loan (as in saying “pay up now”) if you transfer your home into a living trust. The only time having a mortgage and a trust can be a hassle is if you refinance — some lenders will require you to take the house out of your trust to get the new loan. Then, after the new loan is funded, you’ll have to put the house back in to the trust. It’s not really hard to do, but you have to record a deed for both steps: taking the house out and putting it back in. Sometimes your title officer can do it. Sometimes my clients will call me and ask my office to put their house back into the trust for them.