Category Archives: Living Trusts
Dear Liza: My mother recently died and I am the Trustee of her trust. She left everything to me and my brother, equally. I live far away from California, where she lived. My brother lives in her house. The bank told me that I need to get a tax identification number for my mother’s trust, is that true? Also, I’m worried that my brother is going to take her furniture and other things in the house before I have the chance to get there. I really don’t know where to start or how to get help. So, first things first. Yes, you DO need to get a tax identification number for your mother’s trust now that she’s died. That’s because now her trust is irrevocable, and, until you distribute the trust property to yourself and your brother, any income earned by the trust during this interim period needs to be reported under this new tax identification number, which is called an ‘EIN’ (employee identification number). You can apply for it online at this website. I’ve written about how to do this on Legal Consumer, which offers national probate information, organized by zip code–click on the article about how to get a tax id number.
Next, you, as Trustee, are responsible for gathering and protecting the trust’s assets until they are distributed to the beneficiaries. That’s the legal answer — but in real life, this can be tricky, especially when you are far away and you two are the only beneficiaries. I would advise seeing how cooperative your brother will be — after all, he benefits from having the house clean and sold for a good price. Ultimately, if he won’t cooperate and you can’t get him to move out, you should seek to have him removed by the local law enforcement authority, but I would hope it doesn’t come to that.
Finally, in terms of getting help, I’d advise you go find an estate planning attorney to advise you on your duties as Trustee. If there are trust assets other than that house, you can use trust money to pay for this advice, and it will be well worth it, since you have to do the job properly or risk personal liability. Nolo has a lawyer directory that should be helpful here.
Dear Liza: We are a married couple in our early and mid 30s with a one year old son living in Southern California. I have been looking at setting up a trust and/or will for our little family but not sure what is needed in our scenario. My husband and I each own a home in our name (bought before we got married).
- A living trust will allow you to transfer your assets to your son without a probate proceeding.
- A living trust will allow you to set up a trust for your one-year old son so that an adult can manage his inheritance until your son is an adult.
- The transfer of your properties into a living trust will not affect your mortgage–there’s federal legislation that says such a transfer does not trigger any due on sale clause. Your lender doesn’t need to be notified, you just record a deed transferring your property to the trust.
You probably don’t need an insurance trust. That’s what people use to exclude the value of their insurance payouts from their taxable estate. But today’s exemption levels ($5.43 million in 2015) are so high, that most of us won’t have to pay any estate tax, even if our life insurance policies are included in our taxable estates.
Dear Liza: A friend of mine is considering a living trust. The only property he has is a coin collection maybe worth around $15,000. He has an adult daughter who he doesn’t communicate with and does not want her to get anything. He would like to leave the collection to me. Is a living trust a good way to go listing me as the trustee or the beneficiary? Or is doing a Will just as good? If the only property that your friend has is a coin collection, a simple Will should accomplish his goals. A Will allows your friend to clearly state who should receive that collection upon his death. Assuming that $15,000 falls below the probate threshold in his state (called the “Small Estates Limit”), no probate would be required upon his death to transfer the collection to you. A living trust is just a way to avoid probate, but really serves no purpose in an estate that’s below the probate limit anyway. To determine the probate threshold in your friend’s state, start here.
Dear Liza: My parents have a revocable Trust that is very outdated and we want to make amendments to it. I understand most of the Trust but am having trouble with the Survivors Trust. I was surprised to see that upon the death of one spouse a Survivors Trust may be established. Is this really a necessary part of a Trust. Isn’t being the Co Trustee basically the same thing? A Survivor’s Trust is often created for tax planning. It’s common. Many living trusts, especially those drafted prior to 2012 (when tax laws changed) are designed to minimize the estate tax at the second death. Trusts like that typically divide the trust estate into two trusts when the first spouse dies: one trust holds the decedent’s assets and is often called the Bypass Trust (or the Credit Trust); the other trust holds the survivor’s assets, and is called the Survivor’s Trust. Usually, the survivor can use assets in both trusts, but, to the extent that they don’t use up all the money in the Bypass Trust, that money passes estate tax free to the beneficiaries. If your parents don’t have more than $10 million (like MOST people), their trust can most likely be simplified to just hold all of the assets in one, revocable trust after the first death. This trust is still often called the Survivor’s Trust. But this is all completely separate from who manages the trust, whatever it is called. That person is the successor Trustee, or, if appointed during your parents’ lifetimes, a co-Trustee. If you are helping your parents take care of their finances, and they’d like to help them manage their affairs, they can appoint you to serve with them now as a co-Trustee, or even resign, and let you take over as sole Trustee now.
Dear Liza: I’ve just completed my estate planning documents using the latest edition of WillMaker Plus, including the will, health care documents, power of attorney, final arrangements, etc. I think all totaled it comes to over 65 pages. I’d like to leave all the documents well-organized so they’re not just a pile of papers that would overwhelm the executor. I’d like to put the documents in a three-ring binder with a table of contents and tabbed for the different sections. Is it legal to hole-punch these documents, either before or after they’re singed and notarized? Would that vary by state? I have never heard of any law that would invalidate documents that were otherwise valid because there are physical holes in the paper. Sometimes my clients make a copy of their documents, hole punch those, and put the copy in a binder, then put the originals in a safe deposit box or safe in their house. It’s great that you are trying to make things easier on your loved ones. Here’s a few other things you could put in the binder: a list of your passwords to online accounts; a list of your accounts, life insurance policies, and other assets; contact information for your heirs and beneficiaries; and a list of people that you work with, if any, such as tax preparers and financial advisors.
I love it when someone asks me a question with a clear answer! Here, the answer is probably not. Your son receives Social Security Disability Insurance (SSDI), which is a benefit that he receives because he was able to work and pay into the Social Security system. This is not a needs-based program like Supplemental Security Income (SSI), which people receive when they are permanently and severely disabled and qualify for this assistance because their resources are limited. Medicare is an age-based health insurance program, so it’s not needs based either.
Special Needs Trusts are designed to allow parents (and others) to create a trust for the benefit of someone on SSI that can be used to supplement this government benefit without disqualifying someone from the program (and from Medicaid programs, which offer health insurance to those who qualify for SSI). If your son is not going to need SSI in the future, and will continue to receive SSDI and Medicare, then a Special Needs Trust won’t be necessary to protect his ability to continue to receive those benefits. That being said, of course, it still sounds like you need to leave him assets in a trust, with a Trustee who can manage resources for his benefit. This trust, however, does not need to meet the stringent requirements of a Special Needs Trust.
To read more about Special Needs Trusts and the differences between SSDI and SSI, take a look at Special Needs Trusts (Nolo, 5th edition).
Dear Liza My father wants to leave some of his assets to my brother and sister, however neither of them is particularly adept at handling money and he doesn’t want to hand them a large, lump sum. Can a Will stipulate that they receive payments on a predetermined basis, almost like an allowance? If not, can this be accomplished through another vehicle?
Your father isn’t the only parent worried about leaving money outright to kids. He has a few options. Your father can leave money in his Will to a trust for the benefit of your brother and sister, and specify how the money is to be distributed to them. The trust itself is a part of the Will. Leaving money in a trust by way of a Will is called a “testamentary trust,” because the trust is established after your father dies. This will require a probate proceeding in most states.
Alternatively, your father can create a trust now, and in that trust he can distribute assets to trusts for your siblings as well. This will accomplish the same result, but avoid a probate proceeding at your father’s death. Lastly, your father could, in a Will or a trust, instruct the executor or Trustee to purchase an annuity for your siblings upon his death, that pays out a certain amount of money over a certain period of time, or, he could purchase an annuity like that during his lifetime, to be paid upon his death.
Dear Liza: I am the successor trustee of my parents trust. The have both passed and I was told before I disburse the assets I need to advertise a Notice to Creditors. How long and how many times do I need to advertise?
Since I don’t know which state you live in, I can only provide you with a very general answer. In most states, although not California, where I live and practice, if you are administering a trust, there’s no special creditor’s claim process that requires publication. Instead, creditors have a limited period of time in which to make a claim, and after that, it’s just too late. In California, again, that’s one year. In your state, it could be more, you’ll have to find out what the statute of limitations is after a death, you can try typing in “statute of limitations for claims against estate in _____” to your favorite web browser.
If there is a creditor’s claim process, that’s a way to accelerate the discovery and payment of creditors. Usually, that does involve publication that a person has died, and then there’s a specific number of days in which any creditors can make a claim against the trust’s assets (and this is less than the time allowed by that state’s statute of limitations). Once that claim is made, the Trustee has a certain number of days to either pay, or deny that claim. If a creditor fails to make a claim within the required time period, they are then barred, forever after, from making a claim. This is similar to how creditor’s claims are handled in probate — a notice is given, a time limit runs, there’s a process for paying or contesting a claim, and then a creditor is barred. This is all an attempt to have some finality after a death, so beneficiaries can inherit without the fear of lurking liabilities out there.
As a general matter, you do need to pay the creditors that you know about, so all of the bills that have come due since your parents have died should be paid before you distribute anything from the trust to other beneficiaries. Also, please make sure to pay the taxes first, before any other creditors. You should also know that secured debts, like a mortgage, do pass with the property that they are secured by. So, for example, if Sam inherits the house, and there’s a mortgage on that house, Sam is going to have to either pay that mortgage off, or get the lender to let him assume that mortgage himself (And that’s up to the lender…sometimes they will do it, sometimes they won’t. That depends on Sam and also on the terms of the mortgage.)
Finally, although you should, of course, pay outstanding credit card bills, you should know that the trust’s beneficiaries are NOT personally liable for such unsecured debts if the estate/trust has insufficient assets to pay those bills. I share this with you because bill collectors often neglect to make it clear that unsecured debts, like credit card debts, do not pass to the beneficiaries.