Category Archives: Living Trusts

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.

When to Fire Your Lawyer: Excessive Fees

Dear Liza, my brother and I are in the process of distributing the personal/real property of our recently departed mother’s estate/trust according to her wishes. The attorney for her estate initially included his fee of $17,000+ as part of one document. When questioned, he stated because of the divisive and hostile relation between my brother and me, he was going to charge fees in anticipation of the estate having to be probated, instead of treating it as an dissolution of an estate.  Can he do that? Yikes! $17,000 is A LOT of money to settle a living trust. Here’s my advice–fire that lawyer. Remember, you are the client and if a lawyer isn’t serving your needs (or is charging way too much), get yourselves a new one. Most attorney’s charge an hourly rate for trust administration services. At a rate of $200/hour (which is sort of low), you are being charged for EIGHTY FIVE hours of time. Most estates take only a fraction of that. As for his decision to submit the estate to probate–that’s your decision, not his. Probate can be an effective forum for resolving disputes, but in a trust administration that would be an unusual step. If the estate goes to probate, he can charge you a statutory fee equal to a percentage of the value of the assets in the estate, and $17,000 may actually be about right. But, he’s not entitled to bill you for services he hasn’t provided. Ask for a detailed billing statement outlining exactly how he is spending his time on your matter. If he can’t, or won’t, provide it, fire him and report him to the state bar. I have found that just mentioning your intention to report a lawyer to the state bar can result in an amazing reduction in an excessive bill. Also, ask for your client file on the way out–legally that’s yours, not his.

Trusts: Revocable v. Irrevocable

Hi Liza,  Please explain/define the differences between trusts. Specifically, what is a living trust, a revocable trust, and an irrevocable trust. Advantages? Disadvantages?  Here’s my answer for you: a LIVING trust and a REVOCABLE trust are almost always the same thing. Both are ways to describe a trust that holds assets during the lifetime of the person who established the trust ( the “Grantor”)  for that person’s lifetime benefit (the Grantor is also the trust “Beneficiary”). It’s a  living’ trust because it is established during the Grantor’s lifetime. It is revocable because during the Grantor’s lifetime they can revoke it any time they want to. A revocable living trust’s purpose is simply to avoid a probate of the trust’s assets after the Grantor dies. Instead of having to go through a court supervised probate proceeding (which costs money and takes time), the person named to manage the trust after the Grantor (the “Successor Trustee”) simply settles the estate as the trust directs (this also can cost money and certainly takes time, but usually less of both).

An IRREVOCABLE trust is a trust that can’t be amended or revoked once it is established. These are usually used when a person wants to give away money or other assets to another person, subject to certain terms that they don’t want to be changed. Once the gift is made to the trust, that person no longer owns those assets, which can be a tax advantage.  But such a trust can’t be changed without going to court and they can’t get the gift back, ever. Sorry to get long-winded on you, but my answer wouldn’t be complete without letting you know that after the Grantor of a revocable trust dies, that trust then becomes an irrevocable trust, because no one can change it’s terms after the Grantor’s death.

How Much Should A Living Trust Cost?

Dear Liza: What is a reasonable amount to pay for a lawyer to do a living trust? Here’s my rule of thumb: you should probably start by assuming that the whole process will take about 10 hours of an attorney’s time. This should include a face-to-face initial meeting to thoroughly discuss your goals, your family situation, and your finanicial assets.  The lawyer should then draft your documents, you should review them, and there should be some back-and-forth over the drafts. Some lawyers do this in a second meeting, some do it by phone or by email. Ultimately, though, you should finalize the language and get back together to sign the documents. Included in my estimate, by the way, is that the attorney will also be preparing a Will, a Durable Power of Attorney for finance, a Health Care Directive, and assist you in transferring your real property into the trust. If you are single, you can reduce the estimate to 8 hours. Since lawyer’s rates vary a lot around the country, just take my ten hours and translate that into the going rate where you live: in Northern California, where I practice, you can spend between $3000 and $5000, but in other parts of the country in could be much less.

Of course, that’s my estimate for something rather straight forward. If you need to do any planning for a child with special needs, or for parents, or have a second marriage, or have complicated assets, it can take longer.

Living Trusts and Property Tax in California

Dear Liza, My Wife and I own two pieces of real-property that we purchased long ago, in Los Angeles.  Because of Prop. 13, our property taxes are quite low. If we pass these properties to our children via a living trust, will they have to pay more property taxes? NO! I love being able to give you a simple, happy answer. But, you are in luck. By placing these properties into a living trust, you will be able to pass them to your children without a costly probate proceeding AND because you are passing properties from a parent to a child, they will inherit your property tax rate in both properties! The transfer of real property from parents to children is currently an exception to Property 13 reassessment. Your children will have to file a form requesting that this exception be applied to the properties within three years of the transfer, but unless the law changes in CA, they won’t be reassessed. For those of my readers who do not live in California, I apologize, this is a completely state-specific blog post. California passed Prop. 13 in the 1970″s, limiting the amount of property tax that’s assessed on real property until there’s a new owner, at that point, the property tax is applied to the then-current value of the property. However, parent-to-child is one of a few exceptions to this rule.