Category Archives: Trusts

Can I Put My House Into a Living Trust if There’s a Mortgage?

houseDear Liza: Can real estate that still has a mortgage on it be placed in a trust? Yes, you can place real property with a mortgage into a revocable living trust. That is, in fact, quite common. Most people, after all, don’t own their houses free and clear when they set up their living trusts. But transferring real property into the trust does not change your obligation to continue to pay the mortgage–if you don’t pay, they can still take back the house. And, if you refinance the house at some future time, the lender may ask you to take the house out of the trust to get the new loan, then put it back in. This is annoying, but not a deal-breaker. Not all lenders require this, but many do.

Federal legislation passed in the 1980’s (the Garn-St. Germain Depository Institutions Regulation Act) says that the transfer of real property into a revocable living trust does not trigger what’s called a ‘due on sale’ clause in a mortgage–which would allow the lender to demand that you repay the loan in full, as if you’d sold the property to a new owner.

So, to summarize, it’s fine to put your house into a revocable trust to avoid probate, even if that house is subject to a mortgage.

What Kind of Tax ID Do I Need for a Trust?

Dear Liza: My parents both have recently passed away. They had a revocable trust.  What type if tax ID do I need?  I created one for the “Estate” type, but should I have made it for the “Trust” type? I am the trustee.  Getting a new tax identification number for a trust that has become irrevocable due to the death of the settlor is a task every new Trustee has to face. The trust needs a new tax identification number to report income earned from the date of death of the settlor to the time when when the trust is distributed to the beneficiaries.

After the last settlor dies, you can’t use their Social Security Number any longer (because they’re dead), so you have to get a new tax id. It sounds like you went online to get the tax id from the IRS. You are right, you should have asked for the number to be set up for an irrevocable trust, not an estate. Don’t panic though, just follow the instructions here to correct that error.

For more information on how to deal with taxes and other trust administrative issues, the Trustee’s Legal Companion (which I co-wrote) is a great resource (honest, it is). For a step-by-step guide to getting an EIN, go to Legal You’ll find free inheritance law information (which I wrote, too) for all states except Louisiana–just enter your zipcode and look for the article entitled “How to Get a Tax ID number.”

Leaving Money to a Kid That Can’t Handle It

safeDear Liza: My wife and I are are planning to initiate an estate plan soon but we keep running into the issue of how to leave everything to our 28 year old son. He would be the only recipient as we have no other children, but he has no financial proficiency whatsoever and we have no expectations that he will ever achieve any. We we fairly certain that if we just leave anything to him it will be gone in less than five years. I would like your advice on how to handle this situation. So, the first thing that I want to say is that you’re not alone. I work with lots of people who struggle with some variety of this issue. The second thing that I want to say is that it sounds like you have a fairly clear idea of what could happen if you left your son his inheritance outright and free of trust, so trust that.

No pun intended, but actually leaving his money in trust is one option. In your estate plan, you could leave him his money in a trust, and appoint a trusted friend, or a bank, or a financial company to serve as Trustee. The money could be for his benefit, but it would not be invested or distributed by him. That kind of trust could last for his entire lifetime, and, since it would be held in an irrevocable trust, would not be available to his creditors or to his spouse (if he got married). If you hold it in a lifetime trust, though, you should name an institution as Trustee, since your son would likely outlive a trusted friend of your generation. Another option would be to direct your Trustee to purchase an annuity for your son, that would guarantee a level payout over his lifetime. This is a good option sometimes, but if your son had an emergency need, such as medical care, an annuity wouldn’t be flexible enough to address that need.

Can I Administering a Trust Without a Lawyer?

living trustLiza: I live in California and my dad passed away recently. I am the executor of his living trust.  His estate is around $500K.  Do I need an attorney to handle his trust?  Can I do it?  Or can a paralegal take care of this?  I do not know where to start.  I am overwhelmed.  Any guidance is greatly appreciated. I’m sorry about your Dad.  Grief is just hard, even without the legal headaches. So, here’s a short answer: First, you don’t have to hire an attorney, but it might be helpful and you can use the trust’s assets to pay for that time. Many trust administration attorneys would meet with you for an hour or two to  help you feel more oriented and less overwhelmed. Second, you might find a book that I co-wrote helpful (shameless self-promotion alert) since we wrote it, basically, for you: The Trustee’s Legal Companion is a step by step guide to administering a trust on your own. Third, the basic things you will need to do are send out a notice to all the heirs and beneficiaries, inventory the trust’s assets, pay all of the debts and taxes, and, when all that’s done, you can distribute the assets to the beneficiaries of the trust.

Will or Trust, Which is Better?

courthouse_2Dear Liza: My husband and I have one adult daughter – 20 years old.  We are in our 60’s and want to set up a will or a trust to ensure that 100% of our property and investments goes to our daughter, and that she inherits the assets with the least amount of taxes/probate as possible. What’s better a Will or a Trust? I don’t know what state you live in, and that makes this a hard question to answer completely. Here’s why: the value of doing a living trust depends on the cost and inconvenience of probate in your state.

Both a Will and a trust can ensure that your property passes to your daughter. Both a Will and a trust can incorporate tax planning to minimize any estate taxes that might be due at the death of the second of you (though these days, you’d have to have more than $10 million before worrying about the estate tax, so let’s assume that this is not an issue for you).  Really, the difference between which kind of an estate plan to create isn’t so much a “what” question; it’s really a “how” question, as in “how much” and “how long” will it take to settle your estates.

This is because a Will requires a probate proceeding before a distribution to your daughter, while a trust will allow you to bypass probate.  This means that if you do a Will, and your estate exceeds the small estates threshold in your state, your daughter won’t inherit anything until the court issues an order for distribution, which is how a probate ends. If you do a trust, and the trust is properly funded at your death, holding title to your major assets, your daughter will be able to inherit those assets as soon as they’ve been identified, taxes and creditors have been paid, and all of the beneficiaries and heirs have been notified.

In states that have adopted the Uniform Probate Code, currently that is 18 states, click here for a list of these, probate has been streamlined and is relatively inexpensive. In states that have not adopted this code, like the one that I practice in,  probate takes longer and costs far more than it costs to administer most living trusts. So, in order to sort out what’s the best estate plan for you, you need to find out the cost and delay in going through probate where you live. If you live in a state where probate is relatively easy and fast, you should be fine with just a Will. If you live in a state where probate is expensive and slow, a trust will be the better choice.

Who Can Order Death/Birth Certificates?

Last WillDear Liza: My uncle just died and I and a cousin are co-executors and equal co-heirs. A will is known to exist in a safe deposit box, but we have neither keys nor legal permission to open the box. There are no disputes and the estate is certainly below the tax level.The Mexican authorities seem to want a Birth Certificate in order to issue a Death Cert. As a niece, I am not entitled to get one, and there is no closer relative. What do I do? While it is true that only close family members can order vital records, you, as the executor, are also entitled to order them. In addition, an attorney that is working with you can also order such vital records. In California, where I practice, you must submit a sworn statement saying that you are the executor, and many states have a similar system.  You can contact the county vital records office where your uncle was born to request his birth certificate. Here’s a link to a commercial service that makes ordering such documents easy as well. Also, I would ask the bank what the rules are in your state for opening that safe deposit box. In my state, there’s a law that allows bank officials to open the box for the sole purpose of removing a Will, since there’s a certain chicken-and-egg problem if the executor must have the Will to be authorized to open that box.

Paying Credit Card Debt as Trustee

debtsDear Liza, My father passed away recently, and all of his and my mom’s assets are held in a living trust (except an individual checking account), of which I am now the Trustee.  A few collection agencies are now contacting me about collecting on some credit card balances, which are fairly significant.  From what I’ve read online, it sounds like debt collectors might not be able to lay any claims against the trust, but they can collect from the personal estate of the deceased (i.e. checking account or other assets held in the individual’s name).Is that understanding correct?  In case the debtors try to collect against the trust, I want to know our rights in that situation.  As Trustee, you are, actually, obligated to pay the debts of the Grantors (the people who created that trust) that you know about before you can distribute assets to the trust’s beneficiaries. That includes taxes and, in this case, credit card debt. If there are sufficient assets in the trust to pay those debts, you have to pay them. If there are insufficient assets in the trust to pay those debts, often you can, as Trustee, negotiate a lower payment with the companies — because that debt is not secured by anything (in contrast, say, to a house that secures a mortgage), the companies will often settle for less than the full amount rather than writing off the entire balance. If you don’t pay these debts and distribute the trust’s assets to the beneficiaries, these companies could, theoretically, go after the beneficiaries for payment from their inherited assets. Here’s an article that you might find helpful, too.


Amending a Survivor’s Trust

grandfather-506348_640Dear 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.

How to Store That Plan

punch-402558_640Dear 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.

Avoiding a Lump Sum Inheritance

pot of goldDear 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.