Category Archives: Trusts

Transferring a house from a trust

 Dear Liza: My grandfather died in 2008. My mother is the first successor on the trust. We did all the post administration for the trust or so we thought. I recently read that my mother should have filed a deed to get the house placed into her name since that is what the trust called for. We have not done this. My question is the following…My mother wants the house to go to me, her son. What process would we have to do in order to get it from the trust to me? Your grandmother can file the deed she didn’t file after your grandfather died, getting the house into your grandmother’s name, as Trustee of the trust created by your grandfather. Once that’s done, her ability to give that house to you during her lifetime depends upon the terms of the trust your grandfather set up. She may be able to give it to you during her lifetime, in which case you will receive it at the value that it had in 2008, when your grandfather died.  She may only be able to transfer it to you at her death, in which case you will inherit it at the value the house has at her death.  She may not be able to give it to you at all, because, as you said, the terms of your grandfather’s trust became irrevocable at his death. I would advise you to see an estate planning attorney in your state to review your grandfather’s trust and advise your grandmother on the best strategy to accomplish her goals.

As for that mortgage, if you get the property transfer completed, you’ll have to request that the lender assume the loan in your own name, which they may or may not do, that depends on their calculations and your credit history.

Buying Mom’s House: Be Careful

Dear Liza,  The only asset funding my Mother’s Trust is her primary residence. However, she recently moved from CA to live with me in WA. My sister would like to purchase the home but doesn’t have the full amount. She would pay a down payment of $150,000 which would assist with my Mother’s caregivers and in-home health care. The balance approx. $150,000-$200,000 would be recorded as a Deed of Trust naming the Trustee of the Trust as the beneficiary.  Would this affect  or invalidate the Trust in any way? I have to give you a sort of lawyerly answer on this one: probably this is just fine, but you should have an attorney take a look at the trust to make sure that your mother, as the grantor of the trust and current trustee of the trust, has the power to sell trust assets and the power to loan trust assets.  A well-drafted trust would certainly permit this, but I’ve seen trusts that aren’t well drafted to be sure. Also, sales of assets between family members should be for fair market value (in other words, your sister should be willing to pay what a third-party buyer would be willing to pay). Otherwise,  your mother would be making a taxable gift to your sister of the difference between that fair market value and the price she actually paid.  Your mother should get the house appraised to document this value before the sale occurs. Finally, the interest rate on the loan must be at least the applicable federal rate (AFR) for loans of that sort in the month the loan is made (this is published monthly by the IRS.) If the loan’s interest is too low, the difference between that rate and the AFR is also considered a taxable gift from your mother to your sister.

Do I Need a Living Trust?

Dear Liza: I am a 61 single retiree who has a single family home, an IRA, life insurance and a small pension. With my siblings as beneficiaries to these instruments. Is a living trust/will needed anyway? So, it’s true that if you have named beneficiaries for your IRA, life insurance and pension, those assets will go to those beneficiaries and your Will or Living Trust would have nothing to say about that part of your estate plan.  But, here’s the thing–in most states you cannot name a beneficiary for a house.  In those states, the only way to leave your house to certain people and avoid having to go through probate to do it, is to set up a living trust and transfer your house to that trust.  Click here for a list of the states that do permit the transfer of a house by naming beneficiaries on a deed–called a transfer-on-death deed. Sadly, California is not one of them.

Giving away that family cabin

Dear Liza: I am divorced and own a second vacation cabin that I want my children to have when I die.  Is there a way for me to retain rights, ownership and control while I am alive and of sound mind but pass the property to them when I die that doesn’t have a bunch of overwhelming taxes?  Yes.  Upon your death you can leave the kids the cabin either outright or in a trust. If you leave it to them outright, as tenants in common, each will own 1/2 and can leave their half to whomever they choose when they die. If you leave it to them in trust, you can control how it’s managed and how it would be transferred upon their deaths (as in maybe it has to go to their children or be sold to other family members.) The tax treatment of the gift is that it will go to them free of tax — if there’s a tax to pay, it falls on your estate, but they inherit what’s left free of tax.  The capital gains tax basis on the property will be what it is on your date of death, so if they sell it someday, they’ll owe tax on the gain in value from your date of death to the date of sale. I don’t know what state you live in, but in California, where I practice, a gift from parent to children is also excluded from reassessment of property tax, so they get the property tax rate you were paying.

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.

Amending a Living Trust

Dear Liza:  My mom and dad set up a revocable living trust and now dad has passed away. Can my mom amend it?  My answer is: Maybe. If your parents set up a trust that’s pretty common for married couples, in which the trust is divided into two trusts after the first spouse dies, your mother can’t amend the trust that holds your father’s assets.  She can, however, amend the trust that holds her assets, which is revocable during her lifetime.  This is called an A/B Trust.  To find out if your parents have that kind of trust, find the section that says what happens after the first spouse dies. If it says to divide the assets into a ‘Bypass Trust” and a “Survivor’s Trust” or a “Credit Trust” and a “Marital Trust,” then your parents established an A/B trust.  However, if that section says something like the assets are to be held in a revocable trust for the survivor’s benefit, then your mom can amend the entire trust (because it was never divided into two trusts).

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.

Does Putting Properties into a Living Trust Trigger Reassessment?

Dear Liza: When putting property into a Living Trust does it trigger a tax reassessment under Prop 13? My parents purchased their property in 1968 and we didn’t want moving it into a Living Trust to trigger a reassessment.  Nope. If your parents put their house into their own living trust, no reassessement is triggered.  There are no ‘new’ owners, really.  It’s just your parents owning the property under a different legal title. Putting property into a revocable trust for your own benefit is an exception to Prop. 13 reassessment. When your parents record the deed changing title to the trust, they will also need to file what’s called a Preliminary Change of Ownership Report (PCOR). This form tells the county assessor about the transaction. There are a whole list of checkboxes on the first page of the form, and one box is that the transfer is to or from a living trust.  Once the assessor sees that, they know that they can’t reassess the property. Note: This is an issue for my California readers. Proposition 13 freezes property tax rates at a value that’s set when the property is purchased by a new owner.  Needless to say, those with low property tax rates do NOT want to see that rate reassessed while they still own the property.

Letters documenting Incapacity

Dear Liza: My 91 year old mother had a stroke in April. Her living trust designates my brother as Medical Power of Attorney and myself as Financial POA.   Her lawyer is asking for letters from two doctors stating our mother is mentally incapacitated before he can talk to both of us about her trust.   Why would a lawyer ask for them? Wasn’t the point of the trust to make everything hassle free?  Your mother’s lawyer is asking for letters from two doctors stating that your mother is incapable of managing her own affairs because, most likely, the trust states that you and your brother can act as successor Trustees only upon your mother’s incapacity. The trust probably also states that incapacity is to be determined by two letters from physicians stating, under penalty of perjury, that your mother is incapacitated. Many trusts are drafted this way. The idea is to protect your mother from having her powers as Trustee taken away unless she really can’t manage her own affairs.  Ask the attorney to provide you with letters for the doctors to sign — that shouldn’t be a big deal if, in fact, she isn’t able to manage.