Estate Planning Practice Blog

Your Children and Their Inheirtance.

When you set up a living trust -- you will be faced with some choices on how to handle or set up your children's potential future inheritance. (I say potential because you could die broke.) This is where a good life insurance policy may come into play and be designed to leave an inheritance. You will want to discuss your life insurance policies with your attorney as well.

For children who are under the age of 18, you should consider having their share placed into a trust with income distributions while a minor to their guardian and distributions of principal once they reach a certain age. Say at age 25 they will get the rest. Or maybe you say half at age 25 and the balance at 30. The trust will allow for the successor trustee to make distributions to your child for education among other needs. A wedding could be paid for. A car could be paid for. And a haircut could be paid for from the trust. It all depends on how it is worded.

Generally, things to consider in making these kinds of drafting decisions depends on the age of your children, the amount of money involved and your level of concern.  There are three options (generally speaking):

1.    A distribution outright and free of trust if at least age 18;
2.    A distribution to a trust for that child with specific provisions and a termination at a certain age; or
3.    A trust for that child's life time.

If, for example,  the children are over 30 and have no tax, liability, health or marital issues, you may prefer an immediate outright distribution combined with trusts for grandchildren to an age if a child predeceases.

Here is one mother's take on this:  "I am the mother of a 20 year old and a 14 year old. My observation is that the average 22 year old college graduate may be mature in his or her personal conduct, but has limited experience in personal money management. For this reason, I would feel comfortable that money be held in a trust until at least age 25.  And then get the rest of the funds at age 25."

If your kids are different -- you can do different terms for each child or make the overall terms much more restrictive.

These kinds of things are best discussed with your estate planning attorney to find out what is best for your children and your wishes.

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Estate Planning, Probate and Trusts involve complex areas of law. Individual circumstances must be considered before any advice can be given.  The general information above is not to be construed as legal advice, which can only be given after consideration of the unique facts of each matter. Please seek the advice or counsel of your attorney, financial advisor or CPA as it may be appropriate.

Trust Admin Process in a Nutshell.

The Trust Administration process after the settlor or settlors have died is usually thought of in four phases. This is assuming that for a single person trust that the person who created the Trust, the settlor, has died. This is also assuming that for a two person trust that both persons who created the Trust, the settlors, have died.

Below is a nutshell version of what the phases look like for California trust administration.

The first phase is intake. During the intake process the attorney handling the trust administration will discuss generally the following:

-- Review of the dispositive provisions of the Trust
-- A conversation about the family members, whether any one has been disinherited or if there will be any other potential problems with family members
-- Discussion of any potential problems immediately known
-- Discussion of the roles of the successor trustee(s)
-- Discussion of the scope of work by the attorney and signing an engagement agreement

If you have decided to hire the attorney, the attorney will assist you with second phase. The second phase is about getting the successor trustee in place and take possession of Trust assets. For real property, an Affidavit of Death of Trustee will be prepared, signed and recorded with the appropriate county recorder offices where the Trust owned real property. This clears title to the real estate so the sucessor trustee can manage the property. It will also include preparing and serving by mail a Trust Notification according to California Probate Code Section 16061.7 (which is very important to start and stop the claims cutoff period to contest the Trust).  A certification of trust will also be prepared to assist you with marshaling other assets like bank accounts. A federal tax identification number will also be obtained if needed.

If there are assets out there that are not in the Trust, you may have to resort to other legal procedures to get these assets into the Trust or otherwise handled. Some legal procedures could include a Probate Code Section 13100 Affidavit, Probate or even a Heggstad Petition. All of these are very fact dependent and depend on the nature of the asset, the Trust itself and other related facts like if there is a Schedule A or other evidence. Your attorney will assist you with the determination of the best legal procedure to gather non-Trust assets and how to get them vested in the Trust should that be the goal.

The third phase is about marshaling assets. This means identifying all assets, obtain date of death valuations where needed especially for tax purposes, obtaining current valuations where needed, and get an accountant on board to determine what tax returns are required. Federal estate tax returns (aka 706 returns named after the tax form number) are due within 9 months of date of death. If there are small cash gifts to be made in accordance with the Trust, then a preliminary distribution could be made.

Once all of the assets are identified, marshaled, valued and all tax returns have been filed (for the decedent, for the estate, for the trust and federal estate tax returns) then the trust is likely in a position to be terminated and all Trust assets distributed according to the Trust terms. This is the fourth phase. A trust distribution agreement is prepared and sent to the beneficiaries for review and signatures. And once everyone has agreed to how the Trust assets will be distributed, the trustee makes the final distributions. There may be resulting concerns like filing a final fiduciary tax return on behalf of the Trust even after the Trust has been terminated.

Trust administration is almost always easier than probate as court oversight and approval is not usually necessary. But, it is one of those things that is best done with the assistance and advice of counsel. So, as this blog always says, be sure to consult with your own attorney regarding trust administration.

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Estate Planning, Probate and Trusts involve complex areas of law. Individual circumstances must be considered before any advice can be given.  The general information above is not to be construed as legal advice, which can only be given after consideration of the unique facts of each matter. Please seek the advice or counsel of your attorney, financial advisor or CPA as it may be appropriate.

Your Trust and Its Schedule A.

Does your living trust have a Schedule A attached to it? If your answer is No, do not past go and contact your estate planning attorney now to prepare a Schedule A.

If your answer is Yes, stop and review the following questions:

1. Is your Schedule A up to date?
2. Does it list all of your assets in your trust?
3. Does it list all of your real estate holdings?
4. Does it list your business interests? Corporations? LLCs? Partnerships?
5. Does it list your promissory notes and IOUs you hold?
6. Does it list all of your bank accounts and brokerage accounts?

If you consider your Schedule A, up to date -- check the titling of all of your assets that you have listed on this Schedule. Do the titles of the assets state that they are held in the Trust? Have you prepared assignments or other transfer documents to put your assets in the Trust?

In California, Schedule A can be evidence that you intended to transfer an asset to your trust and a court order can be obtained effectuating this transfer if you pass away before you had a chance to transfer the asset to your trust. It is called a Heggstad Petition among attorneys (named after a case). It is a useful mechanism to avoid probate in some instances.

There are some assets that should not be titled into your trust. Generally they include retirement accounts and life insurance policies. But even with these kinds of financial products, you need to discuss with your attorney whether in your situation you need to treat your retirement accounts and life insurance policies differently.

Of course, it goes without saying that if you are confused or not sure, consult with your estate planning attorney regarding your living trust and its Schedule A to make sure it is up to date.

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Estate Planning, Probate and Trusts involve complex areas of law. Individual circumstances must be considered before any advice can be given.  The general information above is not to be construed as legal advice, which can only be given after consideration of the unique facts of each matter. Please seek the advice or counsel of your attorney, financial advisor or CPA as it may be appropriate.

Basic Advice: Set Up a Living Trust

Suze Orman, from O (Oprah) Magazine, strongly advises her readers to set up living trusts. Here is what she has to say:

In What to Do When a Family Members Abuses an Inheritance in this month's O Magazine and featured on the website, she strongly advises setting up a trust to prevent someone from taking wayward control of your estate. Read the article to find the facts, but her solution is the same "mak[e] sure they have a revocable living trust with an incapacity clause."

In Leaving a Legacy on the O Magazine website, she repeats her standard advice by saying "we've covered this before, but it bears repeating: Create a living revocable trust, and make that trust the beneficiary of all your sizable assets (including your home)..."

In Why Gift Can Be Costly on the O Magazine website, she says it again -- set up a living trust and clearly explains how cost basis works and repeats her advice about setting up a trust even in gifting situations. In fact, she says, "[s]o if they're intent on giving a gift, make it cash. For appreciable assets such as stocks or real estate, it's better to make the gift an inheritance through a revocable trust."

Contact your own estate planning attorney for more information.

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Estate Planning, Probate and Trusts involve complex areas of law. Individual circumstances must be considered before any advice can be given.  The general information above is not to be construed as legal advice, which can only be given after consideration of the unique facts of each matter. Please seek the advice or counsel of your attorney, financial advisor or CPA as it may be appropriate.

Living Trusts Are Revocable And Not An Asset Protection Tool

It comes up all the time.

A call comes in from a potential client: "I need to set up a living trust now to protect my assets. "

Generally, if the person (called the settlor) who created the living trust and transfers property to this living trust has retained the right to revoke the living trust then he also retains an interest in the trust assets. There is no protection from outside entities or creditors regarding what has been transferred into the living trust.

In other words, a living trust is known as a revocable trust.  As such, living trusts are not considered a vehicle for asset protection.  A living trust is used mainly to allow assets to transfer at death without going through probate or to allow a co-trustee or successor trustee manage assets in the event of incapacity of the settlor of the trust.

Consult with an estate planning attorney to learn more about living trusts. And if you have asset protection questions, be sure to mention your questions and concerns with your attorney as there may be other options out there based on your situation.

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Estate Planning, Probate and Trusts involve complex areas of law. Individual circumstances must be considered before any advice can be given.  The general information above is not to be construed as legal advice, which can only be given after consideration of the unique facts of each matter. Please seek the advice or counsel of your attorney, financial advisor or CPA as it may be appropriate.

Putting Bank Accounts in Your Living Trust

After you have established your Living Trust, one of the more important things you will need to do is fund your trust with your assets including bank accounts. This post only deals with bank accounts and not other assets that should also be included in a Living Trust. 

Once your Living Trust is set up, it is your job to contact all financial institutions where you have accounts to transfer those accounts to your trust. Here is a run down of what to expect.

1. Discuss with your attorney which accounts should be in your Living Trust. Sometimes not all financial accounts should be in your Living Trust.

2. For the accounts you have identified as belonging to your Living Trust, contact the financial institution and request that they re-title your existing account to your Living Trust.

3. Most financial institutions will want to see or keep a copy of the Living Trust on file. You can provide them with a Certification of Trust or a copy of the Living Trust -- depending on your comfort level.  Under California law they are supposed to honor a Certification of Trust in lieu of seeing the actual Living Trust document, but sometimes it is just easier to give the bank officer what they ask for rather than trying to drive home the legalities of the CA Probate Code Section 18100.5 as it relates to the Certification of Trust.

4. The account title should be updated in a manner that reflects how you have set up your Living Trust. For instance, "John Smith, Trustee of the John Smith Revocable Trust dated July 1, 2007."

5.  Not all banks will re-title accounts in a Living Trust. Some internet banks do not offer this option so be sure to check with the bank if you already have a Living Trust and plan to open a new account.

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Estate Planning, Probate and Trusts involve complex areas of law. Individual circumstances must be considered before any advice can be given.  The general information above is not to be construed as legal advice, which can only be given after consideration of the unique facts of each matter. Please seek the advice or counsel of your attorney, financial advisor or CPA as it may be appropriate.

Trust Administration After Someone Dies

Living Trusts require administration after the death of a settlor (the person who created the trust).

Upon a person's death -- there are many steps that need to be taken in accordance to California laws to properly administer their Living Trust:

To start, California Probate Code Section 16061.7 requires notification by trustee to beneficiaries/heirs of the person who passed away as the first step.  See our blog post on this notice requirement.

California also requires a trustee to give notice of death to the Department of Health Services as it relates to Medi-Cal benefits. This notice allows the Department of Health Services to determine whether the decedent was receiving Medi-Cal benefits and if there is any right by the state for reimbursement.

Real property assets held in trust need to have titled cleared. An Affidavit of Death of Trustee is commonly filed along with other Trust Transfer Deeds to properly distribute the property as directed by the Living Trust.

Trust assets need to be appraised and otherwise handled.

And tax issues need to be considered and handled with the assistance of a qualified CPA or accountant experienced in estate matters.

And, lastly, it is prudent to wrap up the administration of a Living Trust with an agreement signed by the trustee and all of the beneficiaries to protect the parties.

This is a quick run down of the trust administration issues and is not meant to be all inclusive. Please consult with an attorney for specific advice regarding your trust administration matter.

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Estate Planning, Probate and Trusts involve complex areas of law. Individual circumstances must be considered before any advice can be given.  The general information above is not to be construed as legal advice, which can only be given after consideration of the unique facts of each matter. Please seek the advice or counsel of your attorney, financial advisor or CPA as it may be appropriate.

Final Dispositions Cause Trust Litigation More Than The Boilerplate Language.

Trusts are not protected from litigation. Really, anyone can sue anyone for anything (just about). Sometimes you need an attorney to defend you from a lawsuit that should not have been filed. What does this mean about Living Trusts? And where am I going with this post?

Our firm handles many trust litigation matters.  We often represent the trustee of a trust that has been sued by a disgruntled heir.

People seem to think that the terms of the trust is what has caused the lawsuit. For example, the inclusion of a certain probate code language or some other boilerplate language some how makes it more prone to an attack.

Sadly, this is not the case. People attack Living Trusts because they have either been omitted or feel slighted in how you want to handle the final disposition of your assets. Think they should have gotten more.

You have more control than you think over whether a lawsuit happens after you die if you create a Living Trust to dispose of your assets.

Some things you could do to make your Living Trust more susceptible to a lawsuit (these are things not to do or if you are going to do -- think carefully and discuss with your attorney at length):

1. Disinherit a child outright
2. Draft your Living Trust shortly before you die
3. Draft your Living Trust at the insistence of a family member who gets more than the others
4. Favor one child over another
5. Name your children to act as co-trustees and if they don't agree... they go to court
6. Execute your Living Trust while incapacitated
7. Favoring a new spouse over your children from a former relationship
8. Not giving anything to your children, but all to a charitable organization or church
9. Omitting your spouse when you are not separated or divorcing (there are state specific laws on drafting estate planning documents while divorcing)
10. Giving it all to your dog instead

I think you get the idea. It's generally not the terms of the Living Trust that causes lawsuits -- it is the parts that are drafted in accordance to your wishes that are more subject to an attack than anything.

This doesn't mean don't draft a Living Trust. Rather it means consult with your attorney, cover your bases and protect yourself. Your attorney may have good ideas of preserving your wishes and protecting your estate from an attack after you die.

No, No... Retirement Accounts Do Not Belong Your Living Trust.

One common mistake that people make when they have a spouse or children is to transfer their retirement accounts into their Living Trust. If your attorney suggests that you do this and you have a spouse or children who could survive you -- ask why they are recommending this.

It could be that your attorney is not experienced in estate planning and does not know what should or should not be titled into your Living Trust.

Generally, retirement accounts are not subject to probate because you can name beneficiaries. And by naming your spouse or children as beneficiaries, you are allowing them the most flexibility in dealing with transferring your retirement accounts when you die including the option to rollover the retirement account.

Otherwise naming your Living Trust as a beneficiary may have dire tax consequences to your beneficiaries if it remains held in your Living Trust when you die. Talk to your CPA or financial advisor for more details.

Mandatory Trust Allocations.

Ever hear of an A|B Trust? It is a living trust designed to preserve the estate tax exemption amount when the first spouse dies. Without getting into why one might have an A|B Trust, please know that if you *have* an A|B Trust already that when the first spouse dies, the surviving spouse is required to allocate or divide the existing trust assets according to the trust document.

Say the trust document requires that upon the first spouse's death that the trust assets be divided into Trust A and Trust B where Trust A is called the Survivor's Trust and Trust B is called the Exemption Trust. Different trusts call these sub-Trusts different names, but they are the same.

This means following a host of procedures and legal maneuvers to ensure that the  original Trust is  divided into two sub-Trusts. This means that Trust A belongs to the surviving spouse and Trust B belongs to the spouse who died. Trust A is still revocable, but Trust B isn't.  This allocation is mandatory when you read the existing trust document.

It's a complicated thing. This allocation. This division. This A|B Trust. It's hard to explain in a post. The best things to understand are the following:

1. If your estate is worth less than $2 million, which is the current federal estate tax exemption amount, and you have an A|B Trust *and* you and your spouse are alive and well -- it is a good idea to talk to your attorney about restating and amending this Trust to get rid of the A|B component and draft a disclaimer trust that doesn't require this split upon the death of the first spouse. There are caveats though because an A|B Trust works well for blended families.

2. If you have an A|B Trust and have lost your spouse, please see your attorney to determine if an allocation is required and complete the allocation process.

3. If you don't understand how this works, and this post isn't designed to explain it to you, please see your attorney for an in-depth conversation of how these trusts work so you understand.

4. The trust document controls the terms of the Trust and how it works. If you can't sleep, read your Trust and see if it makes sense. Despite the legalese, if you read it -- it just might make sense and you will get it. But in reading it, if you notice something that seems wrong, should be changed or is a mistake outright... see your attorney right away to make the necessary amendments where allowed.

As always, when in doubt, consult with your estate planning attorney.