Estate Planning Practice Blog

Reviewing An Aging Parent's Trust & It Is Not Funded?

I've received multiple inquiries on this very issue over the past few days: My parents have a trust. And I just realized that their home is not in their trust.

Generally, if a grant deed was not prepared and recorded to transfer title of the home into the Living Trust -- it is not in the Living Trust. You can check with the County Recorder's office or a local realtor/title company to see if your parents' home is in their Living Trust.

As one potential client summed up in an email to me this morning, my parents' Living Trust is useless because their property was not transferred into their trust. What do I do?

If you already have a durable power of attorney over your parents' financial affairs and it includes the power to manage real property and the power to create/modify/revoke trusts, you can prepare and sign a grant deed on behalf of your parents to transfer their home into their Living Trust.

If you do not have a durable power of attorney over your parents' financial affairs, you can still work with your parents to help them prepare a grant dsign this grant deed. This means that they must understand the nature of the transaction and intend to transfer their home into their existing Living Trust.

A grant deed is a devilishly simple document to prepare for those who know what they are doing. The average fee for a professional to prepare a grant deed along with the other necessary documents for recording is between $150 to $225. This preparation fee normally incorporates the recording costs with the County Recorder, recording the actual document in a timely fashion and including a preliminary change of ownership form.

Placing Your Home Into Your Living Trust.

There are many approaches to transferring your home into your Living Trust. Remember, your home is most likely to be your largest asset. If your home is not IN your Living Trust, your Living Trust is useless with respect to your home.

A Living Trust is a private document that allows for the private management of the assets placed into the Living Trust. If the assets are not placed into the Living Trust, then those appointed to manage those assets have nothing to manage. Those appointed to manage are called your successor trustees.

Anyway, it is easy to transfer your home into your Living Trust in California.

1. You prepare a grant deed transferring title of your home from you to your Living Trust. You sign it in the presence of a notary and record it with the county recorder's office where the home is located.

2. You prepare a trust transfer deed. It's the same concept as a grant deed above. You sign it in the presence of a notary and record it.

3. You prepare a quitclaim deed transferring your home into your Living Trust. You sign it in the presence of a notary. You keep it in your book or with your other estate planning documents. Upon your death, your loved ones or successor trustee locates this quitclaim deed and records it. The home is in the trust if it has not been sold or conveyed to another person in the meantime.

There are variations of the above. Say you are managing someone's trust, you find a signed and notarized grant deed, but it has not been recorded. If it was signed when the homeowner and the person who created the Living Trust was alive, you may be able to record the grant deed after his or her death. This will still allow the Living Trust to hold title to the home. There's more issues and things to be careful about with recording after someone dies, but it can be done.

My experience has been that Living Trusts that were prepared years ago in the late 70s and early 80s by attorneys used quitclaim deeds to be recorded later. Most attorneys today do not take this approach and will help you prepare a grant deed and record it for you.

Now that being said, some attorneys will not help you transfer title of your home into your Living Trust. This amazes me because it is so easy for me to do and it is usually the most important thing to do in order to make your Living Trust useful upon your death or incapacity.

Be sure to ask the estate planning attorney you are planning to hire if they will take care of the transfer for you.

Preliminary Change of Ownership Reports -- a Necessary Evil.

In California, every deed or property conveyance that is recorded with the county recorder's office should have a Preliminary Change of Ownership Report completed and submitted alongside the deed or conveyance.

I blog about recording deeds because this is the only way to transfer your real property into a trust. You can have to record a grant deed or trust transfer deed reflecting that your trust now owns the property.

The Preliminary Change of Ownership Report is very confusing and takes more than a few minutes to fill out even with an auto-fill program.

Anyway, it is not required, but the county will assess a $20 recording fee penalty for not submitting this form.

The basic purpose of the form is for the county to determine the type of transfer that is being recorded. The county needs to know if property taxes needs to be reassessed. For transfers into a trust, your property taxes should not be reassessed as the law does not consider a transfer into a trust as a bona fide change of ownership.

Today I ran into an attorney who was talking about these PCOR forms. He says he doesn't do them. To me, that is being lazy. Sure, they are not required, but it makes it very easy for the county to identify the type of deed or conveyance being recorded and seeks the information they need for determining if property taxes should be reassessed.

The neat thing about the form is that you can use any county's PCOR form and it will be accepted by any other county for recording.

Putting Stocks in Beneficiary Form.

Ever wonder what to do with your stocks? Some people are meticulous in ensuring that every asset they own will avoid probate. It's easy to name a beneficiary for stocks in the event of your death.

Almost every state has adopted a law (the Uniform Transfer-on-Death Securities Registration Act) that permit clients to name someone to inherit their stocks, bonds or brokerage accounts without probate. See California Probate Code Section 5500 et. seq.

It works very much like a payable-on-death bank account.

When registering ownership, either with the stockbroker or the company itself, a request is made to take ownership in what is called "beneficiary form." When the papers that show ownership are issued, they will also show the name of designated beneficiary.

After death, the beneficiary can claim the securities without probate by providing proof of death and some identification to the appropriate company to reissue the stock in the name of the new beneficiary.

Your Home Must Be Titled Into Your Trust.

I spend a considerable amount of time educating clients on ensuring that their home is titled into their Living Trust.

First, let's understand that if a titled asset is NOT in your Living Trust then your Living Trust is useless with respect to that asset. For most people, your home is the largest titled asset you have. Your home usually represents the bulk of your estate.

When you work with me for estate planning, I handle the transferring of your home into your Living Trust. I prepare a grant deed to transfer your home into your Living Trust. I take care of the recording with the county in which your home is located.

How this works:

John and Jane Smith own a nice home in Orange County.

I prepare a grant deed that transfers the home from John and Jane Smith as Joint Tenants to John and Jane Smith as Community Property. I want to confirm that the home is a community property asset for the double stepped up basis. My next grant deed is from John and Jane Smith as Community Property to John and Jane Smith, trustees of the John and Jane Smith Revocable Trust Dated January 1, 2006. When this is recorded, it means that the home is now placed in the Living Trust.

It's easy.

But things happen. You refinance, get a reverse mortgage, sell your home, buy additional property and so on. Whatever you do -- make sure that the last deed being recorded for ALL property transactions is reflected in your Living Trust.

Please ensure that your home is always in your Living Trust if you want your Living Trust to be operative and fully funded. If you have any doubts, consult with an estate planning attorney or ask a title company to run a title report. If the last deed recorded for the property shows that your Living Trust owns the property, you did a good job!

Transferring Ownership of a Decedent's Vehicle.

Someone dies. He or she had a car. A car nice enough to keep. You are the only heir. The estate doesn't need probate for whatever reason.

First, determine if there is an existing note on the car. If there is a note, you will want to continue to keep paying the note until you can transfer title into your name.

Second, make sure there is insurance on the car.

Third, complete this form at the DMV called Affidavit for Transfer without Probate, California Titled Vehicles or Vessels only. You will want to go to your local DMV to file this form and ensure that title will now be in your name.

This form is part of the small estate affidavit procedure permitted by California Probate Code Section 13100, et. seq. When you complete and sign the Affidavit, you are stating under the penalty of perjury that you are the rightful heir, the estate is less than $100k, probate is/will not be opened and at least 40 days have elapsed since decedent died.

Last steps, call the car note holder and see if you can continue to pay on the note or if you need to do something. Each lender is different. Try to be nice, eh? And then call the insurance company again to cancel the decedent's insurance policy and re-insure the car under your own insurance policy.

Your Safe Deposit Box as a Trust Asset.

If you have a safe deposit box, be sure to have a plan in place for a loved one to access the box if you pass away or become incapacitated. Every bank has their own rules (or so it seems).

Some banks will allow you to appoint an authorized user or joint renter of the box. They will need their own key and sign the access card at the bank. This is not always fail-safe because if the bank finds out that you have passed away they may restrict access to anyone even your authorized user or joint renter.

Some banks will allow your successor trustee access to your safe deposit box if you list your box on your schedule of trust assets. This sounds strange, but it is easy to do. Simply update the schedule of trust assets for your Living Trust to include the name of the bank, address and box number for each safe deposit box you own.

Be sure to ask your bank what is the best way to ensure that someone else can gain access to your box to retrieve valuables or documents.

Or do what many of us do -- keep valuables and important papers at home.

For more information on safe deposits, read this informational news bulletin from the FDIC. It's a bit dated -- Spring 1997, but the information is still very useful.

Timeshares and Vacation Properties Should Be Taken Into Consideration.

Stan Rule, an estate planning attorney in Canada, writes a very timely post about including your vacation properties as part of your estate planning. The laws he writes about are Canadian laws so be careful when reading his post.

His analysis on holding title in joint tenancy pretty much applies in California and his point about whether all of your children would enjoy the property is something else to consider. If only one child will use your timeshare, consider gifting that timeshare to that child instead of making the kids fight over it or convert it to cash so they can share the proceeds.

Be sure to consult with your estate planning attorney regarding your vacation properties no matter where in the world they are located. They need to be included in your estate plan.

Retired? Convert Your 401k to an IRA.

Yesterday, I wrote briefly about the pitfalls of handling an inherited IRA. One useful tidbit of information as it relates to 401k and 403b retirement plans is that if you are retired, you should consider converting your existing 401k and 403b plans into a rollover IRA. This is because many companies have restricted options for handling inherited 401k or 403b plans.

Your company's plan may require your beneficiaries to liquidate the accounts upon your death thus losing any tax benefits to keeping in such a vehicle and creating a tax liability. If you rollover your 401k or 403b accounts to a rollover IRA, your beneficiaries will be able to make more choices about how to handle their inheritance.

It sounds like a hassle, but once you get the forms from your company's plan, complete them and set up a rollover IRA account, the transfer can happen in as little as two weeks. Plus if you are working with a financial advisor, he or she would be more than happy to assist you with the leg work. Do I think financial advisors are a good thing? Hmm, that's a post for another day.

Inheriting an IRA?

If you have inherited an IRA, be sure to seek professional help before managing this asset. First, IRAs are full of rules, tricks and loopholes bound to get you in trouble. If you make a wrong turn in handling an inherited IRA, you may pay through the nose with tax penalties.

If you inherited an IRA from someone other than your spouse, you will most likely want to retitle the IRA as an inherited IRA or beneficiary IRA. You can only do this if you were named as the beneficiary of the IRA in the first place.

You can cash out an inherited IRA, but you will have to pay taxes. Money stashed away in a traditional IRA (not  Roth IRA) has been stashed using pre-tax dollars. Taxes must be paid on the IRA distributions at some point whether it is during the lifetime of the original owner or when it is inherited. If it is inherited and you retitle it as an inherited IRA, you can take out smaller distributions based on your age and pay taxes as you go. This means that the bulk of the IRA can continue to grow tax-deferred for many many years.

Like I said, lots of rules, tricks and loopholes here. Be sure to consult with someone who understands inherited or beneficiary IRAs.