Funding Your Trust

         When a Revocable Living Trust (Trust) is created, the Grantor/Settlor, i.e. the person creating the Trust, declares that certain property is going to be held by the Trust and managed by the Trustee .  In most cases, the person creating the Trust is both the Settlor and Trustee.  The process of putting property into the Trust is called “Funding” the Trust.  The purpose of Funding the Trust is to allow property management by a Trustee other than the Settlor i.e. after the Settlor dies.  The Trustee after the Settlor is called the Successor Trustee. 

 If the Trust is not funded, the Successor Trustee may be unable to manage the Trust without obtaining a court decree declaring the trust property belongs to the Trust.  This can be a complicated process and the outcome uncertain.  In addition, if the Trust is not properly Funded, there may be disputes over ownership of assets.  Therefore, if you have Trust, now is the time to make sure your Trust is Funded.   

         There are two parts to “Funding” the Trust.  First, the Trust needs to list the trust property and have language satisfying the requirement for a declaration that the property listed is to become Trust property as soon as the documents are executed.

         The second part is making sure your Trust has legal title to your assets.  For bank accounts, this means you need to notify the Bank or Brokerage that you have a Trust and put the account in the name of the Trust.  For real property, the Settlor must execute a Grant Deed/Trust Transfer Deed showing the real property transferred to the Trustee of the Trust.  After it is executed and notarized, it must be recorded at the county recorder’s office in the county where the real property is located.  It is particularly important to check your documents if you have sold or refinanced any real property because the lender may have required the real property to have been deeded back to you from the Trust prior to a sale or refinance.  If that was the case, you need to make sure the real property is again put in the Trust.  If you have personal property of substantial value which is not titled already i.e. a car or boat, you may want to consider doing an Assignment of Tangible Personal Property to the Trust.

         In conclusion, if you have a Trust, now is the time to review it.  Make sure that all of the assets you want in the Trust have been listed in the Trust.  Make sure that there is language declaring the assets are in the Trust.  Finally and most importantly, make sure there is recorded Grant Deed/Trust Transfer Deed for real property, Assignment of Personal Property for personal property and confirmation of bank/brokerage accounts are in the name of the Trust.    If you do not know whether your Trust is properly Funded, I see people for a free 30 minute consultation in my Walnut Creek and Brentwood offices.        

*THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING ESTATE PLANNING.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.   (925) 939-1680.           

© 2014 Joan Grimes

Do Your Children Owe You Money?

Handling the Issue in Trust

Many times an Estate Planning Client comes into the office saying that their children, grandchildren or another person (maybe the gardener) owes them money.  Sometimes it is only a few hundred dollars, but other times it is hundreds of thousands of dollars.  The loan could have been for a car, down payment on a house or business.  Under the best of circumstances, there is an actual promissory note, but most of the time; it is just a verbal agreement.

If the loan is not large and you will not need the money in the future, we recommend that you try to cancel the obligation before your death and making any necessary distributions to other beneficiaries to equalize treatment.

If it is not possible or desirable to forgive the debt prior to your death, the debt and disposition of the debt should be specifically addressed in the will or trust. There are 2 specific issues that you need to be aware of with regards to addressing a debt in a will or trust.  First, your financial situation may be very different at your time of death than it is today.  If you forgive a home loan secured by a Deed of Trust to son in your will, but your son dies before you, what will happen with the loan?  Is it your intent that the beneficiaries go after the owner of the property to pay back the loan? Second, what are your intentions if there are not sufficient assets to equalize payments to other beneficiaries based on the loan made to one beneficiary?

Loans to children or other people can be a tricky issue in estate planning.  If it is your intention that any loans be canceled upon your death, you should specifically list the borrower, the amount and date of the loan.  In addition, you should indicate whether any estate or inheritance taxes attributable to this forgiveness of debt shall be paid by the individual or is a charge against the estate. Another alternative is to provide that the debt is an offset against that person’s share of the estate.  However, if the debt is large and there are not sufficient assets to equalize a distribution to other beneficiaries or make any other distributions called for under the terms of the will or trust, the question of the balance still due to the estate on the loan should be addressed.

In conclusion, it is a great thing that parents are able and willing to help their children, grandchildren or other people.  However, failure to address assistance given in a will or trust has caused numerous problems among beneficiaries.  It all goes back to “he or she is getting more….”  In order to avoid this problem, I strongly urge you to review your will or trust and see how any loans or advances are handled.

If you have questions about your will or trust, I would be happy to review it with you at no charge. I see people every day for a FREE 30 minute consultation in Walnut Creek and Brentwood.

This article provides only general legal information, and not specific legal advice.  Information contained is not a substitute for a personal consultation with an attorney.  LAW OFFICE OF JOAN M. GRIMES, PHONE (925) 939-1680  191 SAND CREEK ROAD, SUITE 220, BRENTWOOD, CA  94513     © 2014 Joan Grimes

Should 401k and IRA Plans be Put in a Revocable Living Trust?

A common question people ask when they come in to do an Estate Plan is whether their retirement benefits i.e. the 401K, IRA or pension account should be in a Revocable Living Trust (“RLT”).  As you may recall, a RLT is a legal document created during your lifetime that allows you to leave your real and personal property to beneficiaries of your choice.  A RLT is very much like a Will with one BIG exception: there is no Probate with a RLT.   

The most common asset put into a RLT is real property.  By putting real estate into a RLT there is no probate and minimal time delay incurred in transferring assets to beneficiaries with a RLT because no court approval is required.     

The question is more complicated when it comes to having an estate plan that calls for the RLTs to be a beneficiary of retirement accounts.  The first question we ask is whether there is a strong estate planning reason to name a trust as a beneficiary, or is there a way to achieve the same planning goals without incurring the risks and complications of naming a trust?

Our first choice in drafting most estate plans will be for you to leave your retirement benefits i.e. your pension, 401K and IRA outright to your intended beneficiary.  In most cases, this will be your spouse.  However, what should you do if your spouse is not alive and you want to leave your benefits to minor children or to several beneficiaries?

If you want to leave retirement benefits to minor children or you want to leave to them to several people, these are compelling reasons why a RLT should be the beneficiary or a contingent beneficiary.   If you name a beneficiary who does not have capacity to receive the benefits i.e. a minor child, then a conservatorship will be established by the court at great expense to the minor child.

If you have retirement benefits and are considering making a RLT a beneficiary, you will need to check with your retirement benefit administrator regarding naming a RLT as your beneficiary.  Different companies have different rules.  Sometime they require an attorney drafted designation.  Also, it is critical that your beneficiary designation is correct and reflect your intentions.  Who you put on the designation is the person who gets the money.  They have no obligation to share with anyone else. 

If you are considering leaving retirement benefits in a RLT, the beneficiary of the trust must be a person or group of people.  You can’t use a trust to leave retirement benefits to a charity, your church or another trust or any other entity.  That is not to say that other assets of your trust cannot go to a charity or church or another entity, just not the retirement benefits. 

Today retirement benefits are very valuable.  Take the time to understand what your current estate plan for the benefits is and what other options are available to you and your family.   For most people, an Estate Plan including a RLT and all of the ancillary documents including a Power of Attorney and Healthcare Directive should not cost more than $2,000-2,500.  Most attorneys allow people to make payments over time for the work.  If you have separate property from a prior marriage,  business interests that need to be included or a taxable estate, it may be more, but then it is even more important that you properly plan for distribution of your assets in accordance with your wishes without the prying eyes of the public and court system. 

I see people every day for a FREE 30 minute consultation in Walnut Creek and Brentwood.

This article provides only general legal information, and not specific legal advice.  Information contained is not a substitute for a personal consultation with an attorney.  LAW OFFICE OF JOAN M. GRIMES, PHONE (925) 939-1680, 1600 S. MAIN STREET, SUITE 100, WALNUT CREEK, CA  94596;  191 SAND CREEK ROAD, SUITE 220, BRENTWOOD, CA  94513     © 2014 Joan Grimes 

Incapacity Planning

          Jim Hendrix was right when he said: “Life is pleasant. Death is peaceful.  It’s the transition that’s troublesome.”  As baby boomers are moving into retirement at the rate of 10,000 per day many are for the first time thinking about their own mortality and the need to make arrangements for themselves if they cannot handle their own affairs prior to their death.

          The first order of business in planning for incapacity is making sure you have an estate plan.  For most individuals and couple with real property, a simple estate plan will include wills, a revocable trust, durable power of attorneys (“DPOA”)  and health care directives.

          The revocable trust will include real property and any other substantial assets.  However, a revocable trust will not eliminate the need for a power of attorney.  A power of attorney is a written instrument in which one person (the “principal”) designates another person (the “agent”) to act on the principal’s behalf.   Like a revocable trust, a power of attorney allows a principal to entrust the management of his financial affairs to another.  If the power of attorney is made “durable,” it remains in effect even when the principal later loses capacity.  To be a durable power of attorney, it must include the magic words of “This power of attorney shall not be affected by subsequent incapacity of the principal” or similar language.

The advantages of a DPOA are that it is the simplest and least expensive to prepare.  There is also no transfer of title to assets required, court supervision is unnecessary and administrative requirements are minimal.

A DPOA can also be very flexible.  The powers granted to the agent can be very broad or as narrow as the principal wishes.  Sometimes a DPOA is used if a principal is going to be out of the country or is having surgery.

The disadvantageous of a DPOA is that some third parties are still unwilling to do business with an agent despite statutory provision protecting the third parties.  The most common problems arise in the sale of real estate or securities.  On the other hand, third parties usually have little objection to dealing with a trustee acting under a revocable trust.   Another problem of the DPOA is that they are only effective during the principal’s life.  If there is a trust in addition to DPOA, the trustee can immediately exercise all necessary powers to settle the affairs of the trust after the death of the principal.

In conclusion, it is my hope for myself and for you that our transition from life to death is not too troublesome.  To the extent that we plan for the transition, I know it will be easier.  If you do not have an estate plan which includes a durable power of attorney, I recommend that you put it on your list of things to do in the coming year.  If you don’t make a plan for yourself, someone else will and it may not be what you would have wanted.  I see people for a FREE 30 minute consultation at my offices locate in Walnut Creek and Brentwood.

This article provides only general legal information, and not specific legal advice.  Information contained is not a substitute for a personal consultation with an attorney.  Law Office of Joan Grimes, (925) 939-1680. 

© 2013 Joan Grimes