Proper Care and Feeding of a Living Trust

*This information is designed to be of general interest. The specific techniques and information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal legal advisor who is familiar with your personal situation. We are lawyers based in California. If your matter involve non-California issues, please contact a local lawyer.*

URGENT REMINDER: Many Lenders ask you to take property out of Trust ownership when you get a mortgage, but they don’t put it back in afterwards. A Trust avoids Probate Court for assets properly titled in the name of the Trust. If property is out of Trust at death, it is subject to Probate Court. This is a BIG mistake that can be fixed easily now, while you are alive; if not fixed, it will explode later.

So check your property tax bill NOW. Even if you are SURE it’s OK.

As always, the key to proper maintenance of the Trust is to make sure assets are properly titled in the Trust:

a) It is important to review your estate plan periodically to make sure that you still trust those people you have appointed to act after your death, as well as to ensure that the dispositive provisions still meet your present desires.

Are minors on track, or have they detoured?

Our trusted people: are they still competent or senile? Do we need to reconsider who should be in charge?

b) Make sure your Health Care Agent has copies of your medical form. If they get a call in the middle of the night, they may need to grab the form and run to the hospital. Can they find the form (or did they lose it and need a new copy)?

c) When you are dead or incapacitated, the people on whom you dumped this huge chore need some guidance from you to make it as easy as possible for them.

But, if you are dead, can they find your assets? (Bank and stock accounts, safe deposit box, real estate, retirement plans, and insurance? If you have no insurance, think how much time they might waste looking for it, just to make sure they did not overlook something.) Put a current asset list with your Trust papers.

Can they access your computer and the requirements of modern life: email, banking, etc. If you are dead or hospitalized, can they find your passwords?

Can they find your accountant, broker, insurance agent, lawyer, and property managers? Tell them whom to trust and who they should not.

d) Do they know your wishes? Either discuss this with them now, or write them a letter (to be opened after your death) with instructions so they know.

They should know your funeral wishes before they are “guilted” into spending a fortune (unless that’s what you want).

e) Consider writing an “Ethical Will”; a letter (to be delivered after death) of advice about life. Ethical Will: Life Lessons for your Heirs: Tell them who and what you are; who and what you hope they will be. This is not a legal document, but a life lesson letter to your descendants. This is a wonderful way to stay connected with family over future generations. It might contain:

Lessons you have learned (perhaps they can learn from your mistakes);

Personal experiences; or

Family stories and histories which otherwise will be lost forever.

I keep updating letters to my wife and daughters on my computer whenever I am reminded of a lesson in life.

Always, the major chore in the maintenance of a Living Trust is to make sure that all of your assets which have any form of registration are properly titled in your Living Trust. These assets include bank accounts, stock, and real estate. Now is a good time to verify that all such assets are held properly.

You should have received a real property tax bill for each parcel of California real estate you own.

[Please verify from your tax bill that the Homeowner's Exemption is claimed on your personal residence. If not, call your local Tax Assessor for a claim form.]

You also will receive Forms 1099 showing interest or dividends received during the past year, and K-1s for Partnerships.

Please check each real property tax bill, Form 1099, and K-1 to ensure that it reads something along the lines of:

John and Mary Smith, Trustees of the Trust of John and Mary Smith, dated January 1, 1991.

There may be other property which should also be in the Trust but may not provide annual reporting, such as stock which does not pay dividends and, therefore, no 1099 is provided.

Pension Plans, IRAs, and Life Insurance are not usually in Trust: they are owned by you individually, and payable to the Trust at death.

[Creditors (such as your mortgage holder and credit cards) do not need to know about the Trust; only those holding your property should know.]

If you inherited any property or received substantial gifts since formation of the Trust, you should discuss its status and your desires with an attorney.

If you refinanced your property since doing the Trust, you should verify that the property is back in the Trust.

If you bought new property or opened new investment accounts, you should verify that these are properly held in the Trust.

If your marital status (or domestic partnership status) has changed since the formation of the Trust, we should discuss the ramifications.

Although it may not be necessary, it may provide additional certainty to execute annually a statement that all property is in the Trust. This clarifies that any property you may have acquired is in the Trust.

If you have any questions email me at marcw@wwlaw.com

*In accordance with Treasury Regulations Circular 230, we are obligated to inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purpose of avoiding tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.*