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.*
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Should I Put the Kids on Title? NO!
*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.*
That’s the worst idea ever!
I hear it all the time. “We have 2 grown kids. We are getting older. we want to put the kids on title to our home.” Why does this happen so often? What is the problem? Here is an example:
Dad died. Mom is alone and feeling mortal. She has 1 child: a grown Son. He is a good Son. Attentive. Caring. Helpful. If Mom puts him on title as a Joint Tenant, when Mom dies Son automatically inherits without Probate.
Why is this a terrible idea? What can go wrong?
Son, now an owner, can:
- voluntarily evict Mom;
- force sale of the property; or
- take other adverse actions.
When I explain these risks to a client, the answer invariably is: MY son would NEVER turn against me. He is wonderful and would never voluntarily hurt me.” But what about involuntary actions? Such as:
- What if Son is DIVORCED and his ex-wife ends up owning a part of Mom’s house. The ex HATES Mom. (For years she heard how much better a cook Mom is.) The ex-wife does some of those voluntary nasty things.
- What if Son is SUED (for a business / personal problem) and then Son’s creditor seizes Son’s half of Mom’s house?
- What if Son DIES and leaves his half to his Wife?
- What if Son has an IRS lien?
All of these issues are potential danger points for Mom. But, what is the benefit for Mom? Nothing, unless she dies. Mom’s death was the whole point of putting Son on title in the first place: to avoid Probate when Mom dies. The better way to avoid Probate with no risk to Mom is a Living Trust. Obviously, if Mom has 3 kids, and puts all of them on title the risks are tripled.
My Grandfather was a lawyer. When I started practicing with him in 1980 he warned me about this issue. Clients would come to him to put the kids on title. He warned them against it. He felt so strongly that if a client insisted on doing it despite his counsel, my Grandfather refused to assist. He sent them away. “If you don’t like my advice and want to do it anyway, get someone else to help you. I won’t be a party to this mistake.”
Personally, I advise clients the same, but if a client insists, I will not send them away. I am not surprised when clients do not listen. I figure after I cover my rear by putting these warnings on paper and having them sign a consent, they are entitled to make their own decisions.
After my Grandfather’s death, my Grandmother asked me if she should do the same thing! I told her exactly what her own deceased husband told his clients all of his life: Don’t do it! She did. And nothing terrible happened. But with no-risk alternatives (Living Trust), why do smart, intelligent, people who know better continue to do this? Because it cannot happen to them!
I’ve seen this personally with two different clients. In one case the child had to file for bankruptcy which affected their 50% ownership of the Mother’s home because Mother insisted on putting the daughter on deed rather than doing a Living Trust. The other client had a business go under and is being sued for $200,000,000. What does this mean for the 50% of his Mother’s house? Nothing good.
Also, something to consider is the gift tax issue. A very interesting issue about putting the kids on title is whether a gift has been made with gift tax consequences. If Dad deeds his home to Dad + 3 sons as Joint Tenants, and the house had equity of $100,000, did Dad make a gift of $75,000? Or was no gift made because it is merely a paper transfer: it is still Dad’s house and the kids don’t really own it. These issues must be examined.
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.*
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