Posts tagged trust
How do I transfer my home to my trust?

For most families, their primary residence is the most valuable asset they own. As such, transfers of said property to the client's trust is a crucial and central part of the estate planning process. 

The process of transferring real property to a trust is not complicated. It basically entails the recording of a deed in the Recorder's Office of the county where the property is located. The deed contains critical information such as the identity(ies) of the transferring party and the receiving party, as well as the legal description of the property to be transferred.

Unfortunately most individuals who try to "DIY" (do-it-yourself) their estate plan fail to take the proper actions to transfer their home to their living trust. As a result, after the individual's death and unbeknownst to him or her, the beneficiaries discover that the individual was under the mistaken belief that simply creating a trust was adequate to avoid probate (usually a primary motivation for creating a living trust).

If you own real property and also have a trust, it's not a bad idea to check the title to your home and ensure that it is in the name of your trust. A real estate professional or your estate planning lawyer should be able to do this for you.

How are trusts structured for spouses?

Developing one or more revocable trusts for a married couple depends on the character of the property they own, i.e., all community property, some community and some separate property, or only separate property. In addition, the amount of community and separate property may also play a role in determining the most efficient structure for the couple.

All Community Property

Where a couple can appropriately characterize all of their assets as community property, estate planning lawyers typically create a single revocable trust for both spouses. Generally in this situation, a couples' wishes as to how the community property should be distributed after one and eventually both spouses pass away is fairly consistent. A single revocable trust is generally more cost effective as the estate planning lawyer only has one trust document to produce.

Some Community and Some Separate Property

Where a couple has some community property and some separate property, whether a single revocable trust or multiple revocable trusts is preferred may turn on the relative values of each type of property. If either or each spouse only has a relatively small amount of separate property, a single revocable trust with provisions taking into consideration the separate property may be appropriate, as the cost of creating a separate revocable trust to deal with one spouse's separate property may not be justified.

However, if one spouse owns a substantial amount of separate property, he or she may wish to create a separate revocable trust to hold those assets and prevent the likelihood of commingling those separate assets with community assets, which would be held in a community property trust. It can also help with housekeeping to ensure that both spouses have clarity on which assets are community and which are separate.

Only Separate Property

If a couple has entered into an agreement where they agreed that there is no community property between them, for example, by virtue of a premarital or postnuptial agreement, then having separate trusts to hold each spouse's separate property will likely be the most sensible approach.

Although general guidelines can be prescribed, speaking with a qualified estate planning professional is an important step, especially for those who own substantial amounts of separate property. There may also be tax considerations that may cause you to re-characterize property as either separate or community property.

What is a Durable Power of Attorney? (A Brief Overview)

A shorty, but a goody today. The Durable Power of Attorney is a legal document that allows you to name someone (also known as an "attorney-in-fact" or "agent") to make financial decisions for you. The Durable Power of Attorney can even be drafted broad enough to allow the agents to make gifts on your behalf or to transfer assets to your revocable living trust if you have created one. This document is only effective while you're alive. 

Why Do You Need One?

Most people only plan for death, but with advancements in medicine, it's possible to be alive for quite a while but be incapacitated to the point where you're unable to make decisions regarding your assets. Having a Durable Power of Attorney can help you avoid a court-supervised conservatorship and may allow your loved ones to act more quickly in the event that something happens to you and important decisions need to be made regarding your financial affairs.

Overlap With Trustees?

You may be thinking that the agent under a durable power of attorney would seem to have a conflict of interest with the Trustee of your Trust, but that is generally not the case. First, the agent under your Durable Power of Attorney is often the same individual that you've chosen to be your successor Trustee. Second, your Trustee deals with assets contained within your revocable living trust, whereas the agent under your Durable Power of Attorney principally deals with assets that are outside of your trust.

The Durable Power of Attorney is frequently a standard document that is incorporated into an estate plan, so don't be surprised if your estate planning lawyer includes one for you as well. Even if the cost of estate planning is outside of your budget, I encourage everyone to have a Durable Power of Attorney, as it is inexpensive to prepare and can even be found in the California Probate Code (Section 4401).

What is a Revocable Living Trust? (A Brief Overview)

One of the most common estate planning documents in California is the Revocable Living Trust. You can think of a Revocable Living Trust kind of like a container to hold your assets while you're alive. This container is governed by a set of specific instructions that you lay out in the document that creates the trust, and tells others how the assets inside the trust are to be used for your benefit while you're alive and how the assets are to be distributed after you pass away. Depending on your marital status, there will be different ways to create a trust.

Single Person

If you're single, or not married and not in a registered domestic partnership, you will most likely have a revocable living trust that holds all of your own assets. Also, any assets that use a beneficiary designation, such as life insurance policies or retirement accounts will likely have the trust named as its primary beneficiary so that the proceeds from those assets can be distributed in accordance with the revocable living trust provisions.

Married Persons

If you're married, it is likely that you and your spouse will create a single joint revocable living trust that holds both of your assets--whether it is community property or the separate property of both spouses. Occasionally, couples will create 2 or more revocable living trusts--one to hold the couple's community property, one to hold one spouse's separate property, and perhaps one more to hold the other spouse's separate property. The specific combination will depend on factors such as:

  1. Whether and/or the amount of separate property that each spouse has.
  2. The value of the assets that the spouses' own overall.
  3. The similarity or disparity in how each spouse wants to distribute his or her assets.
  4. Other personal factors such as each spouse's belief in the other's ability to handle financial affairs.

Day-to-Day Life Remains the Same

So long as you (and your spouse, if you have a joint living trust) are alive and fully functioning, there's no practical change to how you handle your financial affairs once the trust is set up. Because revocable trusts can be amended, changed, or revoked by you, they do not provide any immediate benefit for tax or creditor purposes (though this is not necessarily the case after you pass away). If a trust is revocable and amendable, then:

  1. Transferring assets to the trust does not cause any adverse tax consequences.
  2. Income taxes as a result of rent, dividends, capital gains or losses are treated the same as it was prior to creating the trust. 
  3. The trust assets will be included as part of your estate.
  4. There is no reassessment of your real estate for real property taxes (a huge benefit for long-time residents in counties where the property tax bases tend to be much lower than the fair market values of the property, such as in Los Angeles County).

Schedule of Assets

In most trust documents, there's a separate schedule which lists all of the assets that you own and is supposed to be contained within the trust. This is helpful for at least a few purposes.

First, if you die and haven't otherwise kept a good record of the property that you own, this schedule can be useful to your successor Trustee, who can use the list to track down your assets.

Second, if you forgot to re-title those assets in the name of your trust, it could serve as the basis for a "Heggstad" petition, which is a special procedure to transfer those assets to your trust without the need to go through a full probate process.

So there you have it, a few basics of a revocable living trust.