Dear Readers, You may already have a trust, but it’s very important to understand that once you make a trust, the job is only half done. For your trust to work as advertised, it must be funded with your assets. Today’s column is about doing just that. As a rule of thumb, everything goes into the trust, with a few exceptions.
First, keep your day-to-day checking account outside of the trust and add your successor trustee to the title of the account as a joint owner. If you are married, keep the account in both of your names and wait to add someone to the account when either of you starts slowing down. You know, when you no longer read your mail, pay your bills, and read this column.
If you do not like the idea of adding someone to your checking account, then maybe you need to reconsider whether or not that person should be named as successor trustee. If you can’t trust someone now, don’t you dare trust that person when you’re incapacitated or dead. Second, don’t bother transferring into the trust your automobiles and boats registered with the DMV, or modular homes registered with the Department of Housing. They do not count against the $166,250 limit that triggers a requirement for probate administration in California, so there is no real need to do this. These assets can be collected 40 days or more after your death using DMV Form REG-5 or a Small Estate Declaration under Probate Code section 13101. Third, and perhaps most importantly, you cannot transfer to your trust retirement accounts such as IRAs, 401(k)’, 457(b)s and the like. These are tax-deferred or tax-exempt retirement accounts. Transferring one to a trust means cashing it in and paying all that income tax. In addition, you probably should not name your trust as a retirement account beneficiary unless your lawyer advises you to do so. Instead, name your children or other beneficiaries directly, unless you have a minor or disabled beneficiary who should not or cannot have direct access to the money upon your death. Incidentally, life insurance and annuities can go either way. You can name the trust as beneficiary, or name beneficiaries directly. Sometimes it’s good for them to pay into your trust, to give the trustee more liquid cash while consolidating and selling those of your assets that will be sold. Other than that, everything should be in the trust. Your lawyer should prepare and record deeds conveying your California real properties into the trust. The rest is up to you. Most lawyers provide their clients with a fancy three-ring binder with the law firm’s name emblazoned in big letters (we do this too). Use that binder as a tool. When you visit your bank or broker to fund your trust, take the trust binder with you. It should have everything you need, and financial institutions are well aware of how to title accounts in a trust, although they will abbreviate the name of the trust. It’s OK. They know what they are doing.
If you do all of this, and fund your trust correctly, then when you pass your successor trustee will have an easier job to do, and it will save your family money.
Dear Len & Rosie, I am one of nine adult children. Our 81-year-old very stubborn mother owns her home free and clear. She is a bit gun shy about discussing her estate, and she has no will. Whenever we try to talk to her about getting a will or a trust, she always says, “Don’t rush me into the grave.” Her only concern is that all nine of us get an equal share of the house after it is sold.
She says that she wants three of us named as executors of her estate. Frankly, this really worries me, because the three of us have very different personalities, and we are spread out all over the country. I really want to avoid future problems so we won’t have a big mess on our hands and wind up paying more in lawyer fees and taxes than we inherit. What can you suggest?
Janice Dear Janice, Even if your mother never signs a will or a trust, her wishes would ultimately be fulfilled through intestate succession — the law about who gets what when someone dies without a will. The estate would be divided equally among the children, with the share of a deceased child going to his or her living descendants. Your mother should have an estate plan. Without a will, there could be a fight over who gets to administer the estate. The administrator will also have to buy a bond to protect the estate unless all nine of you agree to waive bond. She should not have three executors serving at the same time. Too many cooks spoil the broth. When picking an executor, there are two rules: #1: If he’s not good with his money, he won’t be good with her money; and #2: An executor must be honest, organized, and diplomatic. If none of her children fit the bill, her will can have the judge appoint a Professional Fiduciary as executor.
She should also seriously consider creating a revocable living trust to avoid probate. A modest $500,000 estate is subject to $13,000 in statutory lawyer and executor fees. Estates also take much longer to administer in the courts.
Many people shy away from estate planning for many different reasons. Sometimes it is difficult to confront your own mortality. However, an orderly estate plan is a blessing to those you leave behind, and would make a wonderful gift from your mother to her children.
Len & Rosie Len Tillem and Rosie McNichol are elder law attorneys. Contact them at Tillem McNichol & Brown, 846 Broadway, Sonoma, CA 95476, by phone at (707) 996-4505, or on the Internet at lentillem.com.