2010 Issue 3

WHAT IS TRUST FUNDING AND WHY IS IT IMPORTANT?

You created a trust to avoid probate
and yet you didn’t - why?

The number one reason is that you signed your trust but did not take the very important step of retitling assets into the name of the trust.

In fact, one of your assets went to a beneficiary outside of the trust and defeated the fairness you had set up with your plan. How did that happen? You forgot to change the title from joint tenancy to the trust. Keeping an asset in joint tenancy also makes that asset vulnerable to the creditors of your joint tenant - ouch!

Let’s discuss a few of your most important assets:

Real Property: I almost always prepare the deeds transferring my client’s property into their trust and I also take responsibility for ensuring the document is recorded. This is usually the client’s most valuable asset and the cause of the greatest part of a probate fee.

Brokerage Accounts: One of the documents prepared for you is the Certification of Trust which is a quick summary of your trust (without the distribution details), names the Trustees and their financial powers and trust title. This is the document that you should provide to your broker, bank or other financial institution to change the title of your accounts to the trust.

Large or Valuable Toys (i.e. planes, RVs and boats): These assets are usually registered with DMV or other government entities that have their own instructions for changing title. If the asset is not very valuable, you may choose to not place it into your trust, but remember that in California the threshold for probating assets in your name alone is $100,000.00. This is an aggregate number, meaning if your RV and boat are each valued under the $100K figure, but together they exceed $100K, they would be subject to probate.

My clients should all have a funding letter (10 pages) in the front of their binder explaining the process of retitling for almost any asset. I am also always available to assist in this process or answer any questions that you may have. After all a CD will only earn the interest if you put money into it and a trust, likewise, must be funded to be effective.

Whether you are a client or not, you are welcome to submit questions to me and I will do my best to send a speedy reply or if the question is repeated enough, look for a future article addressing the issue.

WHY IS YOUR 'SCHEDULE A' LIKE A SAFETY NET?

You signed your trust, listed all of your assets on the trust 'Schedule A', but for some reason were unable to fund the trust or a title change effort failed, how can the 'Schedule A' save the day?

Although not a substitute for proper funding, the Schedule A may be your safety net. An attorney may petition the Court asking that an item on Schedule A or even all the assets on that Schedule be ordered into the trust without a lengthy probate process. This is called a Heggstad petition named for the first person trying this technique and is now rather standard. It is not free to fund the trust this way, but is far less expensive and time consuming than a probate.

Why would a Heggstad be necessary?

- Suppose you sign your trust shortly before a vacation with plans to fund it on your return, but you pass away on your trip.

- Perhaps you instructed your broker to change title on your account, but one of the assets listed on the statement required additional steps that were not taken.

- Another very common circumstance is refinancing real property, your home or rental property. The mortgage company required you to take the property out of your trust, or perhaps the escrow company did this, but upon completion of the refinance they did not return the property to the trust nor remind you to do so.

Given the importance of this safety net, it is a good idea to update your Schedule A periodically. A good time to update your Schedule A is when you have changed accounts, purchased new assets or every year or so at tax time.

WHAT SHOULD I HAVE IN MY ESTATE PLANNING BINDER?

When I am asked to review someone’s estate plan, I start with their package (which can be a binder or stuffed envelope full of paper). Hopefully, I find all the appropriate estate planning documents; Trust, Assignment of Assets, Certification of Trust, Community Property Agreement (if married), Pourover Wills, General Durable Power of Attorney (finances), and Advance Health Care Directive. However, there are other important documents that should be in the binder, such as; real property transfers to the trust, trust asset list and copies of beneficiary designations. This is also a great place to put a list of family members and contact information, as well as, specific gifts of small personal items not listed in your trust.

There are more, but this is a good start and would be very helpful when reviewing your plan or for use by your successor Trustee.

Have a question?

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Final Thought...

Summertime - The Weekend Warrior Strikes?

Whether your game is golf or tennis, or maybe you enjoy watersports or cycling, what happens when you take your rusty Winter bones out on the first Summer weekend?

That’s right—break out the ice packs or heating pads. You were not ready for this.

Since I also love snow skiing, I usually don’t get a break during the Winter, but I also have a secret weapon—Dr. Razia Flynn with PowerTech Chiropractic. She not only helps me with injuries through proper alignment to avoid them and physical therapy when I mess up, but she helps me stay fit with personal training and nutritional support.

So, if your Summer activity is anything but sofa sitting and you are looking to get fit and stay that way, a visit with Dr. Flynn is a must. Contact me if you would like to learn more.

Call Bartsch Law (925) 456 6001