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Have a Trust? Now fill it up!

If you have a living trust, you probably think that you will avoid probate. Well, that may be true, but having a stack of documents you call a trust is not enough to do the job, you have to now put assets in your trust. Imagine your living trust is a bucket. Once you sign your trust, you have an empty bucket, but you can now start filling it with your stuff.

How do you fill your bucket? Let’s go over three types of assets people usually have. If you have other assets not on this list, I can walk you through how to put those assets into your trust.

Real Property

For real property, the title or deed should list your trust as the owner. This is usually done with a deed that is recorded with the county recorder’s office.  A word of caution – if you refinance, the bank may take your real property out of your trust and sometimes they will put it back. If you’re not sure whether your real property is in your trust, just give me a call and I’ll be happy to check for you.

Bank Accounts

Like real property, the title to your accounts should have your trust as the owner on record with the bank or financial institution. If it is not, take a trip to your bank, or call them if they have no brick and mortar locations, and tell them that you want your accounts in your trust. They will usually know how to help you. Pro tip – you don’t need to give them a full copy of the trust, you probably have what is called a certification of trust which is a 1-2 page document that summarizes what the bank needs to know to do the transfer.

Retirement Accounts

Your retirement accounts (IRA, 401k, 403b, etc…) DO NOT go into your trust, they stay in your name. Note that your trust does not control where your retirement account goes when you die, that beneficiary designation form you probably filled out when you opened your account controls. You could list your living trust as beneficiary of your retirement account, but that is not a good idea since it will result in big taxes being paid by your heirs. You either want to list your heirs down individually or list a trust specifically designed for retirement accounts as the beneficiary. A trust specifically design for retirement accounts, or IRA Legacy Trust, is a fantastic tool to protect the retirement accounts for the next generation from lawsuits, divorce and creditors. That is another topic for another day, but if you want to know more now, just give me a call.

So, remember that you need to fill your trust for it to work as intended. A big part of my job as an estate planning attorney is inviting my clients back in every few years to make sure their trust has their assets in it and that everything is up to date.

If you or a client of yours has a trust and would like it reviewed, please call to schedule a free consultation.

 

Tasha K. Jahn, Attorney at Law

530.269.1515

team@cunninghamlegal.com

200 Auburn Folsom Road
Suite 106
Auburn, CA 95603

New Case Alert: Pratt v. Ferguson

CunninghamLegal – The Living Trust Lawyers

Case Analysis, by Jim Cunningham:

When writing a trust that contains a spendthrift provision, a client should consider using a trust protector as well as being able to decant the trust.

This means that the trust protector can move the trust site out of the state of California and create a new trust in a jurisdiction that does not permit invasion of the trust.

New Case Alert Summary: Filed September 6, 2016, Fourth District, Div. Three

Cynthia Vedder was entitled to all income and mandatory and discretionary distributions from her grandparents’ trust. The trust contained a spendthrift clause, as well as a “shutdown” clause prohibiting certain periodic mandatory principal distributions when those payments become subject to enforceable claims of creditors. Cynthia’s ex-husband obtained judgments against her for wrongfully-taken community property funds and unpaid child support. He petitioned for an order requiring the trustee to pay the child support judgment from trust income and principal, and to impose a lien on the trust to satisfy the community property judgment. The trial court denied the petition based on the shutdown clause.

The court of appeal reversed. A spendthrift clause does not defeat the claims of a support creditor. The shutdown clause does not apply to discretionary payments of income or principal, but only to mandatory principal distributions. Regardless of the nature of the distributions, the shutdown clause cannot defeat the claim of a support creditor. A trustee cannot refuse to satisfy an enforceable child support judgment for an improper purpose, and the court has discretion under Probate Code section 15305 to order a trustee to make distributions to satisfy a support judgment to the extent that it is equitable and reasonable to do so under the circumstances. On remand, the trial court must determine the amount of the income and principal distributions to satisfy the support judgment and future support obligations. The court also reversed as to the community property judgment, which can be satisfied by payment of up to 25 percent of discretionary distributions to a beneficiary.

New Case Alert Source: The State Bar of California

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Out of the Box – What happens when property is not titled in your trust?

CunninghamLegal – The Living Trust Lawyers

I often tell clients to consider a living trust like a box with instructions written on the side.  Assets, including real estate, bank accounts and brokerage accounts are put into the box.  The writing on the side of the box instructs a person (called the “Trustee”) what to do with the items in the box after someone dies.  Assets are “put” into the box by deeding the real estate to the Trust, and by changing account holders on a financial account.  Since personal items like furniture do not have deeds or documents of title, the person’s Will, (called a “Pour-Over Will”) transfers those items to the trust.

What about Probate?

The question remains – what happens when an asset is not properly titled to the trust, or said differently, what happens when an asset is not “in the box”?  The quick and unfortunate answer is that the trustee may need to open a court administered Probate.  Probates can be protracted and expensive, and Probate avoidance is one of the primary purposes of a trust.  There is however an easier and expedited court procedure in California which will transfer the assets into the trust so that the estate can be administered without further delay.  This article outlines that process.

Funding a Trust

Transferring assets into a trust is called “funding the trust.”  How would an asset not make it into the trust?  First, it may never have been put into the trust.  This can occur  during drafting when the person or firm preparing the trust either does not provide trust funding as part of their services, or simply fails to follow through with the funding.   Also, if a person is establishing a trust without the advice of an attorney, the trust may not get property funded.  In other situations such a mortgage refinance, a bank may require that real property be removed from the trust.  However, the property is often not put back into the trust after escrow closes.  In any of these situations, the failure to title assets in the trust will cause expense and delay when someone dies.  Worse yet, during this time, the trust beneficiaries will not receive their share of the trust.

Heggstad Petition

In order to address this problem, California Courts allow what is known as a Heggstad Petition.  This Petition is named after the case, Estate of Heggstad, (1993) 16 Cal. App. 4th 943 which first discussed this concept.  Using the Heggstad case as precedent, courts allow trustees to file an administrative petition asking that assets found outside of the trust be properly transferred to the trust.  In order to do so, the person filing the petition must show that the specific asset is mentioned in the trust, and that the trust creator (called a “Trustor” or “Grantor”) intended that the property be in the trust.  Courts will look to language in the trust specifically mentioning the asset.

In some trusts, the real property is not specifically mentioned.  A recent case called Ukkestad v. RBS Asset Finance, Inc. (2015) 235 Cal. App. 156 loosened the requirement that the asset be specifically mentioned if the trust states that “all personal and real property…wherever situated” be held in the trust.  Although the Ukkestad case makes the process easier, it is still preferable to have a specific reference to the assets subject to the petition.  As Ukkestad is a relatively recent case from 2015, it can take time to see how other courts will interpret and implement this rule of law.

Contact Us for Help

Situations with unfunded trusts can be complex and difficult for a trustee to navigate.  Our firm has the experience required to assist with any number of problems or questions regarding your personal estate plan, assisting you as a trustee, and filing Heggstad Petitions.  Please contact our office to schedule an appointment with one of our attorneys.

–Preston Marx, Esq.