Tate Birnie and Brittany Birnie Greene can assist you in estate planning, probate, family law, mediation and related matters. If you need legal assistance in another area, we will try to refer you to a specialized attorney in the Sonoma County area.
We will help you prepare a comprehensive estate plan including trusts, wills, powers of attorney, and medical directives. We can also assist you in other elder law and post-death matters including conservatorships, elder abuse, probate and trust administration.
WHAT IS A LIVING TRUST?Back to top
The purpose of this article is to give a very general overview of the purposes and benefits of a living trust and to briefly touch upon the alternatives. It is not meant to be a definitive statement about your personal situation and whether or not you need a living trust. However, most people mistakenly assume that only rich people need trusts. Any person who owns real property in California should probably have a living trust simply to avoid probate. For example, probate fees on a $350,000 house will be $10,000 for the attorney and $10,000 for the executor or your estate. Your heirs will be required to pay these fees.
The main purpose of a living trust is to avoid probate. Probate is the legal process through which a court makes sure that after your death your assets are gathered, your debts paid, and your property distributed according to your will. If you don't have a Will, the State of California has statutes providing for what is called "intestate succession", which provides for the orderly distribution to your heirs.
There are set attorney and executor fees in a probate (a percentage of the gross value of the estate), and the main reason people wish to avoid probate is to save the attorney's fees and costs which are, for example, approximately $7,000.00 in a $200,000.00 estate, plus a percentage of any amount over $200,000.00.
Another reason to avoid probate is the time delays involved in distributing the estate. Probate proceedings often take a year (and sometimes longer) to complete, during which time the estate is only distributed upon court approval.
A third reason is to avoid the paperwork and accounting involved in a probate. All probate proceedings are public and are subject to anyone reviewing the court's file.
There are other methods of avoiding probate, the most common one being joint ownership of assets. The problem with joint ownership can be that you lose a measure of control by putting someone else on title to your property. You would have to get that person to sign any documents, etc., pertaining to the property. Also, the creditors of the person added to your title become your creditors. In addition, no one has a crystal ball to look into the future. If the person you put on title with you in an effort to avoid probate either becomes disabled or dies, you could find that you are involved in a conservatorship or probate of their estate.
Another potential problem with joint ownership relates to income taxation of capital gains upon the subsequent sale of assets. In a true joint tenancy situation, the surviving joint tenant receives a stepped-up basis for calculating capital gains on only one-half (1/2) of the asset transferred. This can result in substantial income tax on capital gains at a later date. This is an issue, which needs to be looked at on a case-by-case basis.
A living trust becomes the most flexible alternative to a Will and to the probate process. Essentially, in a living trust you are creating a legal document (which looks and acts a lot like a Will) to transfer your property from your individual name to the name of your trust, over which you would have complete control as the trustee. Even though legally you no longer own the assets (they now belong to the trust), as a practical matter there has been no transfer of those assets as far as your control over them during your lifetime. It is not difficult to transfer assets into the trust. This can be done with the help of your bankers, attorney or stockbroker. For example, in the trusts I prepare, transfer of title to real estate is done by my office, and I help to make sure stocks and bank accounts are also transferred into the name of the trust.
Upon your death, your estate now has no assets (your trust has the assets) so there is nothing to probate. Your successor trustee steps in and transfers the assets out of the trust to your beneficiaries. There is no accounting, no additional paperwork--just the transfer documents. If you own real estate, the successor trustee records a verification of the trust, along with a copy of your death certificate, in order to transfer title to your beneficiaries.
With a living trust, durable power of attorney and advanced medical directive (see below) in place, you will have chosen the person or persons to handle your affairs and make decisions for you if the time comes when you are unable to do so yourself. The person you name as successor trustee would be able to take care of a number of practical issues which arise on your death, such as distributing personal property, disposing of unwanted personal property, collecting insurance, making sure bills are paid, filing a final income tax return, etc. These practical matters need to be done whether or not there is a probate.
By setting up the documents outlined above, you will have avoided the need to hire an attorney to file any paperwork or for court supervision of any of the processes. At the same time, you have not lost any control over any of your assets. During your lifetime, you would be completely in control of all decisions. The Advance Health Care Directive provides that no decision is made by another unless you are incapable of giving an informed consent to health care decisions. The trust would provide for you to be the trustee until you are either deceased or incapable of handling your own affairs.
Generally, when a person executes a living trust they also sign a "pour-over" Will for any assets you might have or later acquire which do not get put into the trust. Obviously, a key portion of setting up a living trust is to make sure that all your assets are transferred into the name of the trust and any future assets you acquire would also need to be taken in the name of the trust.
There are other issues to be considered. One of the things that has not been address in this article is income tax and estate tax implications of a living trust versus other forms of ownership. The information we have given above does not in any way deal with any estate tax savings. A living trust, in and of itself, is not an estate tax savings tool. However, if the estate is over $1,500,000.00 in 2005 (and scaled upward to a phase-out of inheritance tax in 2010, but back to a $1,000,000.00 exemption in 2011), there are provisions that can be added to a living trust that can create some estate tax savings. In addition, gifts to charitable organizations can reduce the estate tax owed for an estate over the exemption amount. Those issues and your particular circumstance would need to be discussed with an attorney to decide the best way to handle your overall estate planning.
DURABLE POWER OF ATTORNEY & MEDICAL DIRECTIVES -- The other way the probate court most affects our lives is through conservatorships. This is a method by which someone is appointed to oversee your care and finances in the event you are disabled and unable to care for yourself. Conservatorships again require a number of filings, attorney's fees and costs, and periodic accountings made to the court, and assets are transferred upon approval of the court.
The need for a conservatorship can be avoided through use of a document entitled Durable Power of Attorney. Essentially, you are appointing a person to have authority to do all the things you can do regarding your business affairs. In the event you become disabled that person would take over. This document, in conjunction with a living trust, would allow one or more persons to completely handle all your legal affairs and make the necessary personal and financial decisions in the event you are disabled.
A living trust and Durable Power of Attorney can therefore allow a family to avoid the use of the probate court, both during your life and upon your death.
We also recommend to our clients a third document called Advance Health Care Directive that deals primarily with health care and life support decisions. This is the only enforceable document which allows a person to make medical decisions on your behalf when you are unable to do so.
PLANNING FOR YOUR UNIQUE ESTATE PLANBack to top
At your initial meeting with Tate Birnie or Tim Birnie, you will be asked to provide information about your family, your assets, the names, addresses and phone numbers for the people you would like to handle your affairs on your death and the people you would like to appoint to help manage your affairs during your life, if you are unable to do so. It is helpful if you come prepared with this information to your first client meeting.
In order to facilitate the creation of your unique estate planning documents, we will need the following information:
1. Names and ages of children:
2. Addresses and telephone numbers for adult children:
(Please attach a brief family tree showing the name of each child's spouse and children, if applicable)
3. Names, addresses and phone numbers (both home and work) for guardian of the person and estate of any minor child:
4. Manner of distribution to minor child (i.e., 1/3 at age 21, 1/2 remaining estate at age 25, and balance of estate at age 30, or a three or four-stage distribution at any ages you choose):
5. Name, address and phone numbers (both home and work) for successor trustee(s) (one or two):
6. Name, address and phone numbers (both home and work) for anyone nominated under a Durable Power of Attorney (spouse first, may nominate one or two alternates):
7. Names, addresses and phone numbers (both home and work) for anyone nominated under a Durable Power of Attorney for Health Care (spouse first, space for two alternates):
8. Copy of deed to real property (we can make the copy).
9. Completed Asset Information Form.
ASSET INFORMATION FORM
As a part of your estate planning process, we would like to have a complete listing of all your assets, including those assets that will not be put into the trust. We would like you to complete the following outline. Please use additional pages if necessary.
IRA's, 401(K) plans, Annuities, Retirement accounts
Life Insurance Policies
Notes and Deeds of Trust
Partnership Interests, LLC's, Closely Held Corporations
Personal Property (including automobiles, etc.)
DUTIES OF SUCCESSOR TRUSTEEBack to top
DEATH CERTIFICATES - OBTAIN APPROPRIATE NUMBER OF CERTIFIED COPIES OF DEATH CERTIFICATE THROUGH FUNERAL DIRECTOR OR COUNTY RECORDER'S OFFICE. A COPY OF THE TRUST AND DEATH CERTIFICATE WILL PROBABLY BE NEEDED TO TRANSFER EACH ASSET, INCLUDING ONE FOR EACH DIFFERENT STOCK TO BE TRANSFERRED.
SOCIAL SECURITY - ADVISE SOCIAL SECURITY ADMINISTRATION OF DEATH IF SETTLOR HAD BEEN RECEIVING SOCIAL SECURITY BENEFITS. SOCIAL SECURITY PAYMENTS ARE MADE ON THE THIRD OF THE MONTH FOR THE PREVIOUS MONTH AND SETTLOR HAD TO BE ALIVE FOR THE ENTIRE MONTH FOR THE MONEY TO BE KEPT, I.E., JUNE 3 PAYMENT IS FOR MAY. IF SETTLOR DIED ON MAY 31, THE JUNE 3 CHECK WOULD HAVE TO BE RETURNED BECAUSE IT WAS FOR MAY. BUT IF SETTLOR DIED ON JUNE 1, JUNE 3 CHECK COULD BE KEPT. IF AUTOMATIC PAYMENTS ARE MADE INTO A BANK ACCOUNT, SOCIAL SECURITY WILL ARRANGE TO HAVE THE CHECK REFUNDED TO THEM DIRECTLY BY THE BANK.
PENSION - ADVISE ANY SOURCE FROM WHICH SETTLOR RECEIVED A PENSION OR ANNUITY OF THE DEATH. DETERMINE IF THERE IS ANY DEATH BENEFIT, SURVIVOR ANNUITY OR RESIDUAL PAYOUT AND APPLY FOR IT.
LIFE INSURANCE - EVEN THOUGH LIFE INSURANCE IS GENERALLY NOT INCLUDED IN THE TRUST, SOMETIMES THE TRUST IS THE BENEFICIARY OF LIFE INSURANCE PROCEEDS. ANY BENEFICIARY OF A POLICY NEEDS TO CONTACT THE INSURANCE COMPANY DIRECTLY TO CLAIM ANY PROCEEDS. MOST INSURANCE COMPANIES WILL PROVIDE CLAIM FORMS.
MEDICAL AND AUTOMOBILE INSURANCE - CHECK TO SEE IF ANNUAL PREMIUMS HAVE BEEN PAID IN ADVANCE AND ARRANGE FOR ANY REFUND. HOMEOWNER'S INSURANCE WILL NEED TO BE CANCELLED AT THE TIME OF SALE OF SETTLOR'S HOME.
SAFE DEPOSIT BOX - WITHDRAW PAPERS FROM SAFE DEPOSIT BOX AND CLOSE OUT. BANK WILL NEED COPY OF TRUST AND DEATH CERTIFICATE TO DO THIS.
MEDI-CAL - IF SETTLOR IS KNOWN TO HAVE BEEN ON MEDI-CAL OR TO HAVE RECEIVED MEDI-CAL BENEFITS IN THE PAST, THE STATE DEPARTMENT OF HEALTH NEEDS TO BE GIVEN NOTICE OF THE DEATH. A FORM OF NOTIFICATION IS AVAILABLE THROUGH THIS OFFICE OR FROM MEDI-CAL DIRECTLY. IF SETTLOR HAD RECEIVED MEDI-CAL BENEFITS, THE STATE MAY HAVE A LIEN CLAIM ON ANY ASSETS PASSING THROUGH THE TRUST.
ASSETS - COLLECT THE TRUST ASSETS. BANKS WILL NEED TO SEE COPIES OF THE TRUST APPOINTING YOU AS THE SUCCESSOR TRUSTEE AND A COPY OF THE DEATH CERTIFICATE. COLLECT ASSETS INTO YOUR OWN NAME AND DEPOSIT THEM INTO A SEPARATE BANK ACCOUNT SO THAT YOU WILL HAVE A RECORD OF MONEYS RECEIVED AND BILLS PAID WHEN YOU MAKE DISTRIBUTION TO THE BENEFICIARIES. DESTROY CREDIT CARDS IN THE NAME OF THE SETTLOR AND CANCEL THE ACCOUNTS.
BILLS - PAY FUNERAL AND OUTSTANDING BILLS OF SETTLOR. IF IT IS NECESSARY TO LIQUIDATE ASSETS IN ORDER TO DO THIS, CHECK WITH BENEFICIARIES OF TRUST TO SEE IF THERE ARE ANY PARTICULAR ASSETS THEY WISH TO RECEIVE AS PART OF THEIR SHARE OF THE DISTRIBUTION SO THAT, IF POSSIBLE, THERE ARE NOT LIQUIDATED. ULTIMATELY, THE CHOICE OF HOW TO PAY BILLS AND DISTRIBUTE ASSETS LIES WITH THE SUCCESSOR TRUSTEE.
INCOME TAXES - HAVE A CALCULATION MADE OF THE TAXES THE SETTLOR WOULD OWE FOR THE FINAL YEAR AND WITHHOLD SUFFICIENT FUNDS TO COVER THE COST OF SUCH TAXES AND THE TAX PREPARATION FEE. IF THE TRUST ASSETS ARE MORE THAN $1,500,000.00 IN 2005 (AND GROWING TO EVENTUALLY TO NO TAX IN 2010, BUT BACK TO $1,000,000.00 IN 2011), A FEDERAL ESTATE TAX RETURN NEEDS TO BE FILED WITH THE INTERNAL REVENUE SERVICE WITHIN NINE MONTHS OF SETTLOR'S DEATH. THIS SHOULD BE DONE ONLY IN CONJUNCTION WITH AN ATTORNEY OR ACCOUNTANT.
SALE OF REAL PROPERTY - WHILE THE SUCCESSOR TRUSTEE IS AUTHORIZED TO SELL REAL PROPERTY OF THE SETTLOR, IT WOULD BE ADVISABLE TO CONSULT WITH AN ATTORNEY OR ACCOUNTANT FIRST. THE HEIRS RECEIVE A "STEPPED UP" BASIS IN THE REAL ESTATE (AND OTHER ASSETS) FOR CALCULATING CAPITAL GAINS INCOME TAX. IF THE REAL ESTATE IS A "PARENT/CHILD" TRANSFER, THERE IS NO CHANGE IN PROPERTY TAX. THESE TAX IMPLICATIONS SHOULD BE CONSIDERED BEFORE A SALE.
DISTRIBUTION OF ASSETS - IF ASSETS ARE NOT ALL IN LIQUID FORM, E.G., HOME, PARCEL OF REAL PROPERTY, AUTOMOBILES, BOATS, ETC., A MEETING SHOULD BE HAD WITH THE BENEFICIARIES OF THE TRUST TO DETERMINE HOW DISTRIBUTION WILL BE MADE SO THAT ANY SPECIAL REQUESTS MAY BE HONORED, IF POSSIBLE. IT IS DIFFICULT TO RECOVER ASSETS FROM BENEFICIARIES TO PAY ANY OUTSTANDING DEBTS OF THE TRUST ESTATE NOT INITIALLY RECOGNIZED. THEREFORE, CARE SHOULD BE TAKEN TO DETERMINE ALL OUTSTANDING OBLIGATIONS OF THE SETTLOR AND A RESERVE SET ASIDE FOR POTENTIAL TAXES AND ANY OTHER CREDITORS' CLAIMS BEFORE DISTRIBUTION IS MADE TO THE BENEFICIARIES.
MISCELLANEOUS ITEMS OF PERSONAL PROPERTY WILL NEED TO BE EITHER DISTRIBUTED IN KIND TO BENEFICIARIES OR SOLD AND THE PROCEEDS DIVIDED. THERE ARE PEOPLE WHO WILL HELP LIQUIDATE ESTATES AND CLEAN UP THE HOME TO MAKE IT MORE MARKETABLE IN THE EVENT YOU EITHER CANNOT OR DO NOT WISH TO TAKE ON THESE TASKS.
IF AUTOMOBILE, BOAT, VACATION TRAILERS, ETC., HAVE NOT BEEN PUT INTO THE NAME OF THE TRUST, THE BENEFICIARY TO WHOM SUCH ASSETS IS ASSIGNED WILL NEED TO GIVE THE DEPARTMENT OF MOTOR VEHICLES OR AUTHORIZING AGENCY A COPY OF THE DEATH CERTIFICATE AND AN AFFIDAVIT STATING THAT ASSETS OF THE SETTLOR OUTSIDE OF THE TRUST DID NOT EXCEED $100,000.00 IN ORDER TO HAVE THE ASSET TRANSFERRED INTO THE NAME OF THE BENEFICIARY. AN ATTORNEY CAN HELP WITH PREPARING SUCH AN AFFIDAVIT.
TRUSTEE'S FEE - A REASONABLE FEE MAY BE PAID TO THE SUCCESSOR TRUSTEE FOR SERVICES RENDERED TO THE TRUST. THE TRUSTEE MAY CONFER WITH BENEFICIARIES REGARDING THE AMOUNT OF SUCH FEE.
NOTICE OF IRREVOCABLE TRUST - A SUCCESSOR TRUSTEE IS OBLIGATED TO SEND OUT A STATUTORY NOTICE UNDER PROBATE CODE SECTION 16061.7 TO ALL BENEFICIARIES OF A TRUST WHEN IT BECOMES IRREVOCABLE (UPON THE DEATH OF THE SETTLOR), ADVISING BENEFICIARIES THAT THEY HAVE A RIGHT TO RECEIVE A COPY OF THE ENTIRE TRUST DOCUMENT PLUS AMENDMENTS. AN ATTORNEY SHOULD BE CONSULTED TO MEET THE STATUTORY REQUIREMENTS.
MAINTAIN A LEDGER BOOK - IT IS OFTEN ADVISABLE TO PURCHASE AND MAINTAIN A LEDGER BOOK FOR ALL INCOME, EXPENDITURES, AND DISTRIBUTIONS TO RECORD ACCURATELY SUCH INFORMATION IN CASE OF AN IRS AUDIT OR A BENEFICIARY WHO WISHES AN ACCOUNTING.
Funding Your TrustBack to top
Your living trust is not complete until it is funded with your assets. This means that you have to transfer ownership of your property to the trust. The trust is not able to protect you from probate if your assets are not in the trust. Therefore, it is critical that you fund your trust as soon as possible.
The manner in which title to your assets should be taken is set forth in your Certification of Trust. Generally, title will be taken as:
[Your name(s)] as Trustee(s) of THE [YOUR NAME(s)] [year] TRUST.
For example, if your names are William Smith and Debra Smith and you established your trust in 2005 then you would take title as:
William Smith and Debra Smith, as Trustees of THE WILLIAM SMITH AND DEBRA SMITH 2005 TRUST.
It is also important that you annually review your trust and assets and keep them up to date. If you have acquired new property or assets, you may need to transfer these into the trust. In addition, any significant life changes like death of a spouse, divorce, and inheritances can change your estate and potentially require a change in your estate planning documents.
Specific Transfer Instructions
Real Property and Trust Deeds
During preparation of your trust, you should have provided us with a copy of your Grant Deeds for all real estate owned by you and all Trust Deeds to which you are a beneficiary. Our office will prepare new Deeds and/or Assignments to transfer these interests into the trust.
Our office will record the original deed for you. The recorded deed will be returned to you by the County.
You should transfer any interest in a promissory note to your Living Trust. You may do this by endorsing the original note in the name of your trust as follows:
"Pay to the order of [NAME} as Trustee of [NAME OF TRUST} dated [date trust signed]."
You should then sign and date the note below the endorsement.
Alternatively, our office can prepare a bill of sale to transfer your interest in the promissory note into your trust.
Family Businesses, Partnerships, Proprietorships, Close Corporations
If you are the owner of a family business or sole proprietorships, you will need to execute a Bill of Sale to transfer your interest to your living Trust. Our office can prepare the Bill of Sale for you.
If you are part of a partnership, you will need to provide a copy of the Partnership Agreement to us. Our office can prepare an Assignment of your partnership interest into the trust.
If you own stock is a small or closely held corporation, you will need to transfer your stock into the trust. The procedures for transfer will vary depending on the type of corporation involved. Generally the process is relatively simple and involves working with the corporate employee or officer responsible for issuing stock certificates. If you are having difficulty transferring stock in a close corporation, please contact the office and we will try to assist you.
Stocks, Bonds and Other Securities
For the transfer of any stocks, bonds, and other securities, you must re-title your holdings in your name(s) as Trustee(s) of your trust. Generally, you will only need to take a copy of the Certification of Trust to your broker and he or she will prepare all of the necessary transfer documents.
For the transfer of mutual funds that are not held by a broker, you should contact the mutual fund holding company and change the ownership of the funds into your name(s) as Trustee(s) of your trust.
Bank Accounts and Certificates of Deposit
You should transfer any of your large bank accounts, both checking and savings, into the trust by changing ownership of the account(s) into your name(s) as Trustee(s) of your trust. Generally, you will need to provide the bank with a copy of your Certification of Trust. The bank will also have you sign new signature cards or any other appropriate documents.
Similarly, you will transfer ownership of your Certificates of Deposit (CDs) into the trust by changing ownership into your name(s) as Trustee(s) of your trust. For CDs that are not set to mature for some time, be sure to discuss the transfer with bank personnel so that you can avoid incurring accidental early withdrawal penalties triggered by the title change.
If you own a particularly valuable car (i.e. a collector's car worth over $80,000 or any car worth more than $100,000) you will want to transfer ownership of the car into your trust. You will need to provide the DMV with your pink slip and current registration card. However, for most vehicles the hassle of transferring ownership through the DMV outweighs any practical reason for transfer. If you own a vehicle in joint tenancy, it will pass to your joint tenant outside of your trust. You can also always acquire new vehicles in the name of the Trust.
Other Personal Property
Generally, you do not need to transfer your personal property into the trust. However, if there are items of significant value (furniture, jewelry, artwork, etc.), our office can prepare an assignment of personal property into the trust.
Life Insurance Policies, Annuities, Retirement Accounts and Pensions
These items do not necessarily need to be transferred into your trust. Your life insurance policies, annuities, IRAs or other retirement accounts and pensions will be distributed to your designated beneficiary outside of the provisions of your trust. For example, if you have named your spouse as your beneficiary on these accounts, they will be transferred directly to your spouse and do not need to be distributed through the provisions of your trust. There are reasons, however, where you may want to transfer these items into your trust. We will discuss these reasons with you during the preparation of your trust. For example, if you have a life insurance policy or annuity established for the benefit of your family and minor children on your death, you may designate the trust as the primary beneficiary of the policy so that the funds are held, administered and distributed by your successor trustee pursuant to the provisions of your trust.
For your IRSs, TSAs, and other pension, profit sharing plan, or death benefits, you may change the principle beneficiary or contingent beneficiary to your trust. However, there are tax consequence of naming a trust as a beneficiary of certain retirement accounts and thus, any change should be discussed with your attorney or accountant.