As a follow-up to our previous discussion about how to transfer the title of real estate that is community property when the owner of the property dies, we were recently asked a question similar to this: Why should my spouse and I set up a trust to own our property when the title for it contains both of our names and it already clearly states we each have the right of survivorship?
The primary reason to transfer ownership of your property to a trust, as part of your estate plan, is to avoid probate should the unthinkable happen. With all of the stories in the news lately about married couples or families involved in fatal automobile, airplane, and cruise ship accidents, it really is not hard to imagine the possibility of multiple family members dying simultaneously. It happens all of the time and could happen to any of us.
We discussed this on our weekly radio and web broadcast on KDOW, along with another question about who is responsible for paying taxes on family assets that will be inherited from a trust this year.
The current laws regarding the federal estate tax, also known as an inheritance tax, expires at the end of 2012. If you should unfortunately die this year, no inheritance taxes are due on estates of less than $5 million.
Regardless of how the law changes for 2013 and beyond, we are confident that Uncle Sam will collect what he is legally due. If estate taxes are not paid by a trust, you can be sure the IRS will eventually contact the beneficiaries of the estate to collect the taxes from them.
We then focused primarily on trusts as part of an estate plan during this broadcast. One of the points we discussed was about possible ways to set up a trust.
If you work for a corporation of substantial size, you may have access to a pre-paid legal services plan as one of your employment benefits. These legal plans usually contain an estate planning package, so if it is available we recommend you consider acquiring this optional benefit during your next open enrollment period.
These days, many legal services and estate planning packages are available on the Web for a fairly low cost, but we advise that you use considerable caution when considering paying for these online services, because the “plans” offered are a cookie-cutter set of forms that are not tailored to any specific state and are not tailored for the specific circumstances of your life.
When setting up a trust, you can conduct great research on the Internet, to become more familiar with the legal and financial landscape you want to enter, but as always we suggest you work with a professional who can add a layer of real-world experience and advice to the process, and who can make sure all of the needed paperwork and procedures are completed and filed properly.
After a trust has been properly established, we like to think of it as a basket into which personal assets can be placed for proper distribution at a later date. A trustee can dole out the assets that have been accumulated in the “basket,” in accordance with a living trust, to any beneficiaries of the estate.
Be sure to have a title company properly transfer the title and ownership of your real estate to the trust. An attorney can help you transfer ownership of other property or assets, such as a land lease, to the trust.
Your banker can help you transfer bank accounts to the trust, if you provide the official trust documents. A representative at your brokerage firm can provide the necessary paperwork to transfer those accounts to a trust.
Retirement accounts, such as a 401(k) or an IRA, are not usually in trusts, because those already have primary and contingency beneficiaries assigned to them.
Some counties require that you file a Certificate of Ownership Report to finalize the transfer process, so be sure you know your local regulations. You can verify the transfer of ownership to the trust by seeing who is listed as the owner on the next property tax bill you receive from the county.
If your attorney has set-up a trust for you, he or she should also have properly transferred your property into it. However, you should carefully review the grant deed to make sure it is correct and legal. The “Right of Survivorship” should be clearly stated and the document should have an official stamp from the recorder’s office, because years later the consequences of not being precise and completely legal can be severe.
Also make sure you notify the successor trustee, so that person understands and is prepared to fulfill the responsibilities of the position.
A trustee’s duties at minimal include administering the trust to keep it legal and to perform the fiduciary tasks needed for the beneficiaries. Trustees are not expected to be legal and financial experts, so they can consult with an attorney or financial adviser to help them properly maintain the entity.
During our broadcast, we also discussed other aspects of trusts and being a trustee, including a Revocation of Trust, a trustee’s Duty of Loyalty, a Realtor’s possible conflict of interest when serving as a trustee, and a trustee’s need for impartiality.
We also answered a couple of excellent questions, from listeners who called in during the live show, about joint tenancy and how to handle an ineffective trustee. If you missed the original broadcast, you can listen to a podcast of this episode of Wealtlh Management and You with Connie Yi.
If you are considering establishing a trust and would like a free consultation with Connie Yi, a California Trust Attorney, please contact us. We have four conveniently located offices around the Bay area: San Francisco, San Mateo, San Jose, and Pleasanton.