Updating Living Trust After Death of Spouse

When we create Living Trusts for our clients, we always caution them that there’s a reason these are referred to as Living Trusts---these are living documents that need to be updated with important life events.

So what are life events?

A good way to think of this is anything that would affect the inheritance of those who are included in the Trust: Births, deaths, divorce, the acquisition of significant assets, including real property.

A good example of someone’s updating his Trust is Mike, from Pleasant Hill, who came in to update his Trust after his wife, Mary, died from a long battle with breast cancer. Mike and Mary originally created their Trust in 1997, when their daughter Lucy was 15 and their son Joey was 17. They had named Mike's older brother, Bob, as the Successor Trustee, and his wife's twin sister, Jennifer, as the Backup Successor Trustee. Lucy and Joey were equal beneficiaries when they reached 25.

Amending their old AB Trust

Mike and Mary had a complex AB Trust, fairly common at the time, that was to be divided into two Trusts when the first spouse died. But according to Article 7.3 of their Trust, at the death of the first spouse, the surviving spouse can amend or revoke any part of the entire Trust. As the lone Trustee, Mike had permission to amend his Trust.

Needs had changed; Mike now wanted adult children to serve as Trustees

When Mike and Mary had originally created their Trust, their kids were young, and they needed to include adult Trustees in the event something happened to them. But those kids were now grown and married, with lives of their own. Mike wanted to remove Bob and Jennifer as Trustees and make Lucy, a CPA in San Jose, the Trustee—she was most able to take care of him and manage his affairs if he became incapacitated. Joey, a graphic designer, would be Lucy’s backup.

Mike’s home was in the Trust, and he had inherited his mother's home from her Trust when she died. His mother's home was in Washington state, and while he had added Mary to the title, he had never moved this home into their Trust. He wanted to move his mother’s home into his and Mary's trust.

How California Document Preparers assisted Mike

• Amendment to Living Trust. Mike amended their Trust, converting it from an AB Trust.
• A change of Trustees. He amended the Trustees, making his CPA daughter Lucy the first Successor Trustee and Joey her backup. Lucy also became his Agent with Power of Attorney for financial matters and the Agent for his Advance Healthcare Directive.
• Affidavit of Death of Joint Tenants. We created an Affidavit of Death of Joint Tenants, informing Washoe County, Washington, that Mike’s wife had died and prepared a Deed to transfer his mother’s home into his and Mary's Trust.
• Pour Over Will. A standard part of our Trust package is a Pour Over Will, which Mike created. There is a lot to think about when preparing legal documents, and clients are often concerned that they will have forgotten to include some of their assets in their Living Trusts. The Pour Over Will acts as a safety net, stating that any remaining assets or property not previously transferred into the Trust “pours over” into the Trust so they may be distributed according to the terms of the Trust.
• Personal Organizer. We also included a personal organizer, a place for listing contact information of healthcare providers, insurance agents, financial advisers, veterinarians, etc. We also encourage our clients to include login information to their digital assets.

Mike's total fee was $949. This fee included amending and updating his Living Trust, the Will, Power of Attorney, Advance Healthcare Directive, Affidavit of Death and Deed Transfers. The fees for our Living Trusts and Deeds are fixed rates--no surprises.

We were delighted when the following week Mike’s daughter, Lucy, came in to create a Living Trust for herself and her husband, Jake.

Call California Document Preparers today at one of our three Bay Area offices today to schedule an appointment to update your Living Trust. We’re helpful, compassionate, affordable.

Living Trusts and the Issue of Mental Capacity

These days, hardly a day goes by that we don’t hear about someone we know being diagnosed with Alzheimer’s or some form of dementia. In some tragic cases, it comes way too early and it’s agonizing to see a life cut short.

Alzheimer’s: No hope, no cure

Alzheimer’s is one disease for which we have no cure, no revolutionary treatment. It violates every demographic, and the statistics indicate that nearly 80% of us will experience some kind of dementia before we die—it may not be the complete debilitation of Alzheimer’s, but we’ll have some degree of memory loss and inability to deal with our surroundings. For those who are in the process of creating a Living Trust, along with a Power of Attorney and Advance Healthcare Directive, this presents a potential problem. At what point is someone incapable of creating and signing a legal document such as a Living Trust?

Legally, everyone is presumed to be competent

However, the presumption that someone has legal capacity can be challenged in court. If the challenge is successful, the court will invalidate the Living Trust, making it necessary for the heirs to go through Probate to settle the estate and distribute the deceased’s assets.

Possession of a mental deficit

In California, testamentary incapacity does not refer to physical or mental disorders, but rather to one of three factors: The inability of a person to understand and sign estate-planning documents, the presence of an unsound mind or the possession of a mental deficit “so substantial that, under the circumstances, the person should be deemed to lack legal capacity.”

It’s important to note that age, illness and disease in themselves are not factors in the determination of testamentary capacity. People can be well into their 90s or suffering from debilitating disease, yet still have the capacity to be fully cognizant of what they are doing, legally able to sign a Will and Living Trust.

Under California law, deficits that may affect testamentary capacity are divided into four categories.

• Alertness and attention. The court would be looking for poor arousal or consciousness; a weak orientation to time, place, person, and situation; inability to concentrate.
• Information processing. This includes deficits in short or long-term memory; the inability to understand or communicate with others; the lack of recognition of familiar objects and people; the inability to understand and appreciate quantities; the inability to reason logically and to carry out a plan or action.
• Thought processes. Extreme examples of inability to complete thought processes would be hallucinations, delusions and uncontrollable, repetitive thoughts.
• The ability to modulate mood and effect. In this case, there would be evidence of persistent, recurrent moods inappropriate to an individual’s circumstances, including euphoria, anger, anxiety, fear, panic, depression, hopelessness, despair, apathy or indifference.

The presence of one or more of these factors does not necessarily mean someone is incapable of making decisions regarding his/her estate or signing related legal documents–an illness or prescribed medications may temporarily influence testamentary capacity, for instance. Once the prescribed drug treatment is finished or the illness has passed, the person may be fine once again.

With a diagnosis comes some immediacy

But evidence of any one or all of these factors in at least some degree raises the need to take extra precautions if you or someone in your family is creating estate-planning documents. Once people have been diagnosed with dementia, there is, of course, the need to create end-of-life documents as quickly as possible. In addition to the issue of testamentary capacity, there are very practical considerations–they may soon need these documents to be in place if they are no longer able to take care of their own affairs and make decisions about their own care. They will need to identify a Power of Attorney and an Agent for their Advance Healthcare Directive.

Do I Really Need a Trust or is a Will Enough?

We get a lot of questions from our clients about whether or not they really need a Revocable Trust or whether a Will, a simpler legal document, is enough. Trusts are an increasingly popular estate-planning tool for a number of reasons. Trusts are private while a Will is a public document, available to anyone who wants to search public records. If your privacy is important to you, you want a Living Trust.

Let’s look at the case of the late North Carolina basketball coach Dean Smith

Smith died in 2015 and left $200 each to an estimated 180 players he’d coached over the course of his 36-year career. The small payouts come from his Revocable Living Trust—not a Will. Smith had set this up because he didn’t want attention on himself; rather, it was about his players, as it had always been. Coaching and mentoring young men, including Michael Jordan and James Worthy, was his legacy, and he was widely admired not just for his winning record but for running a consistently clean program with a high graduation rate; an estimated 97% of his athletes received degrees. Smith also helped promote desegregation by recruiting the university’s first African-American scholarship basketball player and pushing for equal treatment for African Americans by local businesses.

For Smith, each of his players was special and important

Each of Smith’s players who lettered received a check for $200 and a letter, suggesting he “enjoy a dinner out, compliments of Coach Dean Smith.” Because this was set up as part of a Revocable Trust, each transaction was completely private; it only became public when former players posted their letters and checks on social media and they went viral.

Other advantages of a Living Trust

• Revocable means that if you change your mind and want to dissolve the Trust at some point, you can do so without a problem or penalty.
• Assets that you transfer into the Trust don’t go through Probate when you die. Without a Living Trust, your heirs must go through Probate, and your Estate becomes a matter of public record. Probate can be time-consuming and expensive.
• Many of our clients are concerned that they will have forgotten to include some of their assets in their Living Trusts. For this purpose, there is a safety net that California Document Preparers includes in our Living Trust package called a Pour Over Will. It essentially transfers any remaining assets or property not previously transferred into the Trust—they “pour over” into the Trust so they may be distributed according to the terms of the Trust.
• As part of our comprehensive Living Trust package, we also include a Power of Attorney and Advance Healthcare Directive. We want our clients to be thinking about the full range of end-of-life document requirements and needs. Whom would you appoint to make healthcare decisions for you if you were no longer able to make these decisions for yourself and who is the best person to help with paying bills and managing your everyday needs.

One more thing: A Living Trust is meaningless if it’s not funded—your assets, including real property, must be moved into your Trust. Your Trust should also be updated with important life events—births, deaths and important investments.

Are you still putting off creating or updating your Living Trust? We prepare the legal documents and notarize them–most of our clients tell us they’re surprised at just how easy it was! Make an appointment today to get started on your Trust.

Who Pays My Debts When I Die?

Our clients frequently tell us that our Living Trust is a thoughtful end-of-life planning package that helps them think about how they will distribute their assets to their families. We include a Financial Power of Attorney, an Advance Healthcare Directive and a Pour Over Will. We include a place to note contact information for healthcare providers, veterinarians, financial advisors and other key people who would need to be contacted if anything happened to them. These days, we also advise our clients to provide their login information to their online accounts.

We’re zealots when it comes to Living Trusts, yet an estimated 50% of Americans die without one—and that means Probate, the public, court-administered process of administering an estate.

After you die, your debts become the responsibility of your estate

Your estate is everything you owned at the time of your death. Settling an estate is a matter of looking very clinically at your assets in relation to your liabilities. Your executor (the person responsible for dealing with estate after your death) will use your assets to pay off your debts. This could mean writing checks from a bank account or selling off property and assets to get the money. If there isn’t enough to cover the debt, creditors generally are out of luck. But some debts have unique properties.

Here’s a look at who’s left holding the bag for debts if you die.

• Mortgages and home-equity loans. If a property has a mortgage, the lender has some protection, at least up to the value of the property. But federal law bars lenders from forcing a joint owner to pay off the mortgage immediately after the death of another co-owner. This also applies to any relative who inherits the home and lives in it. Practically, this means the family member or co-owner can simply take over the mortgage payments, at least for a certain period of time; but check the rules about this.
• An outstanding home-equity loan against the property is different. A lender can force someone who inherits a home to repay the loan immediately, which could require selling the house. That said, lenders might work with new owners to allow them to simply take over the payments on the home-equity loan as well.
• Auto loans. If the auto loan isn’t fully paid off, the lender has the right to repossess the car. But typically whoever inherits the vehicle can simply continue making payments, and the lender is unlikely to take action.
• Credit cards. Once the estate runs out of assets, credit card companies are out of luck, because this debt is not secured by assets the way mortgages and car loans are. Any joint account holder would be responsible for the bill, but people who are simply authorized users of a card would not.
• Spouses and debt. In community property states, which includes California, spouses are responsible for any debts incurred during the marriage—including credit card debt.
• Student loans. Lenders have no recourse if the estate does not have assets to repay student loans. Federal student loans are discharged upon the student’s death.

Beware collection agencies . . .

If your relatives are not responsible for your debts, collection agencies may still legally call to discuss debts and to try to find someone authorized to pay them, according to the Federal Trade Commission. But collectors cannot mislead family members into thinking they’re responsible for the debts. There are, however, circumstances in which spouses or other people would be personally responsible for your debts. These include if they:

• Co-signed for a loan
• Are joint account holders

What’s protected: Retirement accounts and life insurance

Creditors typically cannot go after retirement accounts or life insurance proceeds. Those will go to the named beneficiaries and are excluded from the Probate process. But if the life insurance beneficiaries you named are no longer living, your death benefit may go into your estate and can be subject to creditors—a compelling reason to keep your policy updated.

Have you created your Living Trust? Most of our clients are delighted with how easy the process was. The California Document Preparers team helps you through every step.