Five Steps to Funding Your Living Trust

We encourage all of our clients to create a Living Trust so their families can avoid Probate. Unfortunately, there’s one critical step that sometimes gets left out of this equation and leaves families vulnerable to Probate. Simply having a Trust is not enough; Living Trusts need to be funded–your assets need to be moved into the Trust. Without this action, your family will likely be facing Probate. There are five steps to funding your Living Trust.

A Trust has five asset categories that can be funded:

1. Real property
2. Bank and brokerage accounts
3. Life insurance policies
4. Retirement accounts
5. Tangible personal assets

1. Real property—property that is fixed in place

Real property is a building or a piece of land, designated by a Deed. When a Trust is formed, the owner listed on the Deed must change the name from the name of the person to the name of the Trust. If James Smith owns a house, and the house is in his name, he must transfer the Deed into the Trust, and the “Living Trust of Jonathan Williams” becomes the new owner. This must then be registered with the county for the Trust to be funded. California Document Preparers prepares Trust Transfer Deeds for our clients who are funding their Trusts.

2. Bank and brokerage accounts

Creating multiparty bank accounts can seem like a convenient solution for those caring for ailing family members, but it can create family conflict. If that ailing family member dies, all of the money in that account defaults to the person whose name was also on the account. If, for example, there are other siblings who expected to inherit some of that money, it can result in family discord.

In most cases, you will want the funds to go to multiple persons or organizations. Putting the accounts in the name of the Trust will ensure that funds can be transferred easily to all parties specified by the documents of your Trust. For example, if you want your Procter & Gamble stocks to be divided equally among your three children, you will need to put them in the name of the Trust. Each bank and brokerage has a procedure for this and will be able to assist with transferring the account name to that of the Trust.

3. Life insurance

While you can state in your Trust that your life insurance policy will go to your oldest daughter Joan, it’s important to know that the beneficiary noted on the actual policy is the beneficiary of record—not the person named in the Trust. Joan will not inherit that policy if she’s not named on the policy. If divorce or death means a change to your beneficiary designation, it’s imperative that you make this change to the life insurance policy itself—not your Living Trust.

4. Retirement accounts

Retirement accounts, like life insurance policies, specify a designated beneficiary. For married couples, this is typically one’s spouse. Where retirement accounts can get problematic is in naming their alternate beneficiary. A Trust is often a very valid choice for this secondary designation. Having one’s retirement account go to the Trust, to be distributed according to Trust specifications, can be a safe way to avoid Probate and ensure that your assets are distributed according to your wishes.

5. Tangible personal assets

Tangible assets that need to be included in your Trust include valuable jewelry, artwork, furniture, cars, etc. These items can be placed in a Trust through a Deed of gift or a bill of sale. The Deed of gift or bill of sale is necessary to “fund” the Trust with these items. Items that are high in value will have to go through Probate if not properly placed in the Trust.

One more thing: Identifying the distribution of sentimental items

If there are items that have nominal monetary value but significant sentimental value, these should be identified in a Trust along with their respective recipients. When Robin Williams died and left much of his estate to his second wife, his children sued to get the memorabilia that they believed were rightfully theirs. The more detail you provide, the more seamless the process of settling your estate will be for your family.

A Living Trust is an important part of estate planning. Without it, your family will be facing Probate. A Trust also needs to be updated with important life events—births, deaths, important purchases of property and other assets. Schedule an appointment today by contacting us at one of our three Bay Area offices. Our dedicated team is helpful, compassionate and affordable.

Testamentary Capacity: A Growing Legal Concern

Baby boomers have profoundly affected the way we do business and the way we live our lives. They’re the big, noisy generation that demanded to be heard. They pioneered breakthroughs in multiple industries, including art, medicine, science, education and technology. Now the boomers have gotten old, and while they’re being replaced by millennials, they’re still setting records. They’re joining the ranks of the estimated 5.5 million Americans who have Alzheimer’s disease, a demographic that is growing at an alarming rate. With no cure in sight, one in 10 people aged 65 and older has Alzheimer’s.

With the increased occurrence of some kind of dementia, it’s not surprising that the matter of testamentary capacity is being raised more frequently when it comes to signing legal documents.

What is testamentary capacity and why is this important?

Testamentary capacity is the legal term defining a person’s legal and mental ability to make or alter a valid Will. Wills are often executed by older adults who may be losing their mental capacity; determining testamentary capacity is a process that helps protect these potentially vulnerable adults from those who may be hoping to profit from the Will.

Testamentary capacity is a legal question, not a medical question

It is important to note that having dementia or Alzheimer’s disease does not necessarily mean that a person lacks capacity to execute his/her Will. There is no single definition of capacity, nor is there a general test or criteria that we can apply to establish capacity, mental capacity or competency. Rather, in every case, capacity is specific to each time and situation. Legal capacity can fluctuate. In terms of the law, there is a presumption of capacity until it is disproved.

In determining testamentary capacity, it is critical that the person signing the legal documents understands the relevant information and the consequences of the documents he/she is signing.

Capacity characteristics and criteria

The following capacity characteristics and determining criteria are used as guidance in determining capacity, but it’s important to keep in mind that determining capacity can be a very subjective exercise. It requires the testator to have the ability to understand the following:

• The nature of the act of making a Will and its essential elements.
• The extent of the property of which he or she is disposing.
• The claims of those persons who expect to benefit from the terms of the Will.
• An overall understanding of the relationship among these factors—the Will as a legal document, the property identified therein and the people who will be named as its beneficiaries.

We encourage everyone to create a Living Trust

But for those whose parents have been diagnosed with some form of dementia, the timing becomes much more critical. Our dedicated team is helpful, compassionate and affordable. Contact California Document Preparers at one of our three Bay Area offices today to schedule an appointment.