Although most families have not done their estate planning, many have, and many have established living trusts. The objectives in establishing a living trust are to avoid the high costs and hassles of a California probate and to provide an easy administration of the estate assets. Living trusts are great and will accomplish these objectives – if they are maintained.
Your estate will still go through probate, even if you have a living trust, if you have not transferred your assets to your living trust. We tell our clients to consider their living trust like a container. The trust will only control the assets that have been transferred to the container. If when you die, you left significant assets (real property, bank and investment accounts) outside the container, your loved ones may have to take your estate through probate. Probate is unwelcome to most families because it is expensive and generally takes at least a year in court.
Ask yourself these questions to confirm your assets are in your living trust.
1. Real Properties. Is your home and any other real properties you own titled in your living trust? The grant deed on the properties should show the trust as the owner. Your property tax bill should also show the trust as the owner.
Refinance Warning. If you’ve refinanced your house, the bank will most likely make you sign a deed transferring title from your living trust to your name. That is standard procedure. Make sure you sign another deed transferring title back to your living trust. Many people signed a deed transferring title of their house to their living trust when they set up their living trust, but a few years later refinanced and signed a deed transferring title from the trust to their own name. Without paying attention, their home is no longer titled in their trust. You should review the title on your house to make sure it is titled in your living trust.
2. Bank and Investment Accounts. Are your significant bank accounts and non-qualified investment accounts (non retirement plan accounts) titled in your living trust? We recommend our clients transfer all such accounts to their living trust, especially any accounts with a $10,000 or more.
3. Business Interests. If you own business interests (shares in a corporation, partnership interests, LLC interests), have you transferred title of those business interests to your living trust?
4. Retirement Plans. Retirement plans (IRAs, 401ks, 403bs, etc. ) will be distributed to the beneficiary you name on the retirement plan beneficiary form. Most people name their spouse first then either their children or their living trust second. If you name your living trust, make sure it includes provisions to qualify as a designated beneficiary. You should review your beneficiary designations. Make sure you have a second choice, and maybe even a third choice. If you don’t name a beneficiary, or your only beneficiary has died before you, the retirement plan contract will often require the proceeds go through probate.
5. Life Insurance. Like retirement plans, life insurance proceeds will be distributed to the beneficiary you name on the life insurance beneficiary form. Most people name their spouse or living trust as primary beneficiary. Make sure your beneficiary designations are up to date. If you have minor children and the death proceeds go to them, the insurance company will require probate. Better to name your living trust as beneficiary rather than your minor children.
This is a brief summary of the issues you should review every year to make sure your living trust will do what you want it to do. A living trust is not complicated, but it does require periodic review and updates. A living trust estate plan is like a car. It will work great if you do the regular maintenance.