You created a trust to avoid probate and yet you didn’t – why?

The number one reason is that you signed your trust but did not take the very important step of retitling assets into the name of the trust.

In fact, one of your assets went to a beneficiary outside of the trust and defeated the fairness you had set up with your plan. How did that happen? You forgot to change the title from joint tenancy to the trust. Keeping an asset in joint tenancy also makes that asset vulnerable to the creditors of your joint tenant – ouch!

Let’s discuss a few of your most important assets:

Real Property: I almost always prepare the deeds transferring my client’s property into their trust and I also take responsibility for ensuring the document is recorded. This is usually the client’s most valuable asset and the cause of the greatest part of a probate fee.

Brokerage Accounts: One of the documents prepared for you is the Certification of Trust which is a quick summary of your trust (without the distribution details), names the Trustees and their financial powers and trust title. This is the document that you should provide to your broker, bank or other financial institution to change the title of your accounts to the trust.

Large or Valuable Toys (i.e. planes, RVs and boats): These assets are usually registered with DMV or other government entities that have their own instructions for changing title. If the asset is not very valuable, you may choose to not place it into your trust, but remember that in California the threshold for probating assets in your name alone is $100,000.00. This is an aggregate number, meaning if your RV and boat are each valued under the $100K figure, but together they exceed $100K, they would be subject to probate.

My clients should all have a funding letter (10 pages) in the front of their binder explaining the process of retitling for almost any asset. I am also always available to assist in this process or answer any questions that you may have. After all a CD will only earn the interest if you put money into it and a trust, likewise, must be funded to be effective.

Whether you are a client or not, you are welcome to submit questions to me and I will do my best to send a speedy reply or if the question is repeated enough, look for a future article addressing the issue.

You created a trust to avoid probate and the Courts, but we find the trust in a Court action despite this.

What could go wrong? Plenty!

While it is impossible to foresee every possible problem that could arise, some issues come up time and again and can be avoided. Let’s go over three often seen issues:

Choosing your successor Trustee: Choosing your successor is one of, if not, the most important decision to make when setting up your trust. Let’s underline the word trust as this is the most important attribute of a Trustee. They should be so trustworthy that they would make decisions to their detriment rather than violate their fiduciary duty. Just choosing your eldest child may not be the best course of action, unless they have the attributes mentioned. Sometimes parents think the solution is to name all of their children as successor Co-Trustees. If your children are not close before you pass away, this often will cause disagreements and a further breakdown of the family.

Explaining an Unusual Distribution Plan: Many people assume that to be fair they need to distribute their estate equally to their children. That may be fine if the children are all adults and responsible, but what if your family does not fall into that cookie cutter scenario. A trust is flexible enough to provide for almost any situation so that is not where the problems arise. The problems arise when the children or other beneficiaries do not understand why the distribution is set up in a certain way. Let me give you an example: Mother leaves a larger share to one child in a special sub-trust with no explanation why. The child receiving less often wonders why and feels they were treated unfairly. Mother thinks the child receiving less can understand her reasons, but has never communicated them. Had she explained her reasoning, either directly in the trust or in a letter outside the trust, much heartache may have been averted, not to mention reducing the chance of Court challenges.

Not Funding the Trust: You have just spent a good sum of money and time creating your estate plan and yet your beneficiaries learn after you have passed that they will have to probate all or a part of your estate—Why? Failing to re-title your property, bank and brokerage accounts, and other assets is one major reason. Other common mistakes include adding or changing banks or brokerage firms and not titling the new accounts in the name of the trust; refinancing your real property if the bank requires that you take it out of the trust as it is often not put back in; inheriting property and forgetting to title it in the name of the trust.

Remember that if you ever have a question regarding your trust or any of your estate planning documents, you may call at any time to discuss them. An ounce of prevention is worth more than a pound of cure when it comes to legal matters.