A Living Trust package comes with a number of other documents, one of them being a Pourover Will.

What a pourover will does is catch any asset that you either forgot to put into your trust or you acquired after you created your trust and did not have time to put into the trust before you died and pours it into the trust (hence the term Pourover Will). Hopefully, the pourover will is never needed, because everything was properly put into your trust, but it is good to know that your estate is covered just in case.

An estate plan is just not complete without a General Durable Power of Attorney, Advance Health Care Directive and Pourover Will.

There are more, but this is a good start and would be very helpful when reviewing your plan or for use by your successor Trustee.

It authorizes someone (your agent) to make health decisions for you when you cannot due to incapacity.

The document contains instructions and wishes that you have directed that the agent follow. An example of this is that you may wish all artificial respiration, feeding and other items that would keep you alive to be shut down if it were determined that you are in a persistent vegetative state. A lot of complicated language that means shut off all the tubes that keep me alive if I am a vegetable (permanently, that is).

As we age, we all run the risk of dementia and Alzheimer’s and this document names the person that you would want to be in charge of your person. They would decide where you would live and of course make health care decisions for you.

The principal is the person who creates the GDPA. It also allows the Attorney-in-Fact (AIF) to act in the principal’s capacity when the principal cannot. For example, the AIF could sue a doctor for malpractice if the doctor injured the principal and the principal is now incapacitated and can’t sue for him or herself.

If you create a Living Trust and a GDPA then the Trustee will act over all assets in the trust but the AIF would act over assets that cannot be in the trust (your IRA for example). If you have put your assets into your trust and never become incapacitated, it is possible that your GDPA would never have to be used. It is one of those just-in-case documents that can save a lot of expense (Court) and headaches (Court) and money (Court). Without a GDPA, a representative of your estate would have to file a Conservatorship to deal with the assets not in your trust.

Although not a substitute for proper funding, the Schedule A may be your safety net. An attorney may petition the Court asking that an item on Schedule A or even all the assets on that Schedule be ordered into the trust without a lengthy probate process. This is called a Heggstad petition named for the first person trying this technique and is now rather standard. It is not free to fund the trust this way, but is far less expensive and time consuming than a probate.

Why would a Heggstad be necessary?

• Suppose you sign your trust shortly before a vacation with plans to fund it on your return, but you pass away on your trip.
• Perhaps you instructed your broker to change title on your account, but one of the assets listed on the statement required additional steps that were not taken.
• Another very common circumstance is refinancing real property, your home or rental property. The mortgage company required you to take the property out of your trust, or perhaps the escrow company did this, but upon completion of the refinance they did not return the property to the trust nor remind you to do so.

Given the importance of this safety net, it is a good idea to update your Schedule A periodically. A good time to update your Schedule A is when you have changed accounts, purchased new assets or every year or so at tax time.

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.

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.