EDUCATIONAL MESSAGE

 Types Of Assets Not Placed In Trust

Assets such as life insurance policies, IRAs, and retirement plans generally have beneficiary designations. Placing such assets in the Trust Estate or naming the trust as the beneficiary generally serves no useful purpose since the payout period can be lengthened by naming young persons as beneficiaries; if the trust is named the beneficiary, the payout period is very short. Therefore, attorney does not advise any IRAs or retirement plans to name the trust as a beneficiary. For any specific retirement plan or IRA, the plan administrator should be consulted if any changes are to be made.

Handling Assets Not Placed In Trust Estate

Assets not placed in the trust can be handled just as if no trust were established. For instance, if Settlor wants to leave a bank account out of the trust, the bank account can be left in the Senior's name with signatories added, such as "Child One" and "Child Two." Depending on your agreement with the bank, the Settlor can sign all checks, can require two signatures, or even three signatures, it is all at the discretion of the owner of the bank account. Or the owner can state that any one of the signatories can sign. Checking accounts usually are left out the Trust Estate if amounts are small. Even if an account is left out of the Trust Estate and left in the name of Settlor alone, there would be no probate if the aggregate of all items left out of the Trust Estate does not exceed $100,000 total, if all three names are to be left on the bank account, there would be little chance of a probate since upon the death of Settlor, the remaining signatories can have full power over the account without any probate. All powers will remain in the surviving signatories and only the notice of death to the bank would be necessary. Make sure that the Social Security number of the Settlor is used on any bank account where multiple names are used so that any interest is credited to the owner's income tax and not to the other signatories.

The Powers Of The Trustee At Death Of Settlor

Upon the death of Settlor, the successor Trustee takes over the office of the Trustee. This is done by recording the affidavit of Death of Settlor/Trustee with the County Recorder Office for teal property, and preparing the affidavit for the holders of personal property such as stockbrokerage firms, mutual fund firms, banks, credit unions, and other entities that hold Settlor's assets. These need not be recorded but should be signed before a medallion signature guarantor where a stockbrokerage or a mutual fund company is involved.

REAL PROPERTY

1. Record the original trust in every county where the trust owns real property only if a title company requires this in the event of a sale. Make certain that the legal description, assessor's parcel number, and street address of each parcel in the trust is typed on the trust property list.
   

2. Prepare and record an Affidavit Death of Settlor/Trustee for each parcel of property owned by the Revocable Trust Or Living Trust along with a certified copy of the Death Certificate. In the usual case, there is only one affidavit required for the house.
   

3. Prepare and record the deed from the successor Trustee to the beneficiary designated in the Revocable Trust Or Living Trust (which is now irrevocable). A Preliminary Change of Ownership Report is filed at this time with the affidavit. Also file a Notice of Death of Real Property Owner with the County Assessor's office.
   

4. VERY IMPORTANT AND EASILY OVERLOOKED: If the transfer is from a parent to a child or children as in this case, the child/children is /are eligible for a big tax break for property tax purposes. This could save from many hundreds to many thousands of dollars per year in lower property taxes on property which has appreciated greatly in value. The tax break is not automatic and an application must be made within very strict time limits. This is what is called a Claim for Reassessment Exclusion for Transfer Between Parent and Child. If the property is sold by the children, the application must be filed before the date of sale. Otherwise, the children might find a great big tax bill for the increase in property taxes from date of Settlor's death to date of sale. The supplemental tax bills can be in excess of thousands of dollars for the short period if the property has appreciated enough.
   

5. Obtain a written appraisal for the real property to document the recipients' new stepped-up tax basis with the IRS. Use of a California Probate Referee is quite common since this office is quite familiar with IRS in the event of an audit of the federal tax return, if necessary.
   

PERSONAL PROPERTY

1. Obtain a certified copy of Death Certificate (with purple ink) and a copy of the original trust to each bank, savings and loan, IRA, pensions, annuities, mutual funds, stockbrokers, stock transfer agents, life insurance companies, and others who hold assets in the trust name or even outside of the trust name. If the assets are in the Trust Estate, supply the Death Certificate with a Certificate of Trust showing authority in the successor Trustee.
   

2. Obtain an appraisal of each asset so that you have proof of the stepped-up tax basis. The same California Probate Referee can do the appraisals. The IRS is very much interested in values when a tax benefit is claimed. The beneficiaries should keep the appraisals for IRS purposes, even if years later. Bank accounts, cash, and life insurance proceeds need not be appraised. These appraisals can be used for the federal estate tax return (form 706) which will be required if the net estate exceeds the "The "Exclusion Amount" From Death Taxes" for the year of death.
   

3. Successor Trustee then distributes the assets to the persons designated in the trust instrument. In the case of the John Doe 2000 Trust, see ARTICLE VII, TRUST PROVISIONS, DISPOSITION ON DEATH OF SETTLOR.
   

The "Exclusion Amount" From Death Taxes

In the year 2001, there is no death taxes for a single person's estate under $675,000. In 2002 and 2003, the "The "Exclusion Amount" From Death Taxes" is $1 million, in 2004 and 2005, it is $1.5 million, in 2006, 2007, and 2008, it is $2 million, in 2009, it is $3.5 million, and the tax is repealed in 2010.

A net estate below is "The "Exclusion Amount" From Death Taxes" for a given year will not incur a death tax. For estates over the "The "Exclusion Amount" From Death Taxes," the tax starts at 37% and goes up according to the amount over the exclusion.

Taxes, Death And Income

If the total net estate exceeds the "The "Exclusion Amount" From Death Taxes" for the year of death, a federal 706 estate tax return is required. See the table under Personal Property, No.4 above. A CPA firm with much death tax return experience is preferred. The cost of a California Probate referee to do the appraisals is usually the lowest since they are required by state law to charge no more than 1/10th of 1% of the appraisals. If there are many pieces of valuable jewelry, or antiques, a specialized appraiser must be hired.

Revocable Trust Or Living Trust

For example, "The John Doe 2000 Trust, established on January 1, 2000" is a Revocable Trust Or Living Trust agreement also known as a "Living Trust." A Revocable Trust Or Living Trust can be changed at any time, assets can be added or removed at any time, and the trust is essentially a vehicle to avoid probate for the assets listed in the estate name. Unlike a married person's trust, there is no income tax difference for a Senior who dies with assets in a Revocable Trust Or Living Trust versus one who dies with everything in her name. For a single person, the main benefit is in avoiding probate. There are many other benefits accruing from the process, but those will be addressed separately.

CONTROL

The Settlor, in this case John Doe, is in full control of all assets listed in the Trust Estate so long as he is able to function as a Trustee. If he becomes disabled, the first successor Trustee, Jane Doe, steps into the position as Trustee. If the first successor can not function or refuses to accept the position, then the next successor Trustee becomes the next acting Trustee. If both are unable to accept the role of successor Trustee and no other persons are named therein, the majority of the adult beneficiaries and the guardians of any minor beneficiary can decide who is to be named the next trustee. If there is a conservator of an adult beneficiary acting, the Conservator shall act for the Conservatee.

Costly Steps Avoided By Having A Revocable Trust Or Living Trust

When having a Revocable Trust Or Living Trust drafted, many subsidiary documents are included. Power of Attorney forms, and Power of Attorney for health care are the two most important. If the Settlor becomes disabled, the trust and the Power of Attorney forms will eliminate the need for a costly and time consuming Conservatorship of the Person and Estate of Settlor. This can save many thousands of dollars in the establishment of the Conservatorship and thousands of dollars in each accounting period. This can go on for a lifetime if not handled in this way.