The Settlor is the person who requested the trust to be established and whose assets will fund the Trust. You are the Settlor of your trust.
What is a Surviving Spouse?
For Revocable Living Trust drafted for a married couple, the Spouse that lives longer than the other spouse is referred to as the Surviving Spouse.
WHAT IS A TRUSTEE
The Trustee is the person who will manage the Trust Assets and Administer the Trust. Usually, unless specifically altered, during your life time you will be the Trustee of your Trust. For a Trust involving married people both spouses are the Trustees of the Trust. After the first spouse is no longer with us, the surviving spouse becomes the Trustee of the Couples Living Trust.
As Trustee of your Trust you will be able to do anything with the Trust Assets as though you owned them yourself. As Trustee of your Revocable Living Trust there are very little limitations to what you can do with your assets held in Trust. We will discuss this during our complimentary consultation.
There are several options in designating a Trustee. While most people decide to be the Trustee of their Revocable Living Trust, other people prefer to hire a professional Trust Management Company to manage the assets of the Revocable Living Trust.
Making Changes to a Revocable Living Trust.
With a Revocable Living Trust during your life time, the you as Trustee or the Settlor can make any changes to the Revocable Living Trust as you desire. This is a simple process that an Estate Planning Attorney can assist you with. The important thing is that during your life time you are never trapped or prevented from making changes.
Amending a Revocable Living Trust
Amending a Revocable Living Trust is a simple process of drafting legal documents and properly notarizing these documents for the purpose of making changes to a preexisting Revocable Living Trust. Notice must then be given to any company that may have been affected by the Trust Amendment. An Estate Planning Attorney can clearly explain how to Amend a Revocable Living Trust.
When does a Revocable Living Trust Become Irrevocable?
Unless specifically altered in the Living Trust Documents. A revocable living Trust cannot be changed after the death of the Settlor. If the Living Trust is for Married people, then the Revocable Living Trust becomes Irrevocable, unchangeable at the death of the Surviving Spouse.
Revocation of a Revocable Living Trust
Revocation of a Living Trust is the process of drafting legal documents and properly notarizing these documents for cancelling the Living Trust, as though it never existed. Along with drafting these documents all assets held in the Trust must be properly retitled and transferred to your individual name.
Who is a Beneficiary?
The Beneficiary of a Living Trust is the person who will gain the benefit of the assets held in the Revocable Family Living Trust. Unless specifically altered, you will be the beneficiary of your Trust while you are alive. For married couples, both spouses are the beneficiaries of the Living Trust.
What is Separate Property?
Separate Property is property of married person, that was acquired or earned before becoming married. A revocable Living Trust allows each person the option to designate the property as Separate Property making it the Property of the spouse who acquired it before marriage or designate the property as Community Property, making it the property of both spouses. This is discussed during our complimentary consultation.
What is Community Property?
Community Property is property that was acquired during marriage with the use of community assets or community income. Community assets includes the earnings of each spouse. Income derived from Separate property during marriage, can remain Separate Property if it is managed correctly. This is discussed during our complimentary consultation.
How will a Revocable Living Trust affect Separate Property?
A Revocable Family Trust is a set of instructions that you and your spouse agree. An Estate Planning attorney can draft the instructions exactly as you and your wife intend. In short, Separate property can be protected, kept as separate, and community property can be protected to remain community property. Situations vary and laws regarding these topics are complex. This is discussed during our complimentary consultation. An Estate Planning attorney will have the specific answers after learning of your circumstances.
Your revocable living trust is an agreement between you as the Settlor and you as the Trustee to hold the trust assets for the benefit of the beneficiary of the trust. You are also the beneficiary of the Trust. The Settlor is the person setting up the trust and the Trustee is the person who manages the trust. In order to form the trust, the Settlor transfers property to the Trustee to hold in the name of the trust. Since this is your trust, you are both the Settlor and you are the initial Trustee or co-Trustees of the trust. Please remember that the trust must be written with the possibility that you might not always be the Trustee (e.g., in the event of your incapacity). The trust further provides that, for your lifetime, you are also the beneficiary of the trust. With a married couple, both spouses can be designated as co-Trustees and beneficiaries. These points are covered during our complimentary consultation.
What is a Spendthrift Clause?
This is a provision in Trust Document often referred to as a Spendthrift Clause because it prevents a future beneficiary from alienating (selling) his or her interest in the trust (usually for pennies on the dollar); it also keeps a creditor or ex-spouse of a beneficiary from being able to reach the beneficiary’s interest while it is held in the trust.
What is the Rule Against Perpetuities?
This is a rule that regulates the Maximum Duration of Trusts provision (it is also known as the Rule Against Perpetuities) and most all states require it to be included in a trust. Basically, the rule states that, regardless of circumstances, a trust (or an interest in the trust) must end at some point in the future; it does not mean that the trust must continue for that period.
What is a No Contest Provision?
A no Contest Provision is language in the Trust document that assists in preventing arguments between the beneficiaries. It states that, to the extent permitted under California law, if anyone challenges the validity of the trust or your intent as expressed in the trust, that person and his or her descendants will receive nothing from the trust. These types of provisions can be adjusted depending on personal preferences. This is discussed during our complimentary consultation.
What is Survivorship?
These are provisions that sets the requirement that a beneficiary must survive the survivor by at least thirty days to receive his or her distribution. This can avoid an unnecessary probate of the beneficiary’s share of the trust. This also accounts for the possibility of a simultaneous death of a married couple.
What are Special Distributions?
These types of provisions in a Revocable Living Trust create some general rules (which will not override any specific distribution provisions) of what will happen to any trust distribution going to a beneficiary who is under the age of twenty-one or who is incapacitated at the time of the distribution.
One of the important provisions of this type of language is the discretionary right it gives to the Trustee to hold any distribution for a beneficiary deemed by the Trustee to be incompetent or suffering from substance abuse, or because the beneficiary’s financial circumstances are such that failure to delay the distribution would actually reduce the trust benefits to the beneficiary (e.g., a beneficiary who is receiving state assistance of some kind).
Should a trustee be required to Post a Bond?
Simply put, a Bond is an insurance policy that protects the beneficiaries if the Trustee does something unlawful and loses trust assets. The choice to require a Successor Trustee to obtain a Bond depends on who you designate as the Successor Trustee. How much can you trust the designated Trustee? Will there be adult beneficiaries that are able to monitor the actions of the Successor Trustee? What is the responsibility level of the Successor Trustee? We will discuss this during our complimentary consultation as well as, explore other options.
Requiring a Bond can be a good idea but there are some complications that can arise if without proper planning. It can also be a Catch-22 situation because the successor Trustee cannot gain access to the trust assets to pay for the bond until he or she becomes the Trustee but cannot become the Trustee until the bond has been posted. Also, bond is very difficult to obtain when there is no court supervision and is very expensive (it is paid out of the trust assets); An Estate Planning Attorney can give you the best advice depending on your specific circumstances and overall investment portfolio. We will discuss this during our complimentary consultation.
SHOULD A TRUSTEE BE COMPENSATED?
The answer to this question depends on your specific circumstances. Often people believe that because, sometimes, the Beneficiary will also be the Successor Trustee, they do not need to get paid. While this might be true in some situations it is not a good idea in most. It is important to remember that if the Successor Trustee is not the only beneficiary there will be additional administrative, tax preparation and reporting duties that will require the Successor Trustee to devote time, money and energy.
If compensation is not specifically indicated in a professionally drafted Living Trust then default provisions will apply. If a successor Trustee is a corporation (i.e., a bank) the compensation is the Trustee’s published fee schedule. When a successor Trustee is an individual such compensation is determined based on a reasonable fee based on the time and effort of the Trustee. If there is ever argument as to what amount is reasonable a Court Judge makes the decision. A Trustee is also entitled to be reimbursed for all necessary expenses incurred in the discharge of the Trustees duties.
Duty of Trustees: What are the reporting requirements of a Trustee?
A Successor Trustee has many duties. One of the most important duties is the reporting requirements of the Trustee. In general, a Trustee must report (account) to the beneficiaries of a trust at least annually. Obviously, while you are both the Trustee (and the beneficiary) it is not necessary for you to account to yourself; further, a beneficiary can waive (give-up”) the requirement, although this is not always a good idea. This will be discussed during our complimentary consultation.
WHAT IS A HIPAA WAIVER?
This is a legal document that must be properly executed. The HIPPA Waiver gives your designated person, the Agent, or Trustee the right to obtain your health care information which would otherwise not be accessible under the privacy provisions of the federal Health Insurance Portability and Accountability Act (HIPAA). Because of specific California regulations on the execution of a release concerning your protected heath information, there is also a separate waiver form for each person designated. Similar provision are often found in a General Powers of Attorney and youre a Health Care Directive.
SHOULD A LIFE INSURANCE POLICY BENFICIARY BE A REVOCABLE LIVING TRUST?
Depending on the size of the Estate, designating your Revocable Living Trust or Living Family Trust as the beneficiary of life insurance policies allows you to provide much more guidance and control on how the money is distributed. Things like; at what ages will the beneficiaries receive the money? What should the money be used for? A college education? To purchase a home?
These types of provision are completely up to your personal desires and preferences. It is important that your intentions are written properly and referenced correctly to withhold legal scrutiny. A devoted estate planning attorney will properly word the provisions to reflect your true intentions if they are ever challenged in the future.
What is the Stretch-Out provision?
These are important provision if you plan on designating a Trust as a beneficiary of a retirement account. These types of provision make sure that the trust can receive the same stretch-out on the pay-outs from any IRA or other tax deferred accounts which are paid to the trust (as the beneficiary) as if the account had been paid directly to an individual (this language has to be fairly technical to meet the IRS requirements). This will be discussed during our meeting.
WHAT IS A TRUST PROTECTOR PROVISION?
These types of provisions enable you in the future to appoint a Trust Protector of the trust (sort of a go-between between the Trustee and the beneficiaries). The Trust Protector serves without compensation, but may be reimbursed for out-of-pocket expenses. While the Trust Protector is acting:
The Trust Protector can receive a copy of all notices, reports and/or accountings required to be delivered to any trust beneficiary.
The Trust Protector may remove a Trustee and appoint successor Trustees (but may not appoint himself/herself.
The Trustee must consult with the Trust Protector as to the needs and requirements of the beneficiaries of the Trust, the suitability of any discretionary distribution and the fitness of any beneficiary to receive any distribution.
Whether a Trust Protector is a good idea depends on your specific circumstances. During your conversation with your Professional Estate Planning Attorney, recommendations will be made after learning of your circumstances.
HOW MUCH CONTROL WILL I HAVE OF MY OWN TRUST?
In general, the you as Trustee will have the same level of control over the trust assets that you had prior to transferring the assets into the trust.
WHAT ARE RETAINED RIGHTS?
In a Living Trust, retained rights refers to the rights that only you can exercise. These usually include your right to revoke or change the trust at any time during your joint lifetimes. How these powers are treated is based in part on the ownership of the underlying assets. The purpose is to prevent the exercise of these powers by anyone other than you. This can be adjusted depending on your desires.
WHAT IS A SURVIVORS TRUST?
A Survivors Trust is a Trust that is created with the assets of the Surviving Spouse, for reducing or avoiding Federal Estate Taxes. If your Estate exceeds the exemption amount, your Living Trust will be subject to Federal Taxes. With a Properly Drafted Estate Plan the survivor continues to have the complete control and benefit of the survivor’s portion of the trust (Survivor’s Trust), there are certain limitations placed on the survivor about the deceased’s portion. After the death of the first spouse, the decedents portion of the trust cannot be revoked by the survivor, but the survivor has the unlimited power to change the manner of distribution of the decedents share of the trust estate. This will be discussed during our meeting if appropriate for your circumstances.
WHAT IS THE BENEFIT OF A TRUST?
There are many direct and indirect benefits of establish a Living Trust or other similar Estate Planning device. One of the most important is that the trust controls exactly how the assets of the trust are to be distributed; both during your lifetime and then after your death. Further, The Trust acts better than a Will after death because the assets can be distributed without court supervision (i.e., no probate). Probate is a very expensive and tedious job involving a long process with many court formalities requiring technical knowledge, all for the purpose of legally transferring assets to heirs if there is no Trust. Probate should be avoided for many reasons. This will be discussed in detail during our meeting.
Codi M. Dada Law Offices
802 Grant Avenue, Novato, CA 94945-3218