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Not quite.  For your trust to work for you, you need to make sure that your trust actually owns your assets.

Under California law, probate is generally required if a person dies holding an interest in real estate that does not pass automatically to a survivor such as a joint tenant.  Probate is also required if a person dies with a total of $100,000.00 or more in other “loose” assets (such as savings accounts, brokerage accounts, or personal valuables) that will not automatically pass to a successor. In general, “loose” assets do not
include assets such as accounts held in joint tenancy, accounts with a pay-on-death beneficiary, or life insurance, because these will automatically
pass to your beneficiaries.  (However, this does not apply if you make your estate the pay-on-death beneficiary—in that case, probate may be required.) Vehicles registered in California also do not count as “loose” assets.

Your trust helps you avoid probate by serving as a vehicle to transfer your assets to your loved ones.  Assets owned by your trust will pass to your loved ones under the terms of the trust. Therefore, they are not “loose” assets.  As a general rule, you must be sure that your trust owns all of your real estate and that the cumulative total value of your “loose” assets is less than $100,000.00.

Most attorney-drafted estate plans include a “pourover will” to back up the trust.  The purpose of the will is to leave your “loose” assets to the trust when you die.  But you cannot rely upon the will to avoid probate.  If your “loose” assets total more than $100,000 or you die with real estate that is not held by the trust, probate may be required.

To avoid probate, the trust must own all of your real estate.  To accomplish this, you will need to sign and record a deed that transfers your property to yourself as trustee of your living trust: i.e., “Jack and Jill, trustees of the Jack and Jill Revocable Trust.”  If you acquire additional real estate in the future, be sure to take title as “Jack and Jill, trustees of the Jack and Jill Revocable Trust.”

Bank, Money Market and other financial accounts are normally transferred by changing the name of the account owner on the signature card or other “contract” between you and the bank, broker, etc., to yourself as trustee of your trust (“Jack and Jill, trustees of the Jack and Jill Revocable Trust”).  Banks are accustomed to making these transfers and you can normally accomplish them by visiting the institution and presenting a copy of a Certification of Trust.  You do not need to worry about transferring ownership of your checking account unless the balance, together with the value of your other “loose” assets, approaches $100,000.00.

It is important to ensure that any death benefit or residual value of your annuities is paid to the trust.   Please contact the institution for the directions on how to accomplish this. Most likely, the institution will want you to accomplish this by naming the trust as the “pay-on-death” beneficiary.

Stocks and Bonds (not held in an IRA or 401(k)). Your financial advisor can help you transfer title of your investment accounts to
your trust
.  Generally, your trust should either (1) own all of your investment accounts and other securities (except for 401(k), IRA, or other tax-deferred accounts—more on this below) or, (2) be designated as the “pay-on-death” beneficiary.

Typically, it is advisable for each spouse to name the other spouse as the primary beneficiary of any life insurance policy you’ve taken out on yourself.  The trust should generally be named as the contingent beneficiary.  For example, for a policy insuring Jack’s life, the beneficiaries should appear as follows:

Primary beneficiary: Jill

Secondary beneficiary: Jack and
Jill, trustees of the Jack and Jill Revocable Trust

You should not transfer ownership of any 401(k), IRA, or other tax-deferred account to your trust, as this will result in negative tax consequences.  Instead, you can choose between two alternatives for incorporating these accounts into your estate plan. One alternative is to name the trust as the “pay-on-death” beneficiary for these accounts.  For example, the pay-on-death beneficiaries
for Jack’s 401(k) could be as follows:

Primary beneficiary: Jill

Secondary beneficiary: Jack and
Jill, trustees of the Jack and Jill Revocable Trust

But if your trust beneficiaries are responsible adults, you could consider naming them jointly as the secondary beneficiaries instead of the trust. For example, the pay-on-death beneficiaries for Jack’s 401(k) could be as follows:

Primary beneficiary: Jill

Secondary beneficiary: Bo Peep, 50%,
and Humpty Dumpty, 50%

This alternative can allow your beneficiaries to “stretch” the tax-deferred accounts and defer paying taxes for some time.  But it is a good idea only if (1) you are comfortable letting your named beneficiaries control how they spend their shares of the funds; and (2) your trust will have enough other assets to carry out your goals and pay your debts.

In conclusion, funding your Trust is an ongoing and evolving process.  Throughout or lives most of us buy, sell, and transfer assets.  Because of this it makes it worthwhile to review your assets from time to time and counsel with your Estate Planning Attorney to make any needed adjustments.

This is just a basic overview and is not legal advice specific to your situation.  If you would like to speak with me about your situation, please email me at jcw@eastbaybusinesslawyer.com or call 925-217-3255.

 

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