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Feature
Articles
Anatomy
of a Trust - Part 2: Trust Estate
As
discussed in last month's newsletter, one of the requirements of a Trust
is that Trust Property is required (Probate Code §15202). The
term "unfunded Trust," is a misnomer. If the Trust isn't
funded, it’s not a Trust - it's just a document.
Not
too long ago, it was common for attorneys to create "Testamentary
Trusts." These "Trusts" consisted of much the same
text as is found in a typical Living Trust. However, it didn’t truly
become a Trust until after the death of the testator, when (after being
probated) it was funded with the assets of the probate estate. Much more
common today is the living Trust - which avoids probate except for any
assets over $20,000 for real property or $100,000 of personal property
left out of the Trust. If a Living Trust, accompanied by a pour-over
will, is not funded, the effect is just like it was with the
testamentary Trust - the assets are probated according to the will, and
then the assets are "poured" into the Trust for management and
distribution. "Funding the Trust" is therefore as important as
having the documents drawn. Everyone getting a Trust or assisting
a client get a Trust needs to ensure that funding takes place
immediately upon execution of the document. ATS's Trust always contains
a schedule (or schedules) of property that becomes Trust assets upon
execution of the document - but it is critical, in addition, to have
real property deeds recorded, and title or ownership changed on other
assets as needed to make sure any items left outside the Trust do not
approach the $20,000 (real property) or $100,000 (personal
property) level.
Article
2 of the ATS Trust is titled "Trust Estate." The opening
clause is common to Trusts for single persons as well as married
couples, and identifies the Trust Estate: "all property subject to
this instrument from time to time to time, including the property listed
in the attached schedule, is referred to as the Trust Estate and shall
be held, administered, and distributed according to this
instrument."
The
remainder of the article only appears in couple's Trusts, and deals with
the character of Trust property (i.e., community, separate or joint
tenancy). Basically, community and separate property retain the
character they had prior to creation of the Trust. Community property
remains community, separate property remains the separate property of
whichever spouse owned it prior to marriage, or inherited it during
marriage. It is important to keep separate property in separate
schedules in the Trust, as schedule "A" lists community
property, and settlors can find their separate property inadvertently
transmuted to community property by having it appear in that schedule,
or by signing a community property agreement without carefully
considering its contents. Of
course, a couple can decide to change separate property to community
property if they wish. This is an area where attorney
consultation is essential.
Property
held in joint tenancy prior to creation of the Trust comes into the
Trust as community property (California Family Law assumes Joint Tenancy
property held by husband and wife is community) to the extent that the
spouses' interests in the property were equal prior to creation of the
Trust.
Pet
Trusts!
Pets
often become integral members of our families, even our best friends.
Though we look after their welfare during our lives, we often overlook
what will happen to them after we die. Verbal agreements with friends
and family members aren't always followed. Written plans for the
continued care of a pet are generally needed to ensure your wishes are
carried out. Many pets end up in shelters where an estimated
500,000 animals are subjected to euthanasia each year because their
owners predeceased them.
Your clients can ensure the continued care of their pets by establishing
a Pet Trust. According to California Probate Code Section 15212, a
trust for the care of a pet may be carried out by the Trustee for the
life of the animal. However, the Code does not provide for enforcement
if the Trustee decides not to execute it.
Establishing
a Trust for your pet is similar to creating one for your child. You
choose a Trustee and perhaps also an "enforcer," and fund the
Trust. Pet Trust documents are available through ATS.
A trust is not the only option. Your clients can include a special
instruction in their current Trust and gift the pet to a friend or
relative along with some money to provide for its care. The funds can be
given in one lump sum or distributed over time by the Trustee. If
the clients choose this option, they should make arrangements with the
caregiver prior to their own deaths. If they are concerned that
the funds will not be used to care for the pet, the clients can entrust
the care of their pet to an organization that protects the rights of
animals. For example, the San Francisco Society for the Prevention of
Cruelty to Animals (SFSPCA) has a program called the Sido Service.
It makes every effort to place pets in a good home with regular visits
to ensure pets are well taken care of. The Sido Service is available to
those who donate $25 or more annually to the SFSPCA. You may wish to
locate similar organizations in your area. For more information on
SFSPCA, visit http://www.sfspca.org
. Utilizing the options available can give pet owners peace of
mind and assure them that their pets will be taken care of.
Q&A:
Should my client have an Amendment or a Restatement?
This is a
question only an Attorney can answer for a specific client, but ATS can
relay common reasons attorneys choose one over another. An amendment is
a binding document that changes specific provisions of the Trust
instrument, but will only change those items addressed. Amendments are
appropriate when the client is happy with the current Trust and only
wants to make a few adjustments. If the changes the client wants, or
that the attorney recommends, are extensive, such as changing the Trust
type, or adding numerous clauses to bring the document up to current
standards, then the attorney will probably recommend that the Trust be
restated. The alternative, producing extensive amendments, would
be cumbersome and expensive. Though commonly referred to as a
restatement, what is actually being done is that the
entire trust is being amended . In a restatement, all
provisions of the original are replaced with a new Trust document,
keeping the original Trust name and date to avoid having to move assets
from the old Trust into the restated one.
If your
client wants to changes their existing Trust, you can use an ATS
Client Information Form to provide the necessary information. You must
also submit a copy of the existing Trust to ATS, who will forward it to
the Attorney. The Attorney will make the appropriate choice between
amendment and restatement based on his or her interview with the client.
How
Long Will you Live?
No
guarantees, but the “Longevity Game” asks a few questions and comes
up with a number. Check it out. If you don’t like the answer, change
some of the behaviors and see the results. It doesn’t account for
possible accidents; so don’t let your clients think they can safely
put off estate planning!
http://www.nmfn.com/tnetwork/longevity_game_popup.html
Mandatory
Education for Notaries Public Goes Into Effect
Just
a reminder for those of you who are or will become a Notary Public: the
new law mandating education for Notaries Public took effect July 1,
2005. Any applicant appointed will now need to complete a course of
study approved by the Secretary of State. A list of approved vendors is
available at http://www.ss.ca.gov.
Upon completion of the course, you will receive a certificate of
completion. Then you need to successfully pass the Notary Public
examination within two years. Cooperative Personnel Services (CPS) is
the only authorized test administration service to conduct the exam.
For information about the exam or test dates, visit https://notary.cps.ca.gov/
Identity
Theft Summit
The
California Summit on Identity Theft Solutions was held in Sacramento on
March 1, 2005. Identity theft is a growing nationwide threat to
consumers. Last year, 9.9 million Americans were victims of
identity theft. Of those victims, over a million live in
California. Law enforcement agencies report that only 11% of
reported identity theft cases are solved. Officials from law
enforcement, government, business, and consumer organizations gathered
at the summit to discuss the different obstacles they face in
prosecuting offenders and how they can overcome these obstacles.
The exchange of information left the officials better informed on how to
successfully resolve this problem. A report on the summit will
soon be made available at http://www.idtheftsummit.ca.gov.
If
you or a client become a victim of identity theft, you may be thankful
that California legislation has already begun to address the issue.
In 2000, AB 1862 established the California Identity Theft Registry, a
database where information about identity theft victims is recorded.
Law enforcement, employers, or others who may need to inquire about your
criminal or financial records, can contact the Registry and verify you
are a victim of identity theft. Before your name can be placed in
the Registry, you must go through an application process. Among
the required forms is a court order verifying victim status, which is
difficult to obtain due to the process involved. Currently, only
thirty people belong to the Registry, but the numbers are expected to
grow as information and the process becomes more streamlined. The
California Office of Privacy Protection (OPP) has greatly assisted in
this matter. It developed a guide, "How to Use the California
Identity Theft Registry", to educate people and to hopefully enable
them to represent themselves in court when they try to obtain the
necessary court documents. The guide is available at http://www.privacy.ca.gov.
For further information about the Registry, visit http://caag.state.ca.us/idtheft/general.htm.
Understanding
Intestate Succession
A primary
reason people establish a Will or Trust is to specify who will
inherit their estate once they have deceased. If a person were to die
without having designated specific heirs, or if all their designated
heirs predecease, or die simultaneously with them, then their estate
would be distributed according to the rules set forth by California laws
regarding intestate succession (Probate Code Section
6400ff). It is important for the client to understand
these laws and, if necessary, to make contingent distribution
plans.
According
to the laws of intestate succession, if a person is married at the time
of his or her death, then all community and quasi-community property
passes to the Surviving Spouse or Surviving Registered Domestic Partner.
If a person's spouse or domestic partner is deceased, then potentially
½ of community property could pass to the heirs of that deceased
person.
Briefly, the
decedent’s separate property passes as follows:
If
decedent is married or has a registered domestic partner at time of
death and:
-
Left
one living child, or grandchildren / great grandchildren from that
one child then deceased, then ½ to Spouse / Partner,
and ½ to that one living child or grandchildren /great
grandchildren of that child then deceased. If there are no children,
grandchildren or great grandchildren, etc., then ½ will pass to the
decedent’s parent(s), if living, and if not then to brothers and
sisters, if any, and if none, then to grandparents, if any, and if
none, then to aunts and uncles, and so on. Or
-
left
two or more living children, or grandchildren / great grandchildren
from any deceased of his/her two or more children, then 1/3 to
Spouse / Partner, and 2/3 equally among children / grandchildren /
great grandchildren, etc. Or,
-
there
are no children, grandchildren, great grandchildren, parents,
brother, sisters, grandparents, aunts or uncles, etc., then Spouse /
Partner receives all of decedent’s separate property.
Generally
speaking, "children" includes a decedent's biological
children, including those born out of wedlock, and persons who were
legally adopted by the decedent. Stepchildren, foster children, and
other parent-child relationships not legally recognized in the
decedent's lifetime could sometimes be included, if the relationship was
established while the child was a minor and continued for a long period
of time.
After
these rules, further distribution become complicated and differs
depending on the decedent's specific family circumstances.
Paperless
Work Environment
ATS
is moving closer to a paperless office environment and, as a result, to
a more secure and efficient workplace.
From
our perspective, a paperless office requires four components: 1)
committing existing paper to electronic images, 2) elimination of paper
coming into the office, 3) an efficient method to manage and make use of
our information, and most important, 4) a rigorous plan to secure our
information.
1)
EXISTING PAPER: About a year ago, we invested in sophisticated document
scanning software and hardware and committed all of our paper records to
electronic images, stored in a secure central computer. We now scan all
incoming documents and shred or return originals to our customers.
2)
INCOMING PAPER: We are working on a number of projects to complete our
paperless objective. In the near future, we will accept applications
online and attorneys will have the option to view and comment on trust
drafts through a secure online process. This should also solve one of
our biggest problems -- deciphering occasionally poor handwriting. These
projects should also reduce trust turnaround time by 20-30%.
3)
MANAGE: Converting to electronic documents would spell disaster without
an efficient method to manage and make use of the information. So, we
have developed proprietary software that automatically retrieves
relevant information while we are working on a particular job, and
leaves it securely hidden at all other times.
4)
SECURITY: Without going in to details about our security, one of the
keys to securing important client information is to restrict unnecessary
data movement and duplication. In our new process, client data never
moves from its secure central server even though many individuals may
collaborate on a particular document.
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