Hello, everyone. This is Robert Mansour. I wanted to make a brief video today to explain that your living trust only governs assets that you actually own. I had a client recently and he brought this living trust to me, and he had been divorced for several years, and in his living trust he had all kinds of things written there. I think it was kind of a trust that he downloaded from the Internet or something like that, and he had a lot of assets listed in the trust that were real estate, bank accounts, things like that.
Probably a good dozen pieces of real estate were listed in his trust, and he asked me to review these trusts and give him my opinion, and so I was reviewing the living trust and I found a lot of problems, but the biggest problem that I found, was that none of the real estate properties that were listed were actually his. They were in other people's names, in his former spouse's name, in another trust that's not his trust. I think it belongs to his former spouse.
I asked him, I said, "What are you doing writing all of these things down in your trust?" He was, "Well, I want these things to go here and there, and I want them distributed to so-and-so, and I want this parcel of real estate distributed and so-and-so," and I said, "You realize there's no magic powers in a living trust?" You can't just write down any asset you want, and suddenly, that asset is going to magically go to so-and-so.
I said, "You don't even owned these things. These things are owned by other people, so you can't just by virtue of listing them on some kind of a schedule or listing them in the trust, they're not going to magically go to those people when you die." He said, "So what's going to happen?" I said, "Nothing. Your living trust is meaningless. There is nothing in your trust that you actually own." He doesn't have the legal authority over any of those assets.
This also happens when clients simply write down their assets. Maybe they own those assets, never mind assets owned by other people. They own the assets and they write them down in their trust, and they list them, and they mention them in the trust, and they think that by virtue of simply listing them in the document or writing them down on a schedule of assets of some sort, simply by writing them down or putting them inside of their binder, that that magically means that that asset is now governed by their trust.
I explained, "No, no, no." First of all, you have to own the asset and if you do own the asset, you actually have to transfer the title on the asset to the name of your trust, so you have to file a new deed for your real estate. You have to go to the bank and tell them to move your account from your name into the name of your trust and there's paperwork involved.
Please understand, simply by virtue of listing the assets in your living trust binder and writing them down, that doesn't mean anything. It's important and it's helpful, but that doesn't really mean that the asset is actually in the name of your living trust, and therefore, governed by it. That includes assets that you own, and certainly assets that you do not own, you couldn't even move them into your trust if you wanted to because they're not yours.
There are no magical properties about a living trust, so please understand, properly titling your assets is very important as part of creating a proper living trust. Thank you very much for watching this video. I hope you found it helpful.
While it is very important to make sure most of your assets are "IN YOUR TRUST," there are several assets that typically don't belong "IN THE TRUST." These assets usually pass by way of a designated beneficiary.
These are usually tax-deferred accounts. Examples of assets that do NOT go into your trust are IRAs, 401k, 403b, and pension plans. These assets pass by way of “beneficiary” pursuant to contract with the particular institution. In most cases, you should name your spouse as primary beneficiary (or anyone you want if you are single) and then name your children as secondary beneficiaries (or anyone else you want if you don’t have children or wish not to include them).
If your children are too young or you have significant concerns as to how they would handle such assets, you can name your trust as secondary beneficiary (sometimes called the “contingent” beneficiary). You may want to use the specific sub-trusts designated for your children so each child’s age will govern the amount necessary to withdraw. Otherwise, the age of the oldest trust beneficiary may govern the distribution to all beneficiaries.
If you name a child directly, one important question to ask these institutions is “What happens if one of my children dies?” Some companies will give 100% to the remaining named children. Some will give that deceased child’s portion to any grandchildren (children of that child). This is known as “right of representation” or “per stirpes” (Latin). In other words, they may have an internal policy about this issue. In some cases, you may find a place on their beneficiary form where you can indicate your preference. If they don’t have any such thing on their form, ask them if you could write it in.
Some companies won’t allow you to do so, and in that case you just need to make sure you change your beneficiaries if someone was to pass away. As a general rule, naming human beings as beneficiaries of such assets is preferred to naming a trust, because naming a trust can lead to unnecessary complications and burden for the trustees. Make sure you discuss your options with your attorney and your financial/tax professionals.
If you need help creating an estate plan for your family, call our office at (661) 414-7100 to make an appointment.
If you create a living trust, you need to "fund" the trust. That means you have to put things "into" the trust. This doesn't occur by magic. You can't just create a trust and go about your life without taking the time to put your assets into the trust. You do so by actually changing title to the assets. You need to go to the bank and change title to your accounts. The accounts will no longer be in your name, but in the name of the trust instead. That requires time and paperwork. The same holds true for any real estate you have. You have to sign a deed which puts the real estate in the name of your trust.
For example, let's say you hold title as "Mary Smith and John Smith, husband and wife as joint tentants." In fact, that is how most married couples hold title to their real estate. When funding your trust, you should sign a new deed (most lawyers will help you with this) which places the house in the trust. Therefore, your new deed would say something like, "Mary Smith and John Smith, husband and wife and joint tenants, hereby grant to Mary Smith and John Smith, trustees of the Smith Family Trust, dated March 30, 2013 the following real estate..." Then you have to file the deed with the county recorder's office. Now, the house (or whatever real estate) is "in the trust."
When you transfer a parcel of real estate into a trust, you are actually "transferring" the asset. The transfer will trigger a reassessment of your property taxes if you're not careful. Therefore, you need to file a Preliminary Change of Ownership Report (PCOR) with the county tax assessor's office. The PCOR let's the assessor's office know about the transfer and prevents the real estate from being reassessed provided the transfer falls under one of several allowable exclusions. The most popular "exceptions" are transfers between a husband and wife and transfers to a living trust. Therefore, you can't just file the deed with the county, but you also need to find out if filing a PCOR would be prudent. In most cases, you need to file one.
If you need help creating an estate plan for your family, contact Robert Mansour's office at (661) 414-7100. Robert serves Santa Clarita, Valencia, Saugus, Canyon Country, Newhall, Castaic, Stevenson Ranch and surrounding areas.