How do I learn more about implementing an Estate Plan to provide for my family
At Crouse Petrov Law Firm, our attorneys will sit down with you and create a specific plan to provide for your family’s future.
We will explore your wishes and will implement a strategy to reduce or eliminate your estate tax obligations.
While it’s difficult enough to think about not being there to raise your children, imagine a court choosing a guardian with no input from you. Imagine your relatives arguing in court over who gets your children—or having them agree on someone you would not have chosen. That’s why it’s important to nominate a guardian while it’s still up to you. Here are some tips to help you make your best choice.
- Tip #1: Think beyond the obvious choices. Make a list of all the people you know who you would trust to take care of your children. You don’t need to limit your list to close family members. While siblings and parents can be excellent choices, consider also extended family members who are old enough to raise your children – cousins, aunts, uncles, nieces, nephews, even second cousins once removed.
- Tip #2: Friends can make excellent guardians. Beyond family, consider close friends, families with whom your family is close, the families of your children’s friends, friends you know from your place of worship, even teachers or child care providers with whom you and your children have a special relationship
- Tip #3: Don’t stress about finances or the size of someone’s house. Don’t eliminate anyone from onsideration because you don’t think they have the financial wherewithal to take care of your children. You can take care of the finances with what you leave or by having adequate life insurance. You can even instruct your trustee to provide funds for your chosen guardian to build an addition to their home or move to a larger home to accommodate your children.
- Tip #4: Focus on love. Consider whether each couple or person on your list would truly love your children if appointed their guardian. If they have children of their own, will your children be second fiddles? Or is the couple sufficiently loving to make your children feel loved no matter what?
- Tip #5: Consider values and philosophies. Ask yourself which people on your list most closely share your values and philosophies with respect to your:
- religious beliefs
- moral values
- child-rearing philosophy
- educational values
- social value
- Tip #6: Personality counts. Consider whether each of your candidates has the personality traits that would work for your children.
- Are they loving?
- Are they good role models?
- Do they have the patience to take on parenting your children?
- How affectionate are they? (If your family is particularly affectionate, a guardian who is loving but not physically affectionate could be damaging.)
- If they’re fairly young, how mature are they
- Tip #7: Consider practical factors.
- How would raising children fit into their lifestyle?
- If they’re older, do they have the necessary health and stamina?
- Do they really want to be parents of a young child at their stage in life?
- Do they have other children? How would your children get along with theirs?
- Are there potential problems if your children were to live with theirs?
- How easily could the problems be dealt with? (For instance, do you want to place a child who struggles in school with a high-achieving child of the same age for whom everything comes easily?)
- How close do they live to other important people in your children’s lives?
- If a couple divorced, or one person died, would you be comfortable with either of them acting as the sole guardian? If not, you need to specify what you would want to happen.
- Tip #8: Look for a good – but not a perfect – choice. Most likely, no one on your list will seem perfect – that is, just like you. But if you truly consider what matters to you most, you will probably be able to make some reasonable choices. In the end, trust your instincts. If one couple or person meets all of your criteria, but for some reason doesn’t feel right, don’t choose them. By the same token, if someone feels much more right than any of the others on your list, there’s good reason for it. Make your primary choice, then some backup choices. It’s essential that both you and your spouse agree. If you cannot make a decision, or if you and your spouse cannot agree, a good counseling-based estate-planning attorney can help you through the process.
- Tip #9: Select a temporary as well as a permanent guardian. Temporary guardians may be appointed if both parents become temporarily unable to care for their children – for example, as the result of a car accident. Depending on your choice for permanent guardians, you may want to designate different people to act as temporary guardians. If your choice for a permanent guardian lives a considerable distance away, choose someone close by to serve as temporary guardian. If you’re temporarily disabled, you’ll want your children close by. And you won’t want their lives unnecessarily disrupted by moving them to a new town and school. If you have no relatives or close friends nearby, consider families of your children’s friends.
- Tip #10: Consider a Guardianship Panel. Because it’s difficult to predict what your children’s needs will be as they grow older, consider appointing a “Guardianship Panel” to decide who would be the best guardian when and if it becomes necessary. Choose trusted relatives and friends to make up the panel. This allows for maximum flexibility, so the most appropriate choice can be made at the time a guardian is actually needed. The Panel can consult with your children and assess their needs and desires to make the most appropriate choice based on the current situation.
- Tip #11: Write down your reasons. If you’ve chosen friends over relatives, or a more distant relative over a closer one, be sure to explain your decision in writing. That way
– in the unlikely event your choice is challenged by people who feel they should have been chosen – a court should readily uphold your decision, knowing you’ve made your choice for good, solid reasons.
- Tip #12: Have backup guardians. Nominate at least 3 guardians in successive order. That way if a first choice guardian is unwilling or unable to take custody of your children, the Court will know your second and third choices for raising your children.
- Tip #13: Talk with everyone involved. If your children are old enough, talk with them to get their input as well. And be sure to confer with the people you’d like to choose, to ensure they’re willing to be chosen and would feel comfortable acting as guardians. Once you’ve made your choice, there are steps you can take to make sure the potential guardians you’ve chosen will have the guidance and support they need. Here are a few ideas:
- Create a set of guidelines to convey information about your children, your parenting values and your hopes and dreams for your children.
- When a person becomes disabled or incapacitated, he or she is often unable to make personal and/or financial decisions. If you cannot make these decisions, someone must have the legal authority to do so for you. Otherwise, your family must apply to the court for appointment of a conservator for either your person or your property, or both.
- At a minimum, you need at least two documents in place, a Power of Attorney for Finances and a Health Care Directive. A broad Durable Power of Attorney that will allow agents to handle all of your property if you become incapacitated will keep your family out of the court process and allow them to pay your bills. Equally important is the appointment of a decision-maker for health care decisions which can be accomplished through an Advance Health Care Directive (in California). This document may be called other things in other states.
- Alternatively, with regard to your property, a fully funded living trust can ensure that your property will be properly managed, pursuant to the highest duty under the law that of a trustee. It is important that you choose your trustees and agents carefully and that they are people you trust who are capable of handling your affairs the way you would.
- You will also want to make sure you address the release of your medical information to your loved ones. Under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), absent a written authorization from the patient, a health care provider cannot disclose medical information to anyone other than the patient or the person appointed under state law to make health care decisions for the patient. The penalty for failure to comply with these rules is severe: civil penalties plus a criminal fine of $50,000 and up to one year of imprisonment per occurrence. It’s even worse if the disclosure involves the intent to use the information for commercial advantage, personal gain, or malicious harm.
- Since these HIPAA rules became effective, most doctors, hospitals and other health care providers now refuse to release any information absent a release from the patient. For example, hospital staff will go so far as to refuse to disclose whether one’s spouse or parent has been admitted to the hospital. The inability to receive information about a loved one could become very troubling when the information concerns treatment as part of long-term care. The regulations promulgated under HIPAA specifically authorize a HIPAA Authorization for release of this information to persons other than you or your personal representative. Thus, you should consider creating such an Authorization so that people you designate in addition to your personal representative can access this informatio
Call the local funeral home Bring the deed to the grave plot, pre-paid cremation documents and/or military discharge papers (if applicable). Also bring any written instructions your loved one left behind regarding viewing and burial preferences. And note that it is customary for friends and family to call the funeral home to find out more on the funeral arrangement such as the date and time of any viewings, church funerals, burials, and treatment of flower arrangements and preferences regarding charitable donations.
Write up an obituary. Write out information on your loved one’s education, career, surviving family, military service, notable achievements, etc. to help assist the funeral director in drafting information for the obituaries in local newspapers.
Get certified death certificates. You can typically obtain death certificates from the funeral director or from the County Assessor/Recorder’s Office. Request at least 10 certified copies. In San Diego County, Certified Death Certificates are $12 for each copy. See the attached forms for obtaining Certified Death Certificates by mail and in person.
Review Will and/or Trust. Search for your loved one’s original will. This will often times be kept at the drafting attorney’s office or in a fire proof safe or safety deposit box. Hopefully, your loved one kept the document at home in a fire proof safe or with the drafting attorney since the safety deposit box could be “frozen” at death which could make it difficult to obtain. After a death, the original will should be lodged with the Probate Court in the region where the person was a resident. After you have located the will and/or trust, the next step is to take these documents to an attorney.
Call an attorney. You may or may not need the help of an attorney for a probate or trust administration. It is best however to consult with an attorney to best make that determination. There are many steps in a trust administration that if not done or done improperly, could lead to legal liability for the successor trustee or executor.
Contact current and former employers. Contact current and former employer human resource departments and ask them to fax or mail you a benefits summary for life insurance, accident insurance, profit sharing plans, retirement plans, flexible spending plans, etc. Former employers may have pension or annuity benefits listing beneficiaries.
Contact the Social Security Administration. Contact the local Social Security Office and notify them of the death. You can find an office at www.ssa.gov. If your loved one was covered under Social Security, his or her spouse may be eligible for a lump-sum death benefit. Spouses must have been married for 9 months or longer before the death, unless the spouse’s death was the result of an accident or military service.
Contact life insurance and annuity providers. Obtain any policies for life insurance or annuities and notify the carriers of the death to process the claims.
Access safety deposit box. In order to access the safety deposit box, you will need to be listed as a signatory on the box and have the key. Most banks will not allow you access without these two requirements being met. It is also possible to obtain an Order from the Probate Court to gain access to the box
Call the accountant. The executor/executrix of the estate will need to know what taxes, if any, are due to the IRS and State. The accountant (if the decedent had one) should be called as soon as possible to make sure that any estate tax that is due is paid within 9 months of the date of death as required by Federal law. The estate may need to file a separate tax return and a 706 tax return may be necessary in a larger estate.
Pay any bills that are outstanding. Make sure to open a bank account for the estate if you are the executor or a trust bank account if your loved one had a trust and you are the trustee. Transfer liquid funds from assets in the estate or trust to the new bank account to pay things like funeral expenses, utility bills, credit card payments, mortgages or any other debts your loved one had. The executor or trustee needs to make sure these payments are made and that records of all expenses are kept up-to-date. This will be important information that should be shared with the accountant for the filing of tax returns.
Notify the post office. If you are the trustee or executor of the estate, you need to contact the post office to forward any future mail to your address. You may need to cancel certain utilities and subscriptions as well
Re-title any joint tenancy accounts. Make sure to re-title any accounts that were in joint tenancy to the survivor’s name only. The bank or other financial institution will likely request a certified copy of the death certificate and that you fill out their appropriate form to make the change. If the joint tenancy asset is real estate, an Affidavit of Death of Joint Tenant along with a Certified Death Certificate will need to be recorded at the County Assessor’s Office.
The primary goal of estate planning should be to protect yourself and your family, and to ensure that your ultimate plans for the transfer of your wealth are achieved. Nevertheless, estate taxes are a major consideration, as they can devour a substantial portion of your accumulated wealth. Currently, estate taxes top out at 45%, and must be paid within nine months of the date of death. However, there are a number of estate planning strategies that can reduce or eliminate estate taxes for families with estates over $3.5 Million
1. The Federal Coupon
In 2009, each person is entitled to a $3.5 million dollar exemption from the Federal Estate Tax. This is called the “Federal Estate Tax Applicable Exclusion Amount”. I refer to it as your Federal Coupon. If you die in 2009 with less than $3.5 million dollars, and you made no taxable lifetime gifts, no estate tax will be owed by your estate
In 2010, estate taxes will be repealed for exactly one year (but a capital gains basis system will be in effect for the year 2010). So you can die in 2010 with any size estate and owe no estate taxes (but your estate will likely have to pay capital gains tax instead). However, in 2011 the federal estate tax will be reinstated with a Federal Coupon amount of $1 million per person. Because of the uncertainty in knowing what the Federal Estate Tax will be when you die, or what changes to the tax laws may be made in the future, we recommend estate tax reduction strategies for any clients with currently at least $3.5 million in their estates
2. The Credit Shelter Trust
A Credit Shelter Trust (also commonly known as a “B” or “Bypass” Trust) is a trust created within your revocable trust at the death of the first spouse. This allows a husband and wife to effectively double the amount they can give tax free to their children. If drafted correctly, this trust can:
- Shelter trust assets from federal estate taxes
- Provide the surviving spouse substantial access to trust income and principal for the remainder of his or her life
- Protect substantial sums from creditors and predators who may prey on a surviving Spouse
- Seamlessly transfer assets to children or other beneficiaries when the surviving spouse dies
- Keep trust assets out of the surviving spouse’s estate
3. Annual Gifts And The Family Bank Trust
- If your estate exceeds the amount of the Federal Estate Tax exemption, one way to reduce the size of your estate and avoid estate taxes is to make gifts to your family members while you are still alive. As long as these gifts do not exceed the annual exclusion amount, which is currently $13,000 per recipient per year, you will not have to file a gift tax return on the gifts. This means that you can give away up to $13,000 to each of your children and/or grandchildren each year without any gift tax consequences.
- A lifetime gifting program allows you to avoid gift, estate and generation-skipping transfer tax on transferred assets. Under the Internal Revenue Code, you can transfer up to $13,000 per year, per person, to anyone without incurring gift tax or the generation- skipping transfer tax. With a lifetime giving program, you can transfer this amount annually to the individuals of your choice, typically children, grandchildren and other close family members.
- For example, if you give $13,000 per year to two beneficiaries for five years, you will have removed $130,000 from your estate for estate tax purposes. After 10 years, you will have removed more than $260,000 and nearly $650,000 after 25 years. We have many clients who would like to make annual gifts, but who don’t want to lose control of the assets that they give away. For these clients, we recommend the Family Bank Trust. A Family Bank Trust is a type of irrevocable trust that provides complete asset protection for your spouse, children and/or grandchildren. It also removes the trust assets from your estate and the estates of your spouse, children and/or grandchildren for estate tax purposes. This type of trust is very similar to a “bypass” trust (one that bypasses the Federal Estate Tax) at death. You don’t lose access to the assets because your spouse can withdraw from the trust for health, education, maintenance or support.
Annual exclusion gifts are used to shield transfers to the Family Bank Trust from gift and generation-skipping transfer taxes. The beneficiary must have the right to withdraw up to $13,000 of the transferred funds, but if that right is not exercised, the gifted funds can then be used to purchase life insurance on the life of the transferor or for other investments. This trust can be a multigenerational estate tax exempt trust or it can become a family “bank” for:
- (2) business acquisitions; or
- (3) home purchases,
- among other things. With a Family Bank Trust, you irrevocably transfer assets to the trust of which your spouse is trustee (or co-trustee) and beneficiary. Your children and other descendants can also be beneficiaries during your spouse’s lifetime, or they can be remainder beneficiaries after the death of your spouse. A married couple can create similar trusts for each other’s benefit, and thereby obtain the asset protection and estate tax benefits, but the trusts cannot be identical in all respects. This gives each spouse access to the assets in the other spouse’s trust.
- In addition to annual exclusion gifts, medical care and tuition paid to assist family members or any other individual may be made free of gift tax. As long as the gifts are made directly to the medical facility or educational institution, donors can exceed the $13,000 annual exclusion amount without imposition of gift taxes.
4. Life Insurance and The Wealth Replacement Trust (aka Irrevocable Life Insurance Trust)
Life insurance is a unique asset in that it serves numerous diverse functions in a tax favored environment. Life insurance proceeds are received income tax free and, if properly owned by an Irrevocable Life Insurance Trust, life insurance proceeds can
also be received free of estate tax. Some of the frequent uses for life insurance include:
- Wealth Creation: Where age or other circumstances have prevented one from accumulating a desired level of wealth, life insurance can create instant wealth, for example, to build an estate, to replace a key employee, to buy out the interest of a business co-owner at death, or to pay off a mortgage.
- Income Replacement: Life insurance can provide wealth to replace income lost upon the premature death of the family “bread winner.”
- Wealth Replacement: Life insurance can provide the liquidity to pay estate or capital gain taxes after death. Life insurance can also be used to replace the value of gifts to charity or non-family members.
- There are several types of life insurance, including term, permanent, and survivorship or second-to-die insurance. Term insurance, which includes annual renewable and fixed-level term (for example, 20-year Level Term) is temporary. At the end of the term, the policy terminates and the insured must reapply at the then-going rates, based upon age, health, etc. Therefore, term insurance is often recommended for temporary needs.
- Permanent insurance, of which there are several types- whole life, universal life, and variable universal life– are intended to remain in force until the insured’s death, and thus are often recommended for permanent needs.
- Survivorship or second-to-die insurance pays out at the death of the survivor. Therefore, second-die insurance is often recommended in those circumstances where the liquidity need arises only at the second death; for example, the need for liquidity to pay estate taxes or to care for minor children.
Contrary to what many people think, at death, the death roceeds of life insurance you own are included in your estate for estate tax purposes. This adverse result can be avoided by transferring the life insurance policy to an Irrevocable Life Insurance Trust (or having the trust purchase a new policy on your life) that would become the owner and beneficiary of the policy. The disposition terms of the trust would mirror the terms in your revocable living trust. However, note that it is much more favorable to have the Irrevocable Life Insurance Trust purchase a new policy on your life as opposed to transferring an existing policy to the trust. This is due to the IRS three-year look back rule that could pull the insurance proceeds back into your estate if you die less than three years after the transfer of an “existing” policy to your irrevocable life insurance trust. A properly drafted Irrevocable Life Insurance Trust (ILIT) can accomplish the following
- Provide income and/or principal to your heirs
- Prevent life insurance proceeds from being included in your estate
- Provide your family with funds to pay estate tax and settlement expenses
- Provide your surviving spouse with access to the death benefit for his or her health, education, maintenance or support
- Protect the proceeds of the life insurance from creditors and predators
- Care for your minor children
- If you are concerned about accessing the cash value of the insurance during your lifetime, the trust can be carefully drafted so that the trustee can make loans to you during your lifetime or so that the trustee can make distributions to your spouse during your spouse’s lifetime. Even with these provisions, the life insurance proceeds will not be included in your estate for estate tax purposes.
- You can create these trusts individually (and typically own an individual policy on your life) or they can be created jointly by you and your spouse (with a survivorship policy).
5. Keep Your Family Home In The Family
- A Qualified Personal Residence Trust (“QPRT”) is a type of trust specifically authorized by the Internal Revenue Code. It permits you to transfer ownership of your residence to your family during your lifetime and retain the exclusive right to live in the residence, while reducing the size of your estate for estate tax purposes.
- The residence is transferred to the Qualified Personal Residence Trust for a designated initial term of years. Provided you survive the initial term of years, ownership of the residence will be transferred to your family at a fraction of its fair market value. If you die during the initial term of years, the property will be brought back into your estate, but you will be no worse off than had you not created the Qualified Personal Residence Trust. You may transfer up to two (2) personal residences into Qualified Personal Residence Trusts.
- The Qualified Personal Residence Trust is a particularly noteworthy estate-planning tool to reduce federal estate taxes . It permits you to transfer a residence out of your taxable estate while retaining the right to use it during your lifetime. The gift for federal gift tax purposes is based upon IRS published interest rates at the time of the transfer, and this rate does not take into consideration actual appreciation in the value of the property. Accordingly, these trusts are particularly useful to transfer residences in which significant future appreciation is anticipated. The Qualified Personal Residence Trust permits you to continue to enjoy your residence, knowing that the value at the date of death will not be included in your estate.
- During the term of years of the trust, you have the absolute right to remain in the residence rent free. After the initial term, you can be granted the right to rent the residence for the balance of your lifetime for its fair rental value. During the term of years, you can be the sole trustee or a co-trustee of the trust with complete control over all decisions of the trust and the assets in the trust. You may also sell the residence and buy another residence during the trust term.
- Because the Qualified Personal Residence Trust is a “grantor trust” under the income tax laws, you are treated as the owner of the property for income tax purposes during the initial term of years. Therefore, all items of income, gain, loss and deduction with respect to the trust are treated on your personal income tax return. So for example, the deduction for real estate taxes remains available to you. In addition, favorable capital gains treatment, including capital gain rollover and the $250,000 individual exclusion of capital gain are still available to you. This strategy is particularly useful for a vacation home that you wish to keep in the family.
6. Charitable Contributions Are Good For Your Heart and Your Pocket Book
- Gifts to charities are fully exempt from gift and estate taxes. In addition, they qualify for current income tax deductions. These lifetime gifts can reduce your estate by both the value of the gift and any subsequent appreciation. Various charitable trusts can be created which offer additional advantages. These trusts, Charitable Remainder Trusts and Charitable Lead Trusts, are discussed below.
Charitable Remainder Trust
- The Charitable Remainder Trust (“CRT”) is a type of trust specifically authorized by the Internal Revenue Code. These irrevocable trusts permit you to transfer ownership of assets to the trust in exchange for an income stream to the person or persons of your choice (typically you). This can be for life or for a specified term of up to 20 years. With the most common type of Charitable Remainder Trust, at the end of the term, the balance of the trust property (the “remainder interest”) is transferred to a specified charity or charities. Charitable Remainder Trusts reduce estate taxes because you are transferring ownership to the trust of assets that otherwise would be counted for estate tax purposes.
- A Charitable Remainder Trust can be set up as part of your revocable living trust planning, coming into existence at the time of your death, or as a stand-alone trust during your lifetime. At the time of creation of the CRT, you or your estate will be entitled to a charitable deduction in the amount of the current value of the gift that will eventually go to charity. If the income recipient is someone other than you or your spouse, there will be gift tax consequences to the transfer to the CRT.
- Charitable Remainder Trusts are tax-exempt entities. In other words, when a Charitable Remainder Trust sells an asset, it pays no income tax on the gain in that asset. Therefore, after a sale, the trust has more available to invest than if the asset were sold outside of the Charitable Remainder Trust and subject to tax. Accordingly, Charitable Remainder Trusts are particularly suited for highly appreciated assets such as real estate and stock in a closely held business, or assets subject to income tax such as qualified plans and IRAs. While the Charitable Remainder Trust does not pay tax on the sale of its assets, the tax is not avoided altogether. The payments to the income recipient will be subject to income tax.
- There are several types of Charitable Remainder Trusts. For example, the Charitable Remainder Annuity Trust pays a fixed dollar amount (for example, $80,000 per year) to the income recipient at least annually. Another type of CRT, the Charitable Remainder Unitrust, pays a fixed percentage of the value of the trust assets each year to the income recipient (for example, 8% of the value as of the preceding January 1). A third type, perhaps the most common, allows you to transfer non-income producing property to the CRT. This converts the trust to a Charitable Remainder Unitrust upon the sale or happening of a specified event (for example, upon reaching a specified retirement age).
- At the end of the term of a Charitable Remainder Trust, the remainder interest passes to qualified charities as defined under the Internal Revenue Code. Generally, any charity that has received IRS tax-exempt status qualifies, but this is not always the case. It is possible for you to name a private foundation established by you as the charitable beneficiary.
Charitable Lead Trust
- The Charitable Lead Trust is a type of charitable trust that can reduce or virtually eliminate all estate tax on wealth passing to heirs. In order to accomplish this goal, you create a trust that grants to a charity or charities, for a set number of years, the first or “lead” right to receive a payment from the trust. At the end of the term of years, your children or grandchildren receive the balance of the trust property—which of ten is greater than the amount contributed—free of estate tax in most instances.
- Although the Charitable Lead Trust is a complex estate planning strategy, the steps to implement it are few and simple from your perspective. Here is how one of the most frequently used Charitable Lead Trusts, the Charitable Lead Annuity Trust, operates:
- You, as grantors, create a Charitable Lead Trust as part of your revocable living trust planning. Upon the death of the survivor of the two of you, a substantial amount of property will pass to the Charitable Lead Trust. The income beneficiary of the Charitable Lead Trust will be a qualified charitable organization, chosen by the two of you or by the survivor of you, named in your revocable living trust. The charitable income beneficiary receives a fixed, guaranteed amount from the trust for a certain number of years (determined by you with the assistance of your legal and financial advisors). Generally, any charity that has received IRS tax exempt status qualifies, but this is not always the case.
- It is also possible for you to name a private foundation established by you as the charitable beneficiary. If so, you must have very limited authority over which charity is to receive money from the foundation. Too much control while you are alive will result in adverse tax consequences. At the end of the Charitable Lead Trust’s term, the remaining assets in the trust pass to non-charitable trust beneficiaries such as children and grandchildren, free of estate and gift tax. These assets can pass outright to the beneficiaries, or can continue to be held in trust, either in new trusts or in trusts previously established for the benefit and protection of the beneficiaries.
- The charity will receive the same dollar amount each year, no matter how its investments perform. The remainder interest ultimately passing to the heirs, however, will be affected by the performance of the trust’s investments.
- Charitable Lead Annuity Trusts are particularly suited for hard-to-value assets (such as real estate or family limited liability company interests) and assets which are expected to grow rapidly in value.
What is a Schedule A and Why is it Important?
- Every revocable living trust should have a Schedule A attached to it. This is a document prepared by your estate planning lawyer to list all of the assets that are part of your trust, ie. they have been titled in the name of your trust “John Doe, Trustee of the John Doe Trust.”
- There are two important things to keep in mind about your schedule A. First, it is just a summary of your trust assets. What is critical is that assets you want to be in your trust are indeed titled in the name of your trust. Assume for example that you buy a new home and that the deed to your new home lists your trust as the owner but you fail to get out your estate planning binder to add it to your Schedule A. Is the home “in” your trust? Is the home now a “trust asset”despite not being listed on your Schedule A? Yes, because what matters is how the deed is written, not whether you actually wrote it on your Schedule A.
- The second important thing to know about a Schedule A is that although it is just a list, that list can in some circumstances assist in avoiding probate. As an example, suppose your Schedule A lists a particular brokerage account that you intended to title in the name of your trust but somehow forgot to mail in the necessary paperwork to make the change. Is the brokerage account “in” your trust (ie. is it a trust asset?) No, because it has not been properly titled in the name of your trust. In California however, if you have an assets listed on your Schedule A and have not transferred that asset by making the title change, you can file a petition called a Heggstad petition to show the court your intent was to transfer the asset into the trust.
- Also important is that you keep your Schedule A up to date. Does it list bank accounts that you opened after you executed the trust? Does it show a vacation property you own? Are any businesses you operate in the trust? Have you sold some assets and bought other assets and listed those new assets on the schedule? An updated schedule can assist you during your lifetime in knowing which of your assets are trust assets and it can be useful for your successor trustee in handling your trust administration upon your death.