Category: Trusts and Estates

Frequently Asked Questions

 

Will or Trust?

 The Trust is the only Estate Plan that does not require Court involvement. A Will still requires the Executor to go through the Court Probate Process that can last years.

Any beneficiary designations on financial accounts or joint tenancy for real estate are not affected by the Will (the beneficiary designation and joint tenancy overrides the Will.)

 Gift v. Primary Beneficiary?

Gifts can be a set amount of cash, a personal item, or real property.

Gifts are distributed first and satisfied “off the top”, with the remainder going to the primary beneficiaries allocated out of 100% (e.g. 50%, 20%, 30%.)

If I am establishing a Trust, why do I also need a “Will”?

The Pour Over Will is complimentary and “part and parcel” of the Trust. One of the main purposes is to act as a “catch-all” by declaring that all property not held in trust at the time of passing is deemed to be transferred and held in Trust.

 What is the Difference Between a Trustee, Executor and Guardian?

The Trustee is responsible for administering (i.e. ensuring the written wishes are effectuated) the terms of the Trust. The term Trustee is exclusive to the Trust.

The Executor is responsible for administering the terms of the Will. The term Executor is exclusive to the Will.

The Guardian is the person you nominate to take over the parental responsibilities for your minor child(ren) in the event you pass prior to the child(ren) reaching 18.

Does the Trustee, Executor, and Guardian have to be the Same Set of Individuals?

Usually the Trustee and Executor is same individual in the same order/sequence.

The Guardian often is the same as the Trustee/Executor as it is administratively more efficient (no splitting of the power of the purse v. responsibility of day-to-day care among different individuals).

Who Should be the Successor Trustee or Executor?

While alive the settlor(s) or sometimes referred to as grantor(s) (individual establishing the Trust) will also be the Trustee.

For the post death successor Trustee/Executor, the settlor(s) will often look to qualified family members. (When spouses involved the surviving spouse is the first Successor Trustee/Executor.) Ideally the successor Trustee/Executor will be well organized and have a good grasp of financial and/or legal matters. The successor Trustee/Executor will be able to consult an attorney or CPA if he or she requires assistance regarding the Trust or Will administration.

Nominating a Non-U.S. citizen/resident spouse or relative should only be in conjunction with naming also a U.S. resident as co-trustee (2 Trustees acting together).

What Type of Compensation is Common for the Trustee?

While there is no set standard, commonly reasonable compensation, or an annual fee ranging from 0.5% to 5% of asset, depending on size of assets, prorated by number of days served.

Disclaimer

Who Inherits if No Trust or Will?

If a person dies in California without a Trust or Will, then Probate Code Sections 6400-6455, intestate succession, dictates the succession disposition.

The attached Chart of Consanguinity details the various scenarios whereby the offspring of a predeceased direct bloodline relative can inherit by “right of representation.”

For example, the parents have two children, and one of the children predeceased, leaving two grandchildren. Under the California Probate Code, the two grandchildren are entitled to receive in equal shares the 50% of the pre-deceased parent child. The surviving grandchildren inherit 25% each.

In a situation where a single person has no direct bloodline and has an extended family with many cousins, who have offspring, the benefits of having a Trust or Will explicitly stating who will receive, will prevent the cost and burden of a Probate Administration leaving it to distant relatives that the decedent may not have known existed.

Court Probate of Intestate Administration for a deceased without a Trust or Will, can result in large Heir Search Vendor costs. This can be prevented by having a valid written Estate Plan, a Trust or a Will.

Disclaimer

Why You Need a Trust – Self – Sufficiency

One of the main purposes of setting up a Trust is self-sufficiency, meaning I and my loved ones are able to handle our own affairs, and do not need to rely upon a government organization or agency.

The way we do this is by putting it in “writing”, in a legal and regulatory manner, that will be accepted by the financial and governmental organizations.

With the present Covid-19 virus, it is more clear than ever that our government is overwhelmed and lacks the resources to take care of all those who need it. Courts are shut down or have significantly delayed and reduced services.

Thus the “Planning” in Estate Planning is the most important aspect. Preparing in advance for a probable and certain event is a no-brainer. We will all die. Real life experience tells us that more “goes wrong” than right, and that hoping for wining the lottery ticket is a fool’s errand.

If you have time and capability now, why wait for the stressful and frustrating emergency to materialize, requiring an “immediate resolution”, only to find that you must rely on the governmental system and “get in line” of a large backlog of others.

When you set up a Trust you designate a successor Trustee who will wind down your affairs upon death. It is advisable to transfer or relate as many assets (e.g. real estate, financial accounts, life insurance) to the Trust allowing for a complete bypass of the Probate Court process.

Disclaimer

What is a Certification of Trust?

The Certification of Trust (“Certificate”) serves multiple purposes.

First, it is a synopsis of the main terms of the Trust. Once a Trust is established, it must be “funded”. Assets that typically get transferred into the ownership of the Trust are Real Property, Bank Accounts, and Regular Brokerages.

The Settlor (Individual establishing the Trust) then presents the Certificate to the Financial Institution. Likely he or she will be asked for the Certificate.

Usually it is a good idea to bring the “original wet ink” signed and notarized Certificate due to chain of custody concerns. If you bring a homemade Copy, the Financial Institution may reject it, and ask for an “Attorney Certified Copy of the Certificate”.

The Financial Institution wants the Certificate because it wants the “Synopsis”, or main terms and summary v. the forty page Revocable Trust document for which it lacks legal resources.

A second purpose involves Real Property. If Real Property is transferred into the ownership of the Trust, the Certificate will indicate the same. The Certificate can be recorded with the County Recorder. If not recorded, it will need to be presented to the Title Company upon sale of the Real Property.

The Law Offices of Hanlen J. Chang provides a Certification of Trust with each Revocable Trust package.

Disclaimer

Key Features of an Asset Protection Trust

In order for a Trust to effectively provide asset protection against potential creditors or claimants, it should contain the following key elements:

  • The Trust is Irrevocable (and not Revocable)
  • Contains a Spendthrift Clause
  • Discretionary Distributions (vs. mandatory and/or period payments)
  • Third Party Beneficiaries (i.e. not self-settled for own benefit)

If the settlor wishes to reserve additioanl oversight and reservation of rights, an impartial Trust Protector or Advisor can be appointed.

Another variation of an Asset Protection Trust is a foreign Trust with friendly and flexible laws for the Trust and Trustee, while possing legal obstacles for the Creditor.

Disclaimer