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.


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.


Trust Funding – Overlooked At One’s Own Peril

As an Estate Planner I often answer questions about the Mechanics of Trust Funding:

Some important concepts include:

  • Only Assets owned by or related to the Trust are controlled by the Trust Terms;
  • Common Trust funding Assets include: Real Estate, Bank Accounts, Brokerages, Business Shares, Intellectual Property, and Personal Items;
  • Common Assets to Relate to Trust include: Retirement Accounts (Pension, 401(K), IRAs) and Life Insurance.
  • The Schedule of Trust Assets is an important Information Sheet (usually at the back of the Trust Instrument);
  • Without the Schedule, an asset could become lost due to the Trust Beneficiaries being unaware of its existence;
  • A General Note of Assignment is used to transfer miscellaneous house objects and personal effects to the Trust;
  • Real Estate is transferred by retitling the Deed  into the name of the Trust and preparing Tax Forms.
  • Bank Accounts and Traditional Brokerages can be retitled into the name of the Trust;
  • Retirement Accounts, including IRAs, and Life Insurance, can rely on Beneficiary Designation. You can relate these to the Trust by naming the Trust as a beneficiary, often as a contingent beneficiary;
  • Beneficiary Designations may be inadequate as you cannot list or name a “Beneficiary Class”, i.e. a category of relatives, or your bloodline and heirs- at-law.

If an Asset is not owned or related to the Trust it will be handled outside of the Trust terms. Avoid having an Asset without a succession or inheritance mechanism. If no mechanism in place, it can be owned or related to the Trust, which avoids having to hire a lawyer to assist in its post death collection.

One often overlooked nuance is that you may want to relate tax deductions from the cost of the Tax Administration to taxable income. This means all taxable assets need to flow into the Trust directly (instead of listing an individual’s name in the beneficiary designation, meaning the income goes directly to the individual’s separate tax liability.)

Excess tax deductions from the Trust Administration, at its termination, can be carried over to the individual’s tax return and be claimed over time. This is not as ideal as direct offsets all within the trust.