Revocable Living Trust
1. The individual who creates the trust, known as the Grantor.
2. The individual who manages the trust and assets owned by the trust, known as the Trustee.
3. The individual who receives the benefit of all the assets in the trust, known as the Beneficiary.
Any legal arrangement that has these three participants – a creator, a manager and a beneficiary – is a trust. When you create your trust using the online platform, you are all three – you are the grantor, the trustee and the beneficiary. You create your trust and name yourself to manage your trust for your own personal benefit. One way to look at your trust document is simply as the instructions you are giving to yourself.
Once your trust document is created, you must formally change title to all your assets. Your trust can only control the assets that it “owns”. You transfer ownership from yourself as an individual, to yourself as trustee of your trust. This process of transferring ownership is known as “funding” your trust.
From a legal standpoint, once you transfer your assets into your trust, you no longer hold title to anything; since your assets are inside the trust. However, even though you have relinquished ownership or your assets you still control those same assets. Your control of those assets is the same as before you put them into your trust. As trustee of your trust, you still have power to buy, sell, transfer, borrow, and do whatever you wish with “your” assets.
Note: To avoid probate it is essential that all your assets be placed in (i.e., funded) your trust. The only exception is Qualified Plan Assets – IRA, 401k, 403b plans – for income tax purposes, it is prudent that these assets be owned by you individually, not as trustee of your trust. The beneficiary designation will ensure these assets avoid probate. If you are married, name your spouse as primary beneficiary and your trust as the contingent beneficiary or secondary beneficiary.
In your trust you name a successor trustee. This is the person who will manage your trust, and the assets owned by your trust, upon your death or incompetence.
The concept is quite simple, at your death, you do not own any assets, (as your have transferred all your assets to your living trust during your lifetime), so you have no assets subject to probate. Huge savings of time and money. At your death, the administration of your affairs simply passes to your successor trustee without any public fanfare or governmental oversight.
Your successor trustee must be of legal age. Your successor trustee serves in a fiduciary capacity. This means that, in all matters relating to the trust and your assets, the successor trustee must act with prudence and strictly in accordance with all instructions outlined in your trust.
Last Will and Testament
The person designated to administer the affairs of the will and make sure all the assets transfer to where and whom the will directs is known as the executor. The probate court oversees the executor’s actions to make sure that they do everything that the will creator requested. On average, the probate process takes about 7 to 9 months and depending on complexity of the affairs, costs between 3% to 8% of the total assets. In addition, probate is a public proceeding, as such the details of the estate will become part of the public record.
To cut costs and time delays associated with probate, every state has a simplified probate process for individuals without real property and whose wealth is less than a specified amount. That minimum wealth threshold varies from state to state (from a minimum of $10,000 in some states to a maximum of $150,00 in California) but on average it is approximately $50K. Using a simplified probate process makes using a will a viable option for individuals who do not own real property and have limited wealth.
Note: Not all assets are subject to probate. Assets with named beneficiaries, such as life insurance, IRAs, 401Ks, jointly-held assets with rights of survivorship and financial accounts with POD (pay on death) designations all pass outside of the will directly to the named beneficiary and are not considered part of the probate process.
If circumstances are such that a will based plan, combined with proper named beneficiary designations, will not trigger unnecessary costs, the online platform will recommend that an estate plan be built around the use of a simple will. Wills are are individual documents, so if one is married, the plan will contain one will for each spouse.
Finally, and of extreme importance, in addition to outlining how the assets are to be distributed, guardians for minor children are named in the will.
Changes to a will are provided in a document known as a codicil. In practice, it is usually easier to write a new will than to modify an existing one.
In order for a will to be valid, it must be signed and dated in front of at least 2 witnesses. Witnesses must be at least 18 years of age and not named as beneficiaries or be potential heirs.
Financial Power of Attorney
The powers granted to the agent may be broad or limited. Since this person will have legal authority to act on the grantor’s/creator’s behalf, it’s very important that this person is trustworthy and will act in your best interests. When considering who to name as agent in the financial power of attorney, there are a number of questions to address:
Can this person be trusted with your important financial and other legal affairs?
Is this person financially responsible? How do they manage their own financial and legal affairs?
Will the potential agent charge you a fee?
Family members usually perform the service gratis, but if you pick a lawyer or accountant, a fee is usually involved.
Will this person agree to serve as Power of Attorney agent?
This should be discussed with them and they should agree before you officially appoint them.
Remember, if you ever become unsure of an agent’s trustworthiness or if a conflict of interest arises, the power of attorney should be terminated and a new one should be created.
Note: The agent acting under a power of attorney has no control over decisions involving assets owned by your trust. Assets owned by your trust are managed by the successor trustee.
Healthcare Power of Attorney
State laws vary regarding the specific types of decisions health care agents can make. In general, a health care agent can agree to or refuse treatment and can withdraw treatment on behalf of the individual. The health care agent can use the information in the living will (also called a treatment directive), statements made by the grantor/creator in the past, and what he or she knows about the grantor/creator personally to make these decisions. For example, an agent can consent to surgery, refuse to have the creator/grantor placed on life-support, or request that they be taken off life support.
It is important that the agent be trustworthy. The agent needs to be willing and able to make potentially difficult decisions about medical treatment. It is important that the client discusses their desires, values, fears, and preferences about medical care in various situations. Clients should consider including the details about their medical wishes to be included in their final letter of instruction. The more the agent knows about them and their values, the more likely he or she will be to make the kinds of decisions your client would make if they were able.
Healthcare Documents Included
a) HIPAA Release Form – authorizes healthcare providers to provide the individual named as the agent of the health care power of attorney access to their medical records so that they can adequately perform the job they are required to do on their behalf.
b) Intent to Return – for Medicaid to cover the expenses associated with long-term care clients are generally required to spend down their personal assets including their primary residence. Their residence can be excluded from this if they formally declare that it is their intent to return to their primary residence if and when they become physically able to do. (This document is only included if they own their own home.)
c) State Specific Health Care Directive – each state has its own health care directive. State Specific Health Care Directives include the naming of health care agents (redundant with healthcare power of attorney), also includes outlining specific guidance to health care providers about the client’s wishes about the type and level of terminal care they desire, DNR orders, whether or not they desire pain medication, nutrition, hydration, organ harvesting, etc. These issues are more medical in nature than they are legal. We provide the state specific form but feel that completing it should be done with the guidance of their medical professional not their legal or financial advisors.
Note: There is always some confusion about the term “living will”. Especially when an estate plan includes a living trust. The term ”living will” first became part of the public dialogue in 1990 when the U.S. Supreme Court confirmed the constitutional right to die in the Nancy Cuzan Case. Living will is the layman’s term for the document that outlines wishes regarding terminal care. Since the Cuzan Case the idea of creating a living will has expanded beyond simply outlining the issues about end-of-life instructions and as a result the more accurate name for these documents is Health Care Directive.
Pour Over Wills
The living trust is the only beneficiary named in the pour-over will. The actual beneficiaries and the details about how the assets are to be distributed are outlined in the living trust. The pour-over will acts as a “safety net” to ensure that any assets not funded into the living trust while your client was alive are transferred to the trust upon their death.
Like a traditional will, a pour-over will is subject to probate process. As such clients do not want to rely on their pour-over will to distribute their wealth. Their pour-over will is precautionary tool to make sure their assets are distributed as they intend.
The same execution procedures exist for pour-over wills as for normal wills – 2 witnesses, over the age of 18 who are not named beneficiaries or otherwise potential heirs to the estate.
Just as with a simple will based portfolio, guardians of minor children are named in the pour-over will.
Certification of Trust
The certification also identifies the grantors and trustees and confirms that the trustee has the power to act on behalf of the trust. The specific powers of the trustee are reaffirmed in full and often the “Powers of Trustee” section of the trust will be attached in full.
Nothing about the beneficiaries or details of regarding the distribution of assets is included in the certification of trust.
The certification is primarily used to transfer title of assets into the trust
Listing an asset on an asset schedule does NOT fund that asset into the trust. In order for an asset to be legally owned by the trust the trust must be formally identified as the owner of record with the institution that controls or holds title to the asset.
So what is the purpose of the asset schedule? The asset schedule, when kept current, is a great recap for the successor trustee of the assets to be included in your estate. It is a starting point identifying the assets they need to confirm exist. The asset schedules are intended to be updated no less than annually.
Asset schedules can be modified as often as needed without having to make a formal amendment to the trust document. The details needed to create detailed asset schedules are entered under an entirely separate tab entitled “Assets” in your client’s online portal. Clients should be encouraged to go in and make changes to asset listing whenever they buy or sell an asset.
The online questionnaire does not ask about the details of your client’s assets. This work is done in the assets tab. To reinforce the need to go asset-by-asset and formally add the trust as the owner, all asset schedules show that the trust is funded with “$10 transferred from the grantor to the trustee”.
Comprehensive Transfer Form
The comprehensive transfer form transfers all assets to the living trust, including those that do not have a formal title. Things such as personal property, family heirlooms, collections, etc. are specifically referred to and covered by the comprehensive transfer form.
With every trust document we create a pour-over will. The primary purpose of the pour-over will is to transfer title to assets to the living trust upon death, if assets were not transferred prior to death. Relying on pour-over will to fund the trust requires probate, however.
Like the pour-over will, another purpose of the comprehensive transfer form is to document the intent that all assets owned when the client created their trust were to be transferred to their living trust.
There have been instances where the courts have permitted the use of a comprehensive transfer form in lieu of the pour-over will for the purpose of funding a trust. The comprehensive transfer form is a precautionary document that provides the basis for request the court to waive probate, if assets were not properly funded during your lifetime.
One should not rely on the comprehensive transfer form to fund their trust. The only acceptable way to transfer title is asset-by-asset.
Community Property Agreement
Married individuals, in any of these states, can elect to own their jointly held property as community property. Upon death, holding title to their assets as community property provides significant income tax advantages for the surviving spouse. To ensure that the surviving spouse receives these income tax advantages, we create a community property agreement for all married individuals who reside in community property states.