SENIOR ASSOCIATE, CALIFORNIA LAW PARTNERS APC
A Living Trust is an integral part of an Estate Plan that helps to ensure the protection of your house, family and future. In this article, I have included a list of questions frequently posed by clients in the hope that it will help highlight tips for effectively managing your trust property:
How do I put my home in a living trust?
- If you own real estate property (e.g., your home) in California, the transfer process begins with drafting a quit claim deed for the property. Secondly, your property should be retitled in the name of the family living Trust; for example, “Smith Family Trust”. To transfer real property into your Trust, a new deed reflecting the name of the Trust must be executed, notarized and recorded with the County Recorder in the County where the property is located. To avoid probate issues, the description must match the exact legal description in the current deed. Furthermore, it is essential to list the real estate in a schedule attached to your living trust along with retitling the property using the quit claim deed process as described above.
- By placing your home in a living trust, the transfer of your home to your children, will not be considered a “change in ownership” that would trigger a reassessment of the then-current property tax value. In 1978, California legislature implemented Proposition 13 which capped property taxes at 1% of the assessed value at the time the property was acquired and limited annual increases to 2%. Therefore, a Trust provides the advantage for your children to inherit your property tax rate since a parent-to-child transfer is an exception under Prop. 13’s reassessment procedure.
- It is not necessary to hold your regular day-to-day checking account in the name of the Trust; however, there is no harm in doing so. Generally, it is an easy process to transfer bank accounts, such as Money Market Accounts, Savings Accounts and Timed Deposits into your Trust. All you need to do is provide your bank with a copy of The Certificate of Trust and sign new signature cards as Trustee of your Trust. The Certificate of Trust contains signatures by the trustees or grantors with a short summary of details regarding your Trust. Producing the short Certificate of Trust to the bank or financial institution in lieu of the entire Living Trust is preferable to preserve confidentiality.
- Life insurances are assets that may or may not need to be placed in Trust because the proceeds transfer automatically via contract to the named beneficiary and, therefore, already avoid probate. It is recommend that you appoint your spouse as the primary beneficiary. Moreover, for contingent beneficiaries you may either 1) name your children as contingent beneficiaries, or 2) name the Trust as the contingent beneficiary if there are lots of beneficiaries or if you plan to change the allocation of distribution in the future.
- An IRA, 401(k) plan, Keogh’s, SEPs, or Corporate Pensions, Profit-Sharing Plans, or ESOPs/ETC, should remain in the owner’s name and Social Security number. Between Husband and Wife, the surviving spouse is usually named the primary beneficiary, and the children or other individual beneficiaries designated in the Trust may be named the contingent beneficiaries.
- After your home has been re-titled in the name of your Trust, you should notify the insurance company (or agent) of the transfer and ask whether any change in the policy is required, for both casualty and liability insurance. It is advised that your insurance policy indicate that the Trust is an additional insured.
- A Trust will not hinder your ability to borrow against your home. However, the lender/title company may require that the property be transferred out of your Trust and into your name as an individual. Should this happen, it is important that you ask the lender/title company to prepare and record a deed transferring the property back into the Trust when the refinancing is complete. The consequences of not doing so could result in the probate of the property.
Can I put my Business Interests, such as a sole proprietorship, in a Trust?
- Yes. A business interest or sole proprietorship can be transferred into the Trust by an “Assignment of Business Interest” document. This document assigns all property/assets owned in the name of the business to your Trust. For example, the name of the bank account should also be the name of your Trust; for example, “Smith Family Trust, dba Smith Trucking Services.” Legal and tax advice is recommended prior to transferring any business interest to avoid issues that could arise with licenses or permits.
- Personal property, such as furniture, household items, art work, jewelry, etc. can be transferred to the Trust through an “Assignment of Personal Property” document. The document assigns all personal property you currently own and any additional personal property acquired up to the date of death.
- Ultimately, “funding your trust” during your lifetime is essential for the effective management of your Trust assets. The assets and their description to be included in the Trust must 1) be included in the Trust Schedule and 2) re-titled correctly so that the items listed mirror the exact description of the respective assets. An itemized list of assets are insufficient For more information about understanding the benefits of Estate Planning, please refer to my previously published article “Estate Planning 101” in San Diego Asian Journal’s May 15 issue.