Questions About Trusts

If I have a trust, why do I also need a will? The type of will that is used with a living trust is called a "pourover will," because its purpose is to pour (transfer) assets into the trust if the assets had not been transferred to the trust previously. This can occur if the trustees fail to make the transfers of assets to the trust, or if mistakes are made in titling the assets. A pourover will doesn't have the usual provisions that are found in a standard will and the only beneficiary is the living trust.

Does a pourover will have to be probated? Probate is not required unless the assets that are subject to probate (in other words, not in the trust) total more than $150,000. In that case, there will be a probate of the trust assets and also an administration of the trust assets. However, there are exceptions for joint tenancy assets, and there may be a probate of only part of tenancy in common assets.

What are probate assets? Any asset that is in the decedent's name, and not in joint tenancy or in a trust. Assets that are not subject to probate include IRAs, 401Ks, and life insurance, assuming that a beneficiary has been named to receive the assets involved. Even these assets might be subject to probate if the beneficiary listed is the "estate" of the decedent or if no beneficiary is listed. Joint tenancy assets become the property of the surviving joint tenant, regardless of the provisions of the decedent's will or trust.

Do trust documents become public information when someone dies? California law requires that notice be given to trust beneficiaries and the decedent's heirs if all or part of the trust becomes irrevocable after the death. The beneficiaries and heirs are then given an opportunity to request a copy of the trust. The trust might become public information is there is a court challenge to the trust, in which case a copy of the trust will be filed with the court.

Who should be chosen as the successor trustee? Many clients choose their children, either as co-trustees, or in a specific order of succession. This can be a good choice, particularly if the proposed trustee has some experience with accounting or taxes. If there are no children, or if the clients would rather not use their children as trustees, other choices are other relatives, friends, or trust companies and banks. However, the person chosen as trustee must be responsible and able to devote the time required to the trust administration and management. The proposed trustee does not need to have an extensive knowledge of trusts, law, or accounting, but should be willing to seek professional help to carry out the administration of the trust.
 

If a trust is used, who receives the estate? The distribution plan for a trust can be the same as the distribution plan in a will.  You can give your estate to your children, set up trusts for them if they are too young to receive an inheritance, make charitable gifts, or make gifts to beneficiaries outside of your family.  The decision is yours.  However, whenever a distribution is made to an individual beneficiary, a provision should be included that says who will receive that distribution if the original beneficiary does not survive the trustor.

Do I need a federal tax number for the trust? A federal tax number is not needed for a living trust for a married couple until one of the trustors dies, or both trustors resign as trustees or become incompetent. For a trust for a single person, a federal tax number will be required after the trustor dies. Until death or resignation, the trustors' Social Security numbers will be used as the trust tax number.

What is a special needs trust? The beneficiary of a special needs trust is usually receiving benefits from a government program for the indigent. Those benefits will stop if the beneficiary receives an inheritance because these programs have strict limits regarding the amount of income and assets that a beneficiary can receive. A special needs trust provides a source of money that is held by the living trust and paid in small amounts either to the beneficiary, or for his or her benefit. The trustee will not pay any amount to the beneficiary that would increase his or her income or assets beyond the limits set by the government program and cause the government benefits to stop. The trust can own certain assets that are available to the beneficiary, such as a car.  After the death of the beneficiary, the balance of the trust fund will be distributed to other trust beneficiaries.

What is a Qualified Domestic Trust? If the surviving spouse is not a U.S. citizen, no marital deduction is allowed unless the assets to be transferred to the surviving spouse are instead transferred to a qualified domestic trust, also called a QDT. The marital deduction allows married couples to transfer assets between themselves at death without subjecting those assets to the federal estate tax. At least one trustee of a QDT must be a U.S. citizen or a domestic corporation, such as a bank or trust company. The trust document must also provide the no distribution can be made from the trust unless the trustee who is the U.S. citizen or domestic corporation has the right to withhold federal estate taxes from the distribution.
 

If I start a bank account for my trust, will it be covered by FDIC insurance? Yes, but the amount depends on the number of trustors and/or beneficiaries.  More about FDIC insurance

Why should I use a restatement of a trust instead of just an amendment? It may be cheaper to rewrite the whole trust, and may cost the same as amending a dozen different paragraphs of the trust.  More about restatement of trust

What is a disclaimer trust? It reduces federal estate taxes and allows the surviving spouse to decide whether it will be established after the first spouse dies.  More about disclaimer trusts

For more information, call Berge & Berge, LLP at 408-985-9918.