Probate is a legal proceeding to transfer ownership of assets from a decedent to his or her heirs. In California a faster and less costly option to probate court is a trust. But an unfunded trust does not avoid probate. Mark W. Bidwell, a practicing attorney in Huntington Beach, California provides a quick overview on how to fund a trust.
There are five major categories of assets to be funded. The five categories are; 1) real property, 2) tangible-personal assets, 3) bank and brokerage accounts, 4) life insurance policies and 5) retirement accounts.
1. Funding real property into a living trust is by “deed.” A deed is a standard size piece of paper signed by the real property owner to change ownership or to change how real property is owned. The deed must be part of the public database maintained by each county in California. The deed is “recorded” in the county where the real property is located. Recording the deed puts the world on notice how title is held and is the final word on ownership. A deed recorded with a trust as owner allows for post death transfer of real property by a second deed from the trust to the decedent’s heirs.
2. Many trust owners ignore bank and stock accounts. Part of the problem is there are so many ways to handle bank accounts. An account owner may add a co-signer, create a joint account or provide pay-on-death instructions to the bank or broker. With so many options often nothing is done. A person who has a trust should have the bank and brokerage accounts owned by the trust. Each financial institution must be contacted for their procedures and those procedures followed.
3. Life insurance contracts require naming a beneficiary in the contract to receive the proceeds. But if the beneficiary is a minor or has died probate is needed. Naming the trust as the beneficiary avoids probate and the proceeds are distributed as directed in the trust.
4. Retirement accounts are distributed to a “designated beneficiary” named by the account owner. The primary beneficiary should be the spouse. The real problem is who should be the alternate beneficiary or the primary beneficiary when there is no spouse. Many banks and brokers discourage naming a trust as a beneficiary. The concern is naming the trust will on death accelerate the required minimum distribution (“RMD”) and create a taxable event on death. But there are valid reasons to name the trust as a beneficiary and most trusts do not accelerate the RMD. If the retirement accounts are substantial in amount an attorney or financial planner should be consulted.
5. Tangible-personal assets have no third party involvement. On death, for better or worse, tangible assets are easily transferred. The problem is identification. A list of who receives what with photos and serial numbers is very helpful. An alternative is to let the successor trustee decide how to divide the tangible assets.
Assets identified in a trust or a list of assets attached to a trust does not avoid probate. Assets must be “funded” into the trust to avoid probate. Each asset has its own paperwork requirements to make the trust the conduit to transfer assets to heirs.
Mark W. Bidwell is an attorney licensed in California. He is the owner of Deed and Record: Real Estate Title Transfer and Recording Service. Phone number is 714-846-2888. Address is 4952 Warner Avenue, Suite 235, Huntington Beach, California 92649. Email Mark(at)BidwellLaw(dot)com
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