LIVING TRUSTS

Published on: August 22, 2014

What Is a “Pour-Over” Will?

In estate planning, a “pour-over will” is a document signed in conjunction with the creation of a living trust. A pour-over will is like any other last will and testament, except that it distributes-or “pours over”-any probate assets to the related living trust. In this sense, the pour-over will is a backup that ensures no assets remain outside of the trust.

The Difference Between a Will and a Trust

Many people simply dispose of their estate through a will. This means the person leaves an estate subject to probate before the California courts. When the person dies, his or her will must be filed with the court, an executor is named (usually by the will) and assets are distributed according to the terms of the will.

Published on: July 22, 2014

Using a Trust to Control Your Assets After Your Death

by Scott C. Soady

One benefit to using a trust as part of your estate plan is that it allows you to exercise greater control over the distribution of your assets even after you’re gone. As the name implies, a trust exists when you transfer assets to the control of a trustee, who is then bound to follow your instructions in managing and distributing those assets. A trust may last for many years after the maker’s death, depending on the conditions specified in the original trust instrument.

It is not uncommon for a trust to make conditional bequests to beneficiaries. For example, a person making a trust (a grantor) may want certain assets used for the benefit of his children, but for one reason or another, he may decide it is not advisable to simply give the children everything upon his death. One solution would be to structure the trust distributions based on age: the children get one-third of their share upon turning 21, another third upon turning 25, and the remainder upon turning 30. In this way, the grantor of the trust has some assurance his children will not receive a large sum of money before they are mature enough to handle it.

Another example of a conditional bequest is a trust established to defray certain types of expenses. A grantor may decide she wants to set aside funds to pay for her grandchildren’s college education or the medical expenses of a child with ongoing special needs. In these circumstances, the trust should instruct the trustee on how and when to distribute trust assets to fulfill these specific purposes. The trust should also contain clear provisions on when to terminate the trust, and who to distribute any remaining assets to; otherwise the trust may continue indefinitely, which may not be the grantor’s intent. There is, in common law, a “rule against perpetuities,” which holds a trust should terminate no later than 21 years after the death of the last person identified as a beneficiary at the time the trust was made, but this rule may be overruled by the express terms of the trust.

Published on: July 14, 2014

Does Your Will Contradict Your Prenuptial Agreement?

by Scott C. Soady

A last will and testament is just one document that may govern the disposition of property after your death. Many married couples sign a prenuptial (or antenuptial) agreement that can also affect estate planning. For example, spouses may agree to waive any future claim on each other’s estate. This may be useful in cases where a spouse wants to leave part of his or her estate to children from a prior marriage.

But if documents are poorly or incompletely drafted, legal confusion may frustrate your objectives. A recent decision by an appeals court in Mississippi illustrates what can go wrong when a will says one thing, but other documents say something else.

Dixon v. Jones

Published on: June 24, 2014

Transferring Corporate Shares Via Estate Planning

by Scott C. Soady

A family-owned business poses unique estate planning challenges. If the business is organized as a corporation, certain formalities must be observed with respect to the transfer of ownership upon a shareholder’s death. Under California corporations law, every shareholder, even if it is a family member, must receive a certificate specifying the number and type of shares owned. When a shareholder dies and transfers shares by will or trust to a beneficiary, the corporation must record this transaction and issue certificates to the new shareholder.

In theory this sounds simple enough. But in practice things can and do go wrong. A recent court case from Ohio illustrates this.

Graham v. Szuch

Published on: June 13, 2014

Understanding the Difference Between Trust and Personal Assets

by Scott C. Soady

A living trust is an estate planning device whereby a person, known as the “settlor,” transfers his or her assets to the custody of a trustee. In most living trusts, the settlor and trustee are the same person. When the settlor dies, the trust instrument appoints a successor trustee, who then manages or distributes the trust assets as the settlor directed.

If you decide to create a living trust, it is essential that you and your successor trustee observe all appropriate formalities. That is, when dealing with trust assets, you must not refer to yourself as the owner, but rather the trust. Let’s say John Doe creates a living trust. He wishes to fund the trust with his home. In order for the house to be considered a trust asset, Doe must file a deed transferring the property from himself to “John Doe, Trustee of the John Doe Revocable Living Trust.” Failure to take this step means a court may decide the asset was never part of the trust.

Avoid Co-Mingling Trust Assets

Published on: May 16, 2014

Disposing of a Sole Proprietorship in Your Will

by Scott C. Soady

An often overlooked part of estate planning is business succession. If you own and operate your own business, it is essential your estate plan make provisions to either wind-up the business upon your death or transfer those assets to a designated successor. This is especially true if your business is not incorporated-that is, you operate a sole proprietorship or even a one-member limited liability company.

Separating Business and Personal Assets

A recent case from the Georgia Supreme Court is instructive. Robert Haege died in 2006. Haege operated an art business under the name Traditional Fine Art, Ltd. In his will, Haege left his “personal assets” to his siblings and his “business assets” to his siblings and two of his employees.

Published on: May 2, 2014

The Importance of Separating “Separate” and “Community” Property

by Scott C. Soady

California estate planning must take into account the state’s community property laws. California is one of nine states that recognize community property, which is a legal system that governs property held by married couples. In general, each spouse enters the marriage with their separate property. Property subsequently acquired during the marriage is community property, with each spouse retaining a one-half interest. Upon a spouse’s death, his or her estate plan may only dispose of that one-half interest.

In making a will or trust, it is therefore essential to distinguish separate and community property. If you intend to make provisions for one or the either, you should do so explicitly. Ambiguity may lead to litigation between your heirs, as one recent decision from the California Court of Appeals illustrates. This case is cited only for illustrative purposes and is not meant to be taken as a statement of the law.

Pakula v. Klein

Published on: May 1, 2014

The Importance of Funding a Living Trust

by Scott C. Soady

A living trust is a useful estate planning tool that can help avoid extended probate proceedings after your death. Basically, a living trust is an entity you create and transfer property into through a declaration of trust. This declaration specifies how the property within the trust should be distributed after your death. Unlike a last will and testament, trust declarations are not submitted to a probate court. The declaration simply appoints a successor trustee to carry out your wishes.

During your lifetime, you can still control all of the property transferred into the living trust. In most cases, the trust is not even considered a separate legal entity for tax purposes, so your Social Security number remains tied to trust assets like bank accounts. You can revoke or amend a living trust at any point during your lifetime. After your death, however, the trust generally becomes irrevocable, meaning your successor trustee is bound by the declaration of trust.

Always Fund a Trust Properly

Published on: March 14, 2014

Using a Life Estate to Protect Your Spouse’s Right to Remain at Home

by Scott C. Soady

A life estate provides a means of transferring real property before death. In a life estate, Person A conveys the title to his house to Person B with the stipulation that Person A may continue to live in the house until his death, at which time Person B assumes sole ownership. It sounds simple enough, but life estates can produce unforeseen complications, as one recent California appeals court decision demonstrates. This case is discussed here for informational purposes only and should not be considered a complete statement of California law on the subject of life estates.

McCay v. Turnboo

The parties in this case are a stepfather and stepson. The stepfather, Warren Turnboo, married his wife Helen in 1960. She had a son, Brian McCay, from a prior marriage. Helen Turnboo brought to her second marriage the house she acquired following the dissolution of her first marriage. At the time of her second marriage, there was a mortgage of about $9,600 on the property. Helen Turnboo remained sole owner of the house, but she and her second husband lived there together and they use their funds to pay household expenses, including the mortgage. The mortgage was finally paid in 1978.

Published on: March 7, 2014

Bing Crosby Lawsuit Highlights Role of “Publicity Rights” in Estate Planning

by Scott C. Soady

Estate planning is about providing for the future. Sometimes, it’s about providing for a very distant future. For example, the famous actor and singer Bing Crosby died nearly 40 years ago, yet a California appeals court just recently issued a decision regarding property that still belongs to his estate. Even more remarkably, the other party to the case represents the estate of Crosby’s first wife, who died more than 60 years ago.

Crosby v. HLC Properties, Ltd.

Harry “Bing” Crosby, Jr., began singing professionally in the 1920s. His most famous recording, that of the Irving Berlin song “White Christmas,” reached No. 1 on the charts in 1942. Also during the 1940s, Crosby became well known as an actor, appearing with Bob Hope in a series of movies, and winning an Academy Award in 1944.