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How Unexpected Events Can Affect Your Estate Plan

You should never procrastinate when it comes to estate planning. If you are thinking about making a will or trust—or amending an existing document—you should speak with a San Diego estate planning attorney as soon as possible. After all, you never know what sudden or unexpected event may leave you unable to put your estate plan into action.

Divorce, Death Prevents Funding of New Trust

A recent case from here in San Diego offers a cautionary example. A husband and wife established a joint revocable trust. Some time later, the couple began divorce proceedings. The wife hired an estate planning attorney to assist her in revoking the joint trust and establishing her own trust. She wanted to ensure her 50% interest in the couple’s community property would go to her heirs.

Unfortunately, while the divorce was pending, the wife was seriously injured in a car accident. She died a few months later. While her attorney prepared a new trust as instructed, the community property had yet to be divided and was therefore not part of the trust.

The wife’s son, who was also successor trustee of the new trust, blamed the estate planning lawyer and sued him for malpractice. The courts rejected the lawsuit. As the California Fourth District Court of Appeal explained, the son, as a beneficiary of the trust, had no standing to pursue a malpractice claim. Although the mother expressed a “general intent” to leave the assets that she expected to receive from the divorce the new trust’s beneficiaries, there was also no evidence she “had any intention other than to wait until the completion of the divorce to fund the trust with these assets.”

How to Properly Fund a Trust   

When you create a revocable living trust, you need to fund it with assets. Merely signing a trust instrument is not enough. In the case above, for example, the only asset in the trust was $10. No other specific assets were listed, presumably because the wife was waiting until her divorce was final.

For assets like bank accounts or stocks, you will need to re-register title in the name of the trust. In the case of real property, such as your home, you will need to file a deed. The trust document itself should also contain updated schedules listing all property you intend to include as part of the trust. You should never “just assume” that any asset will be treated as part of the trust.

Similarly, if you want to revoke a trust, it is important to re-title the assets from the trust back into your own name. You do not need to revoke the trust in its entirety. You may partially revoke the trust, say by transferring a particular asset back to your individual name or even another trust.

If you have any questions about how revocable trusts work and need to speak with a qualified California estate planning lawyer, contact the Law Office of Scott C. Soady today.

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