Do You Have More Beneficiaries Than You Think?

For the vast majority of property owners in California, the revocable living trust is the preferred estate planning method.  It offers flexibility throughout life because it is freely amendable during life and does not require that specific assets be separated and subject to certain terms and conditions for withdrawal.  Additionally, the revocable living trust is well-suited for a variety of wealth levels and goals.  It can also help ensure that estate taxes are minimized or that assets are protected from the creditors of children in blended families.

For all its benefits, however, the trust is not the end of your estate planning story.  Although it initially seems like a fairly comprehensive document, laying out your post-death wishes in painstaking detail, it has its limitations.  Often, it is in these gaps that we face unexpected problems because the trust may only control what it owns.  One of the main issues is “funding” the trust.  In order for the trust to exhibit ownership over its assets, the assets must be in the trust’s name.  This means real property, business interests, and bank accounts ought to be titled to you as trustee.  If the assets remain in your name as an individual, then they could cause probate court proceedings on your demise in order to fund the assets into the trust.

However, even if the trust appears to be otherwise properly funded, there are certain assets that, for one reason or another, are not included in the trust.  Parents will frequently put one child’s name on a bank account in order to give the child access to help pay bills; however, on death, the account is a joint tenancy account belonging to the survivor.  Depending on the size of the account, one child could inherit dramatically more than the others by virtue of this simple action, although there may be other reasons for doing it.  If you need help managing your finances, it is best to speak to your attorney about your Power of Attorney for finances and successor trustees, to see if changes might be appropriate.

Additionally, life insurance and retirement accounts are typically not included in the trust.  There are important tax reasons to keep them outside of trust.  However, checking and updating your beneficiary listings frequently is essential to ensuring that the funds are distributed according to your wishes.  Many people name their spouse as the primary beneficiary, but if the spouse predeceases you, the funds become an estate asset (possibly in probate!).  Similarly, failing to update the beneficiary listings upon marriage, divorce, or the birth of children can lead to unintended, unequal distributions.  Indeed, even when you do not intend to change the beneficiary listing, it is important to verify that the listing still exists!  Even bank records are not infallible and occasionally the designations are lost.

In short, balancing the distributions you intend to make among your family members does not end with merely naming trust beneficiaries.  Instead, it is important to review how you hold your assets and whether they have specific disbursements associated with them.

Irrevocable trusts can also be helpful.  A QVap Trust or QMap Trust, for example, may allow you to plan proactively for VA Aid & Attendance Non Service Connected Disability Pension or Medi-Cal respectively.

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