Just recently we discussed what it means to fund a living trust. It involves transferring the title of your assets from your name to the name of your living trust. For example, a married couple’s bank account might say John & Jane Smith, joint account holders. To transfer it to a living trust John & Jane Smith will need to go to the bank with their Trust Documents and have that particular bank switch the title to John & Jane Smith, Trustees of The Smith Living Trust.
Let’s say John & Jane Smith were responsible enough to create a living trust but did not properly go to their bank to have the title to their account changed to the living trust. In most cases the estate planning attorney created a “general property assignment” (or something similar. This is nothing more than a document which states that the trust creators (John & Jane Smith) intended to fund everything into their living trust even if the trust does not specifically identify every asset they own within the document itself. Well if they die without changing that bank account to the living trust the Probate Court will allow an attorney to go to court on behalf of The Smith Living Trust to file what is called a Heggstad Petition. This petition requests that the court declare this bank account to be part of the trust. If the court grants the request, then the asset becomes part of The Smith Living Trust and avoids probate. Otherwise the asset would require a full probate by itself (if it’s over $150,000) and be subject to the statutory probate fees in addition to the costs of administering The Smith Living Trust.
Well so what’s the big deal if I have a Living Trust and forget to change title to my assets? There are two problems, one is more of a minor problem, the other can be a MAJOR problem. In the example above, even though a Heggstad Petition will allow John & Jane Smith’s forgotten bank account to be distributed under the terms of the trust, it still creates an extra cost burden for hiring an attorney to go to court and file it as well as a delay in distributing the trust. The major problem can be the real property.
Remember how we said earlier that a “general property assignment” clause will get the bank account to the trust with a Heggstad Petition? Well this works for personal property but it will NOT work with any real property UNLESS the real property is particularly identified in the trust document itself. This means that if John & Jane Smith do not change the title of the house with the county recorder into the name of their living trust, and their trust document itself does not specifically describe the house (such as at least the address), then the house will have to go through a full probate and be subject to full probate fees on the GROSS value of the house, not the equity in the house. Keep in mind this is in addition to the costs of distributing the assets that are properly held in trust. This can create undue delay and more importantly tens of thousands of extra dollars in fees and costs. Bottom line is if you have real property and a living trust, that property needs to be described specifically in your living trust.
And what about QMap and QVap trusts, i.e. trusts that are used for Medi-Cal or Veterans Aid & Attendance Non Service Connected Disability benefits ? Here a foul up could mean not only the difference between Probate or not, but could mean the loss of tens of thousands of dollars while the person is alive. The moral, check and recheck that everything is properly titled. That’s why we like to get together with our clients every 2-3 years to review things.