The participants in a Trust are:
- Grantor - the individual who creates the Trust
- Trustee - the individual who manages the Trust and assets owned by the Trust
- Beneficiary - the individual who receives the benefit of all the assets in the Trust
- Personal Representative- An individual appointed to administer the last will and testament of a deceased person
- Guardian - A guardian of a minor is a person that has the powers and responsibilities of a parent concerning the child's support, care, education, health, and welfare
- Agents - The person named in a power of attorney to act on your behalf
Any legal arrangement that has these three participants - a creator, a manager and a Beneficiary - is a Trust. When you create your Trust, you are all three: the Grantor, the Trustee and the Beneficiary. You create your Trust and name yourself to manage your Trust for your own personal benefit.
Funding your Trust
For the Trust to avoid probate, it is essential that all your assets be transferred into your Trust. This process of transferring ownership is known as “funding” your Trust. As Trustee of your Trust, you still have power to buy, sell, use, transfer, borrow, and do whatever you wish with the assets your Trust owns. The only exception is Qualified Plan Assets - IRA, 401k, 403b plans - for income tax purposes, it is prudent that these assets be owned by you individually, not as Trustee of your Trust. A beneficiary designation will ensure these Qualified Plan Assets avoid probate. It is recommended that you also consult with a tax or financial professional about the funding process for your Trust.
The concept is quite simple. At your death, you do not own any assets since you have transferred them to your Trust during your lifetime. As a result, you have no assets subject to probate. The administration of your affairs simply passes to your Successor Trustee without any public fanfare, governmental oversight or the costs of probate proceedings.
Documents included within your Trust
- Revocable Living Trust
- Certification of Trust
- Pour-Over Wills
- Comprehensive Transfer Form
- Community Property Agreement (when applicable)
- Schedule of Assets
- Personal Letter of Direction
- Powers of Attorney
Understanding the Revocable Living Trust
When you create your trust you are the grantor, the trustee and the beneficiary. You create your trust and name yourself to manage your trust for your own personal benefit. One way to look at your trust document is simply as the instructions you are giving to yourself.
Once your trust document is created, you must formally change title to most of your assets. Your trust can only control the assets that it “owns”. You transfer ownership from yourself as an individual, to yourself as trustee of your trust. This process of transferring ownership is known as “funding” your trust.
From a legal standpoint, once you transfer your assets into your trust, you no longer hold title to anything; since your assets are inside the trust. However, even though you have relinquished ownership or your assets you still control those same assets. Your control of those assets is the same as before you put them into your trust. As trustee of your trust, you still have power to buy, sell, transfer, borrow, and do whatever you wish with “your” assets.
(Note: For the trust to avoid probate it is essential that all your assets be placed in (i.e., funded) your trust. The only exception is Qualified Plan Assets - IRA, 401k, 403b plans - for income tax purposes, it is prudent that these assets be owned by you individually, not as trustee of your trust. The beneficiary designation will ensure these assets avoid probate.)
In your trust you name a successor trustee. This is the person who will manage your trust, and the assets owned by your trust, upon your death or incompetence. The concept is quite simple: at your death, you do not own any assets, (as you have transferred all your assets to your living trust), so you have no assets subject to probate. Huge savings of time and money. At your death, the administration of your affairs simply passes to your successor trustee without any public fanfare or governmental oversight.
Your successor trustee must be of legal age. Your successor trustee serves in a fiduciary capacity. This means that, in all matters relating to the trust and your assets, the successor trustee must act with prudence and strictly in accordance with all instructions outlined in your trust.
Understanding the Certification of Trust
The Certification of Trust is a short document that outlines the key issues involved in your Trust for the primary purpose of transferring title of assets into the Trust. It identifies the Trust name, the date the Trust was signed and notarized - and confirms that the Trust is indeed a legally binding document.
The Certification of Trust also identifies the Grantors and Trustees and confirms that the Trustee has the power to act on behalf of the Trust. The specific powers of the Trustee are reaffirmed in full and often the “Powers of Trustee” section of the Trust will be attached in full.
Nothing about your beneficiaries or details regarding the distribution of assets is included in the Certification of Trust.
Understanding Pour-Over Wills
Your Trust is the only Beneficiary named in your Pour-Over Will. Your actual beneficiaries and the details about how your assets are to be distributed are outlined in your living Trust. Your Pour-Over Will acts as a “safety net” to ensure that any assets not funded into your Trust while you were alive are transferred to your Trust at your death.
The Pour-over Will acts as a “safety net” to ensure that any assets not funded into your Revocable Living Trust while you were alive are transferred to your Trust at your death. Your Trust is the only Beneficiary named in the Pour-over Will. If you have named guardians for minor children, they will also be named in the Pour-over Will. Your actual Beneficiaries and the details about how your assets should be distributed are outlined in your Trust.
Like a traditional Will, a Pour-over Will is subject to the probate process. As such, you do not want to rely on the Pour-over Will to distribute your wealth. The Pour-over Will is a precautionary tool to make sure any assets you have forgotten to fund into your trust are distributed according to the provisions you have outlined in your revocable trust.
The same execution procedures exist for Pour-over Wills as for normal Wills - two witnesses of legal age who are not named beneficiaries or otherwise potential heirs to your estate.
Understanding Comprehensive Transfer Form
Your Trust can only control the assets that it owns. Transferring ownership of your assets to your Trust is done on an asset-by-asset basis, one asset at a time. The process is not difficult but it does take time and requires close attention to detail.
The Comprehensive Transfer Form transfers all assets that do not have a formal title. Things such as personal property, family heirlooms, collections, etc. are specifically referred to and covered by the Comprehensive Transfer Form.
Like the pour-over will, the Comprehensive Transfer Form is to document your intent that all assets you owned when you created your Trust were to be transferred to your living Trust.
There have been instances where the courts have permitted the use of a Comprehensive Transfer Form in lieu of the Pour-Over Will for the purpose of funding a Trust. The Comprehensive Transfer Form is a precautionary document that provides the basis to request the court to waive probate, if assets were not properly funded during your lifetime.
You should not rely on the comprehensive transfer form to fund your Trust. The only acceptable way to transfer title is asset-by-asset.
Understanding Community Property Agreement
There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska is an opt-in community property state that gives both parties the option to make their property community property.
Married individuals, in any of these states, can elect to own their jointly held property as community property. Upon death, holding title to your assets as community property provides significant income tax advantages for the surviving spouse. To ensure that the surviving spouse receives these income tax advantages, we create a Community Property Agreement for all married individuals who reside in community property states.
Understanding Schedule of Assets
The Schedule of Assets, when kept current, is a great recap for your Successor Trustee of the assets to be included in your estate. It is a starting point identifying the assets they need to confirm exist. The asset schedules are intended to be updated no less than annually.
The Schedule of Assets is located at the very end of the Trust. There is one asset schedule for a single person Trust. There are three Schedule of Assets in each married Trust, one Schedule of Assets for each spouse to list separate property and one Schedule of Assets for all jointly owned assets.
Listing an asset on a Schedule of Assets does NOT fund that asset into the Trust. In order for an asset to be legally owned by the Trust, the Trust must be formally identified as the owner of record with the institution that controls or holds title to the asset.
Schedule of Assets can be modified as often as needed without having to make a formal amendment to the Trust document. The details needed to create detailed asset schedules are entered under an entirely separate tab entitled “Assets” in your client’s online portal. Clients should be encouraged to go in and make changes to asset listing whenever they buy or sell an asset.
The online questionnaire does not ask about the details of your client’s assets. To reinforce the need to go asset-by-asset and formally add the Trust as the owner, all asset schedules show that the Trust is funded with “$10 transferred from the Grantor to the Trustee”. The $10 cash transfer is added to show the trust was established with funding of the $10 at inception.
Creating a Personal Letter of Direction
A Personal Letter of Direction is a letter you write to those named in your Estate Plan. Your Personal Letter of Direction does not have to meet any kind of legal format or other formal requirements. It can be handwritten and printed out on plain paper.
Unlike your Will or Trust your Personal Letter of Direction doesn't have any legal authority, but provides you a forum to express the thoughts that you want to pass on to your loved ones, Personal Representative and Successor Trustee.
Your Personal Letter of Direction can also outline more personal desires, including such details as where you want to be buried and the kind of funeral that you want. You can specify location, funeral home or even what type of flowers you would like, or whether you would like your ashes to be displayed at the ceremony or even your own obituaries if you wish.
Your Personal Letter of Direction is the best place to outline the details of how you want your personal property distributed. You can use the letter to voice other personal requests that may be inappropriate for a Will or Trust, such as a general sentiment about how you would like your heirs to use their inherited assets.
Finally, you can elaborate on the medical conditions under which you would like to be taken off of life support in more detail than is permitted in healthcare or medical directives. You can use your Personal Letter of Direction to pass down your values, beliefs and ideals to your loved ones.
Note: The estate planning documents created using the Estate Plan Portal direct your Successor Trustee and Personal Representative to refer to, and follow as much as possible, any instructions they find in your Personal Letter of Direction.
Understanding Powers of Attorney
Powers of Attorney are essential documents for every individual over the age of 18. Irrespective of wealth or marital or family status every individual 18 years of age or older should execute both a Financial and Healthcare Power of Attorney.
The Financial Power of Attorney names someone, called an Agent, to make financial decisions for you when you are not able to do so for yourself.
Healthcare Power of Attorney names someone, called an Agent, to make healthcare decisions for you when you are not able to do so for yourself.
If something happens rendering you incapable of making financial and medical decisions for yourself, without a valid Power of Attorney, your loved ones will be required to go to court and have a judge officially name a conservator to make those decisions on your behalf. This process is both time consuming and costly. More importantly, it can be avoided altogether by executing two simple documents - a Financial Power of Attorney and a Healthcare Power of Attorney. Upon death your Powers of Attorney are null and void.
Understanding Health Care Directives
The online platform creates numerous healthcare related documents. In addition, to a simple Healthcare Power of Attorney that names someone to make healthcare related decisions when you cannot, we also provide the following documents for every individual:
- HIPAA Release Form - authorizes healthcare providers to provide the individual you named as the agent of your Healthcare Power of Attorney access to your medical records so that they can adequately perform the job they are required to do on your behalf
- Intent to Return - for Medicaid to cover the expenses associated with your long-term care you are required to spend down your personal assets including your primary residence. Your residence can be excluded from this if you formally declare that it is your intent to return to your primary residence if and when you become physically able to do so. (This document is only included if you own your own home.)
- State Specific Health Care Directive - each state has its own Healthcare Directive. State Specific Health Care Directives include the naming of health care agents (redundant with Healthcare Power of Attorney), also includes outlining specific guidance to health care providers about your wishes about the type and level of terminal care you desire, DNR orders, whether or not you desire pain medication, nutrition, hydration, organ harvesting, etc. These issues are more medical in nature than they are legal. We provide the state specific form but feel that completing it should be done with the guidance of your medical professional not your legal or financial advisors. Note: There is often some confusion about the term “living will”. Especially when your estate plan includes a living Trust. The term ”living will” first became part of the public dialogue in 1990 when the U.S. Supreme Court confirmed our constitutional right to die in the Nancy Cruzan Case. Living Will is a layman’s term, coined by the media, for the document that outlines your wishes regarding terminal care. Since the Cruzan Case the idea of creating living will has expanded beyond simply outlining your issues about end-of-life instructions and as a result the more accurate name for this document is a Health Care Directive.
Role of the Successor Trustee
Your Successor Trustee must be of legal age and able to serve in a fiduciary capacity. This means that, in all matters relating to the Trust and your assets, the Successor Trustee must act with prudence and strictly in accordance with all instructions outlined in your Trust.
Role of the Guardian
The role of the Guardian is to care for your minor children (if applicable), acting in their best interests, and providing for them physically, emotionally, psychologically, spiritually, and culturally.
When considering who could take custody of your children, there are a number of questions to address:
- Are they willing to serve as guardian of your children?
- Do they have the maturity and stability to parent your children?
- Do they have the time and energy to take on the task of raising your children?
- Is their age or health a consideration?
- Do they know and love (or at least care about) your children?
- Do your children like them?
- Will they love your children and provide the support, comfort and nurture that your children will need?
- Will they make it possible for your children to visit their grandparents or other relatives or close family friends?
- How far away do they live?
- Do they have room for your children, or will they need extra funds to allow them to add on or buy a larger house?
- Will they need to buy a larger vehicle?
- Are their values and financial lifestyle comparable to yours?
- If your children are homeschooled, how will this be handled?
- Will one parent have to quit work in order to take care of your children?
- Do they share your religious beliefs and practices?
Role of the Agent in Your Health Care Power of Attorney
A health care agent also may be called a health care proxy or surrogate or an attorney-in-fact. Your healthcare agent is the person you choose in advance to make healthcare decisions for you in the event that you become unable to do so for yourself. Your health care agent will help make medical decisions on your behalf at the end of life or any other time you are not able to communicate, such as if you are severely injured in an accident.
State laws vary regarding the specific types of decisions health care agents can make. In general, a health care agent can agree to or refuse treatment and can withdraw treatment on your behalf. Your health care agent can use the information in your living will (also called a treatment directive), statements made by you in the past, and what he or she knows about you personally to make these decisions. For example, your agent can consent to surgery, refuse to have you placed on life-support, or request that you be taken off life support.
It is important that you choose someone you Trust. Your agent needs to be willing and able to make potentially difficult decisions about medical treatment for you. Discuss your desires, values, fears, and preferences about medical care in various situations. Consider including the details about your medical wishes that can be included in your final letter of instruction. The more your agent knows about you and your values, the more likely he or she will be to make the kinds of decisions you would make if you were able.
Role of the Agent in Your Financial Power of Attorney
Your agent is the person you choose in advance to act on your behalf on financial and legal matters in the event you become unable to do so for yourself. Typically this includes paying bills, making investment decisions, conducting real estate transactions and other relevant matters.
The powers granted to the agent may be broad or limited.
Since this person will have legal authority to act on your behalf, it’s very important that this person is Trustworthy and will act in your best interests. When considering who to name as your agent in your financial power of attorney, there are a number of questions to address:
- Do you Trust this person with your important financial and other legal affairs?
- Is this person financially responsible? How do they manage their own financial and legal affairs?
- Will the potential agent charge you a fee? Family members usually perform the service gratis, but if you pick a lawyer or accountant, a fee is usually involved.
- Will this person agree to serve as your Power of Attorney agent? You should discuss your decision with them and they should agree before you officially appoint them.
Remember, if you ever become unsure of your Agent’s trustworthiness or if a conflict of interest arises, you should terminate your Financial Power of Attorney and create a new one.