I.
Legal 135A
A.
Trusts
Trusts, Generally.
Definition: device which
divides/separates the ownership
and the beneficial interests
between two separate entities for
purposes of estate planning and
property management; separate
legal entity, independent from its
original owner (trustor).
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I.
B.
Trusts, Generally (cont’d).
Three (3) parties involved:
1.
2.
3.
Trustor – original legal owner of
property, who creates trust.
Trustee – takes on legal ownership of
property; serves as administrator or
manager of property.
Beneficiary – holds beneficial interest
in property (i.e. receives income form
property).
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I.
Trusts, Generally (cont’d).
Possible to have 3 separate parties in
each role; or
have the 1 party in each of the 3
roles (“wearing different hats”).
[When setting up a living trust, often
have 1 party as the trustor, trustee,
and also the beneficiary.]
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I.
C.
Trusts, Generally (cont’d).
Trusts can be:
1.
2.
D.
Intervivos – set-up during trustor’s lifetime;
or
Testamentary – set-up at trustor’s death.
Trusts can also be:
1.
2.
Revocable – can be changed, revised, even
canceled; or
Irrevocable – cannot be changed, revised, or
canceled without a court order.
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I.
Trusts, Generally (cont’d).
E.
How can you tell whether a trust is
revocable or irrevocable? Look at:
1.
2.
3.
Amending, or changing, the trust instrument.
Trustor’s control.
Trustor’s creditors able to reach?
If it is fairly easy to amend/change the trust
instrument, or if the trustor still controls
mgmt. of the trust, then trust is revocable.
If trustor has no power to amend/change or
lacks control, then trust is irrevocable.
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I.
Trusts, Generally (cont’d).
F.
Trust assets are not subject to
probate.
1.
2.
3.
4.
Trust assets are held by the trustee,
so when decedent (trustor) passes, no
assets are in decedent’s name.
Private handling.
Avoid cost of probate admin. (but still
have costs).
In addition, avoid guardianship.
II.
A.
B.
C.
Living Trust.
aka Intervivos Revocable Trust.
Designed to take advantage of
current tax laws.
Also, designed to avoid probate.
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II.
C.
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Living Trust (cont’d).
II.
Tax Laws:
1.
C.
Estate Tax Exclusion. In 2013, each
citizen/permanent resident may upon
death (or during lifetime) transfer up
to $5.25 million to any number of
people/entity(ies) without paying
estate tax, which may be as high as
40%.
Living Trust (cont’d).
Tax Benefits.
2.
Marital Deduction. The decedent
spouse may transfer to the surviving
spouse an unlimited amount without
paying estate tax.
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II.
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Living Trust (cont’d)
D. Structure.
II.
D.
Living Trust (cont’d)
Structure:
1.
Living Trust
Surviving Spouse Sub-Trust:
a.
b.
c.
Surviving Spouse
Sub-trust
By-Pass (Exemption)
Sub-trust
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Marital Sub-Trust
d.
Will contain SS’s ½ CP assets plus SS’s
SP assets as principal.
Administered/managed by the SS as
trustee.
SS is the beneficiary.
SS trustee has full control and may
invade the principal.
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II.
D.
Living Trust (cont’d)
Structure:
2.
II.
D.
By-Pass, or Exemption, Sub-Trust:
a.
Will contain Decedent’s ½ CP assets plus
DS’s SP assets (up to the estate tax
exemption amount) as principal.
b.
Administered/managed by a special trustee
(someone other than SS).
c.
SS is typically the beneficiary of the annual
income; but can decide not to take the gift.
d.
Decedent and SS’s children are the ultimate
beneficiaries.
Living Trust (cont’d)
Structure:
3.
Marital Sub-Trust:
Will contain Decedent spouse’s ½ CP and SP
in excess of the maximum exemption
amount as principal.
b.
Administered and managed by SS.
c.
SS is the beneficiary.
d.
SS trustee has full control and may invade
the principal.
a.
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Living Trust -- Allocation of Assets.
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III. Funding the Living Trust.
A.
B.
All assets to be governed by the trust
must be put into the trust. The Trustee
of the trust must hold title and own the
asset.
How to transfer assets to the trust?
1.
Real Property:
May use quitclaim deed or grant deed.
b.
Deeds require notarized signature.
c.
Deeds are recorded in the County Recorder’s
Office.
a.
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III.
B.
Funding the Living Trust (cont’d).
How to transfer assets to the
trust?
2.
Personal Property:
a)
For property with title (i.e. bank acct.):
1)
2)
b)
Check with 3rd party holder (i.e. bank, or
investment brokerage).
Complete forms, etc. to instruct change of
title.
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III.
B.
Funding the Living Trust (cont’d).
How to transfer assets to the
trust?
2.
Personal Property:
c)
For property with designated beneficiary
(i.e. IRA), change beneficiary to trustee
of trust.
For property with no title (i.e. jewelry),
can make a list and state that adding to
trust.
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