Over the last twenty-five years, I have been asked thousands of questions regarding the Living Trust by clients and readers of my legal articles. I find that the questions and responses allow for a unique learning experience in understanding the Living Trust.
The questions reveal real life issues and some are rather amusing. The last names of the inquirers and dates of the inquiries have been deleted to protect the identities of the persons involved in the questions.
Q: Mr. Stephens, my wife and I had a Living Trust prepared by a Trust Mill several years ago. They provided very little guidance and advice regarding my separate property which I received by inheritance. The deed they prepared transferred the property to our Living Trust in both of our names as Trustees. We have used the property for vacations with our children when we visit Lake Tahoe. I have considered selling the property but my wife has objected because of its availability for vacations. Also, it has provided rental funds from seasonal lease arrangements. My question is, don’t I have the right to sell it since it is my separate property I received as an inheritance? Bill, San Diego
A: Bill: Yes, you have the right but the issue is can you without your wife joining in the sale. The problem lies in the fact that the property was transferred to your Trust in both you and your wife’s name as Trustees. She is on the title as a Trustee. Most all title companies that I’m aware of will require that you both sign a transfer deed to the property as title holders. If she refuses to sign you’re stuck in the proverbial “boat without a paddle.” You can take her to Probate Court for a Court order to “right the ship” but she could then take you to Family Court to “sink the ship.” Tough call Bill but probably a lesson well learned from using Trust Mill Attorneys.
Q: My daughter-in-law is always inquiring about our assets which we have transferred to our Living Trust and their values. She was previously married and has been married to our son for less than three years. She is very controlling of him and has no problems inquiring into our personal and private investments. I have on more than one occasion responded that this was none of her business. My husband and I want to leave our three children an inheritance for them and them alone. We trust the spouses of our two daughters but have great concerns about the daughter-in-law. Is there a way that we can protect our son from this over-bearing woman? Janice, Oceanside
A: Janice, there are a couple of planning strategies you can implement into your Living Trust.
1. You may amend your Living Trust and include Protective Inheritance Trust (PIT) provisions. This, in essence, will require your son to arrange a Sole and Separate Property Trust at the death of the survivor of either you and your husband. He will have his inheritance titled as separate property under his Trust and may utilize it for his family within his discretion. You can make this Trust a condition of his inheritance avoiding any dissension with his wife for him to arrange it on his own;
2. If you feel that the daughter-in-law is so controlling that your son would eventually abandon his Sole and Separate Property Trust, there are a couple of remedies. You can arrange a Sole and Separate Property Trust for him now, have it funded on the deaths of you and your husband and name one of the siblings as the Trustee. The sibling would have discretion to provide income and principal to him only for his personal needs. The sibling Trustee will need to be strong and prudent as to any demands made on her for distributions and/or you can provide guidelines for distributions in the Trust. If one of the siblings is not appropriate you could designate a Trust Protector to carry out these responsibilities.
Q: I keep hearing about a QTIP in Living Trust language. I always thought a Q-tip was something one used for their ears. Where did this come from and what is it exactly? Henry, San Diego.
A: Henry, many people have asked this question before as it is an interesting acronym. In Living Trust language, QTIP stands for Qualified Terminal Interest Property. It is normally utilized when one spouse owns assets he/she is willing to provide a life estate in for the other spouse but not ownership. For instance, on the death of one spouse who owns a rental property, the rental income will be provided to the Surviving Spouse for his/her lifetime. On the death of the Surviving Spouse, the property could then be distributed to the children of the deceased spouse that owned the rental property. The advantages are as follows:
1. Financial security of the Surviving Spouse;
2. The property continues to be owned by the Trust which prevents the Surviving Spouse from selling or otherwise, transferring the property;
3. The children of the deceased spouse who owned the property receive the property with a stepped-up basis to negate capital gains tax.
The Trust must be a qualifying Trust which terminates on the death of the Surviving Spouse. Hence, Qualified Terminal Interest Property (QTIP).
Q: Our mother passed away several years ago and our 80 year-old dad thinks he is still a playboy. He met a woman from Texas, only the Lord knows where, and she has been visiting him in San Diego. He lives in a beautiful house in Bird Rock area which is very valuable. He also has significant investments including IRAs. We, as children, want the best for our dad but we are suspicious of this Texas lady and her motives. Dad has capacity and is in good shape for an 80 year old.
However, the woman in question has been persuasive in obtaining expensive gifts from him.
We have always been a close family but Dad has clammed up about this Texas romance. All of us live out of state and have concerns about losing our inheritance to this “Dallas Doll.” Our parents had an A-B Trust which, we understand, was divided into two Trusts on Mom’s death. Do we have any rights to an inheritance or can Dad leave it all to a new wife or girlfriend? Nancy, Seattle, WA
A: Nancy: This problem is not uncommon. Surviving Spouses tend to get lonely after the loss of a spouse and if family is not nearby, they tend to roam. Companionship is natural so you can’t blame your Dad for that. On the other hand, there are scammer companions looking for a nice place to go to work on a lonely widow or widower. The two issues I see regarding an inheritance is as follows:
1. Good News: If the A-B Trust was divided at your mother’s death, one-half of the then valued assets were transferred to your mother’s B Trust, assuming all assets were owned as Community Property. As a result, the ultimate beneficiaries can usually not be changed. As a result, you and your siblings should be the beneficiaries of Trust B assets even if your dad remarries. That’s the good news.
2: Potential Bad News: The one-half of the assets funded into Trust A, your dad’s Survivor’s Trust are his alone — he can do with them what he pleases. It probably includes all or a portion of the home in Bird Rock. If he leaves the “Dallas Doll” a portion of that Trust, you may be joint owners of the home with her at his death. Probably not a “Kumbaya” arrangement.
The IRA beneficiaries can also be changed by your dad. I’m assuming that all of you children are presently the beneficiaries. Your dad, as the owner of the IRA, can request a Change of Beneficiary form from the institution and replace your names with that of his new girlfriend. This is his prerogative and nothing said in the Trust can prevent this action.
Recommendation: I would advise a sit down with Dad and your siblings to discuss where the relationship is headed. I, as an Estate Planning attorney, have been involved in such meetings. Your dad may be amenable to including some safeguards in the Trust to insure your inheritance as the children in addition to a Pre-Nuptial Agreement if marriage is a consideration. But primarily, you would want to discuss the potential for including irrevocable provisions for some portion of his Trust A regarding your inheritance as children. Remember, it’s up to him as these are his assets, but it’s always worth a heart-to-heart meeting.