I. Failure to Arrange and Update a Proper Living Trust Under California Law
It is ludicrous not to have a properly executed Living Trust in California, especially if one owns real estate. California has one of the more archaic probate systems in the country that takes about 1 ½ years in San Diego County and longer in other counties, like Los Angeles. To make matters worse, statutory fees are assessed against the gross value of the estate. For example, if your home was probated with a value of $800,000 with a $400,000 mortgage, the statutory fees would be assessed at $800,000, not the net value of $400,000.
Besides the fees, mounting frustration among beneficiaries becomes a realization awaiting a Court-ordered distribution. Remember, there is a potential of a year and one-half of probate petitions awaiting finalization ahead of your estate.
If you do decide to have a Living Trust, why would you go online to have a generic Trust drafted that does not include California law? Since you are dealing with your estate that includes everything you have worked and saved for over the years, why wouldn’t you want to have it drafted by a competent California attorney? There are various types of Living Trusts – A-B, Simple Married, Simple Single, Sole and Separate Property, Disclaimer, QTIP, Dynasty, etc. Which one is right for you?
Also, as laws change along with family dynamics, Living Trusts need to be updated. It is as important as your updated medical exams.
Make a New Year’s decision and get it done.
II. Failure to Properly Fund the Living Trust
Now that you have a Living Trust there is an important Step 2. It is called funding, meaning transferring the title of your assets to the Trust. What assets do not have to be transferred to the Living Trust?
a. Retirement Accounts (IRAs, 401ks, Roth IRAs, etc.)
b. Life Insurance
c. Annuities
d. Pay on Death Accounts
Why? Because those contracts designate, or should designate, beneficiaries. As a result, the financial institutions holding those funds will pay the beneficiaries directly.
What assets do need to be transferred to the Living Trust?
a. Real Estate (homes, rentals, timeshares, raw land);
b. Bank and Savings Accounts
c. CDs
d. Investment Accounts (mutual funds, stocks and bonds, etc.)
e. LLCs
Many people who own an LLC as a single member or an interest in a multi-member think that their interest will automatically pass to their heirs. It has been determined that to insure against probate of the LLC interest, title of the interest should be transferred to the Living Trust with a Trust Amendment to include specific distribution of the LLC interest to the beneficiaries. I highly recommend that you contact our office for this purpose if you own an interest in an LLC.
III. Failure to Designate/Update Beneficiaries in Retirement Plans and Life Insurance
Upon your death, the financial institutions are going to pay your designated beneficiaries the funds in these accounts.
IV. Failure to Appoint Appropriate Successor Trustees and Agents in Your Durable Powers of Attorney
Besides your distribution provisions, the most important decision you will make is who will take over your estate, Trust and otherwise, should you become incompetent or on your death. These are the people who will take care of your finances; manage your accounts; determine where you live and who sees you as a visitor; what doctors treat you; and possibly life support decisions.
The person(s) you designated 5 or 10 years ago may not be appropriate today. What if they are now deceased, incompetent, or have moved away without much contact? Have your family dynamics changed to the point you now rely more on friends than family? What about the relationships among your children? Does sibling rivalry or jealousy exist among them?
You should be absolutely sure that the people designated will take care of your Trust assets as Successor Trustees or your retirement plans, IRAs, etc. as agents in your Durable Powers of Attorney. Is it time to review these designations and possibly make some changes? Call or email our office for an update review of your documents.
V. Failure to Update Your Estate Plan With a Competent Attorney.
Let me ask you a few serious questions.
a. Did you meet with the attorney in your initial consultation who ultimately drafted your documents?
or
b. Was your Estate Plan drafted by a paralegal in a firm or do you even know?
c. Do you have immediate access to the attorney who drafted your documents by telephone or email? What is his/her response time to your contact?
d. Has the attorney who drafted your documents contacted you in newsletters and legal articles to provide legal information?
It is important that the Estate Plan review be conducted by an attorney who is experienced, has received positive reviews and has achieved notoriety in his/her field of law. Evidence of this is supported by them being awarded an AV Preeminent rating by Martindale-Hubbell. You should be meeting with them individually and know they are personally drafting your documents.