The Living Trust Advisory Newsletter – Part 1
A Series of Articles on Living Trust Catastrophes (As Seen by an Experienced Living Trust Attorney)
“You Think You Got Problems.”
I have drafted Living Trusts for almost thirty years. During that period of time I have had the opportunity to review many housands of Trusts and how they are perceived by their owners — the Trustors, Settlors, Creators, Grantors. Based on these observations, I created a Living Trust I call the Asset Protection Family/Living Trust in which I have implemented numerous safeguards for the client.
In the articles that follow, including this one, I will discuss some of the catastrophes I have seen in Trust provisions and the neglect of clients in the treatment of their Living Trust.
First of all, let’s understand the difference between a Living (Inter Vivos) Trust and a Testamentary Trust. Living Trusts become a viable document when they are signed by the Creator, A.K.A. Trustor, A.K.A. Settlor, A.K.A. Grantor. They are functional, operational documents during the client’s lifetime. A Testamentary Trust resides in a Will and becomes active on the death of the Creator, A.K.A. Testator. The Testamentary Trust is drafted to go through Probate.
I had three adult children visit my office a few years ago for a Living Trust Administration. Their father, who had just passed away, owned five real properties in and around San Diego. The children indicated to my office manager that their father had a Trust and they wished to distribute the properties to each of them in equal shares. No problem. Well, that is until I saw the Trust and the deeds to the properties. There was the Trust alright — sitting right in the middle of the father’s will. Some of the deeds were titled in the name of the father, personally.
Catastrophe #1: This was a Testamentary Trust in which the assets of the estate would have to go through Probate. However, two of the real properties would not be subject to Probate. The children seemed relieved to hear this but their attitudes changed quickly when I explained to them that the two properties would avoid Probate because they were held in Joint Tenancy with Right of Survivorship.
Catastrophe #2: The other joint tenant was an ex-girlfriend of the father’s who would be entitled to the properties based on her survivorship. And yes, she was still living and breathing in a nursing facility. She died two months later but the two properties in question passed to her children through her estate. Are you kidding me? This could drive someone to drink a barrel or two at the nearest winery. The father hardly intended for children of his girlfriend, who lived back east and whom he had never met, to receive almost 50% of his estate.
You want to hear more. Stay tuned for more catastrophes in my next article.