1. What happens when the Trust Creator fails to transfer financial accounts into the Living Trust?
2. Why Long Term Care Insurance should be owned by the Living Trust.
3. Make Retirement Senior Living Facilities reimbursement payable to the Living Trust.
4. Who pays the tax on Trust income after the death of the Trust Creator?
There can be challenging issues for your Successor should you fail to fine tune title issues with your Living Trust. It is not enough to transfer all of your major assets to the Living Trust. Additionally, the following should be made payable or titled in your Living Trust.
1. Nominal bank accounts;
2. Rental income payments;
3. Long Term Care policies;
4. Health Insurance policies;
5. Any potential survivor benefits from pensions;
6. Reimbursement payments from retirement institutions;
7. Any plan in which the Decedent may receive some death benefit.
If the Trust Creator fails to include those small financial accounts in the name of his/her Living Trust or make the Living Trust the pay on death beneficiary, the bank will freeze the account. At that point, no one can gain access to the account without a Court order or a § 13100 Declaration.
Your Successor Trustee cannot get a Court order unless the account exceeds $166,000 in value. If the account is less than that in value, California law provides that a § 13100 Declaration is necessary to obtain the funds. We charge $2500 to prepare each Declaration. In one case, the Successor Trustee included three accounts from three different institutions in the estate inventory that were not in the Trust. The total value of the accounts was less than $5,000. As a result, it was going to cost the estate more to access the funds than the total value of the funds. So the Successor Trustee decided to just forfeit them.
In another case, the estate was to receive a substantial reimbursement from a retirement facility of approximately $250,000. The facility made the check out to “The Estate of the Decedent’s name”. How can the Successor Trustee negotiate (cash) this check or even deposit it if there is no probate estate? If the check is made to “The Estate of (Name of Decedent)” it cannot be placed in a Trust Account. When this occurs, many times we are asked to get involved, for fees, to help convince an institution to make the check out to the Trustee of the particular Living Trust. When this fails the Successor Trustee must resort to obtaining a Court order which can be very costly. We have seen the same results with reimbursements from Long Term Care Insurance policies and Health insurance pay backs. They usually are made out in the name of the Decedent or the “The Estate of (Name of Decedent)”. Do whatever it takes to have these types of payments reimbursed to your Living Trust and save your Successor Trustee a lot of frustration.
Taxes: Another post death issue is income generated after the Trust Creator’s death. Such income is reported as Trust income if the asset is in the name of the Trust. If the income is distributed to the beneficiaries, the Living Trust gets a deduction for the distribution called a DNI deduction and the beneficiaries report the income. On the death of the Trust Creator, we normally provide the Successor Trustee an EIN (Employer Identification Number) for the Trust. As a result, the income generated after the Trust Creator’s death is reported on the EIN, not the Decedent’s Social Security number. It is best for the Successor Trustee to make the distributions of income once the Trust has generated more than $11,000 in income as the marginal rates are very compressed which normally result in higher income tax rates on Trusts than individuals.
As a firm, we do not get involved in income tax filings but recommend you consult with a qualified accountant or CPA. We will be happy to refer you if you don’t know of any.
Also, if you are interested in attending our presentations for Trustees and Successor Trustees online, please contact the office at 858-792-0909 or jes@jackstephens.com