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Trust Administration

Once your Living Trust is set up, you then need to transfer your assets into it. This is a simple process which involves little more than just notifying the bank, stockbroker, etc. that you have set up a Living Trust and that you want to transfer title of the asset into it. Your bank, stockbroker, etc. will just change the name on your account card.

The Law Offices of Michael S. Harms will provide you with complete and comprehensive instructions on how to transfer your assets into your Living Trust. This process of transferring your assets into your Living Trust is discussed in more detail under the topic heading Transferring Assets into the Living Trust.

For married individuals, upon the death of the first spouse, there are two subtrusts which are created for estate tax savings. The assets in the original family trust (eg. The Jones Family Trust) need to be retitled in the name of either The Jones Family Bypass Trust (the decedent's property) or The Jones Family Survivor's Trust (the survivor's property). The transfer of assets into these two subtrusts occurs in the same manner as the transfer of assets into your original Living Trust. The surviving spouse, as the sole remaining trustee, still has access to all of the assets in both the Bypass Trust and the Survivor's Trust, and thus control over the assets does not change; however, the allocation into these subtrusts on the first spouse's death is important to take advantage of the estate tax benefits associated with the Living Trust (See Division of Trust Upon the Death of the First Spouse for more details).

Finally, upon the death of the surviving spouse, or a single person, the successor trustee will account for the assets in your estate and either distribute them to your beneficiaries or retain them in trust making periodic distributions for the benefit of your beneficiaries until such time as you have set forth for a full distribution (See Distribution of the Trust Estate for more details).

Transferring Assets into the Living Trust

With few exceptions, it is absolutely imperative that all your assets be transferred into the Living Trust. The primary exceptions are retirement plans and life insurance policies, which are discussed in detail in our instructions that accompany your Living Trust.

This process of transferring your assets into your Living Trust is called "funding" the trust. Many people are concerned that when an asset is transferred into a Living Trust control over that asset is lost. That is not true. In fact, in a properly drafted Revocable Living Trust, you retain complete control of all your assets transferred into the trust.

For example, John Doe has a bank account which reads "John Doe, a single man". When John Doe goes to the bank and tells them he has set up a Living Trust, the bank will simply change the name on the account from "John Doe, a single man" to "John Doe, as Trustee for the John Doe Trust dated January 1, 20xx". John Doe, as trustee, still has complete control of that bank account.

The same principle applies to the transfer of your real estate, stocks, and any other assets which you own. You transfer assets into your Living Trust by simply changing the name on the document of title for that particular asset.

The transfer of assets which were not properly titled in the name of the Living Trust is the primary purpose of the Pour-Over Will, which is just a standard Will that leaves i.e. pours-over, all your assets into the Living Trust. If the Pour-Over Will is invoked because an asset was left outside of the Living Trust, then for that asset, the costs and time delays of the probate process will have to be incurred.

The goal, therefore, is to never use the Pour-Over Will. If all your assets are properly titled ie. transferred, into the name of your Living Trust, then the Pour-Over Will would not be used, and thus there would be no probate.

GENERALLY YOU SHOULD TRANSFER ALL OF YOUR ASSETS INTO YOUR LIVING TRUST. THE POUR-OVER WILL IS JUST A SAFETY-NET TO CATCH WHATEVER ASSETS YOU FORGOT TO TRANSFER INTO YOUR LIVING TRUST

Division of the Trust Upon the Death of the First Spouse

Upon the death of the first spouse, the assets which were in the Living Trust need to be distributed among two other trusts: 1) the Bypass Trust, which generally receives the decedent's share of the Living Trust assets, and 2) the Survivor's Trust, which generally receives the surviving spouse's share of the Living Trust assets. The Bypass Trust and Survivor's Trust are referred to as the "subtrusts" because they are a part of the original Living Trust i.e. the terms of these "subtrusts" are set forth in your original Living Trust so that the Bypass Trust and Survivor's Trust evolve out of your Living Trust document upon the death of the first spouse. The Bypass Trust and Survivor's Trust are not separately drafted documents.

The primary purpose of these "subtrusts" is to minimize the estate taxes by keeping the deceased spouse's share of the assets out of the surviving spouse's taxable gross estate, while at the same time allowing the surviving spouse to use those assets during his or her lifetime.

To obtain the estate tax savings, upon the death of the first spouse, it is imperative that the surviving spouse distribute the assets in the Living Trust among the subtrusts. These transfers occur similar to the original transfer of the assets into the Living Trust, except this time it is the Living Trust transferring the assets to one of the subtrusts.

TO OBTAIN THE ESTATE TAX BENEFITS OF A LIVING TRUST THE ASSETS IN THE LIVING TRUST MUST BE SUBDIVIDED INTO THE SUBTRUSTS (BYPASS AND SURVIVOR'S) UPON THE DEATH OF THE FIRST SPOUSE.

Distribution of the Trust Estate

Upon the death of the surviving spouse or single person, the successor trustees first job is to make an inventory of all the assets noting their description and value at the date of death.

For estates which are to be fully distributed upon the surviving spouse's or single person's death, the successor trustee then generally will propose a distribution plan pursuant to the terms of the Living Trust. It is a good idea to get in writing each of the beneficiaries approval of the proposed distribution plan prior to making any distributions. This will avoid the situation where the successor trustee distributes the assets among the beneficiaries, and then finds one or more beneficiaries complaining about how the assets were distributed.

Remember, distribution provisions often refer to percentages e.g. I hereby leave my estate equally to my children. If I have two children, then each child is to get 50% of the value of my estate. It is the trustee's job to determine what comprises that 50%. To illustrate, if there are only two assets: a house with equity of $500,000, and cash of $500,000, then to give one child the house and the other child the cash would be an equal distribution i.e. the successor trustee need not divide the house and the cash in half so that each child receives one-half of the house and one-half of the cash.

If you desire for certain assets to go to certain beneficiaries, then you simply need to describe those assets in detail and provide the name of the intended beneficiary on our Questionnaire. In this event, prior to making the distribution of the estate by percentages, the trustee will distribute the specific assets you have described to the named beneficiaries.

For estates which are to be administered (e.g. where the beneficiaries have not attained the age set for distribution in your Living Trust), the successor trustee needs to notify each of the financial institutions to have the successor trustee's name put on the accounts signature cards. The successor trustee then continues to manage the assets in your Living Trust for the benefit of your beneficiaries making periodic distributions pursuant to the terms of your Living Trust until such time that your Living Trust requires complete distribution.

UPON DEATH OF THE SURVIVING SPOUSE OR A SINGLE PERSON, YOUR SUCCESSOR TRUSTEE WILL EITHER DISTRIBUTE ALL OF YOUR TRUST ASSETS OR RETAIN AND MANAGE THE TRUST ASSETS FOR YOUR BENEFICIARIES.

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