John and Jane Jackson (not their real names) had four adult sons. The Jacksons had no wills. They wanted to leave their house and most of their financial assets to son Jimmie, who lived with them. They filled in the blanks of a do-it-yourself living trust software package and signed the Trust Agreement.
They were killed by a drunk driver.
During two expensive, lengthy probate procedures, their house was ordered sold and Jamie was forced out. After payment of attorney’s statutory and extraordinary fees, executor’s statutory and extraordinary commissions and court charges, the net proceeds of the estate were divided equally between the four sons. John and Jane’s wishes were definitely not carried out.
What went wrong? First, the Jacksons hadn’t transferred any of their liquid assets or deeded their house into the name of the trustee of their trust. Since none of their assets was held in trust, the entire estates of John and Jane were subject to probate. Second, the Jacksons had failed to execute pourover wills, to direct distribution of non-trust assets to the trust. Absent such wills, the assets in the probate estate were ordered to be distributed in accordance with the laws of intestate succession, in equal shares to the Jackson’s four children.
Forming a living trust is only part of the estate planning process. The trust must be properly funded. Any asset not “in the trust” may be subject to probate. The Jacksons should have executed a Trust Transfer Deed, transferring title to their house to themselves as trustees of their trust. They should have similarly re-titled their non-tax-deferred financial accounts, and coordinated the beneficiary designations of IRA’s and 401K’s.
Think of a living trust as a box in which to put your assets. Anything “in the box” won’t be subject to probate and may even be insulated from estate tax liability. If the trust is never funded, all you’ve done is create an empty box.
No trust agreement funds itself. Funding should be discussed with the attorney who prepares the trust agreement, and should be accomplished promptly once the trust is formed.
Jerry Kessler practices law in Santa Clarita. You may call him at 661-255-1001.