The easiest way to handle the issue of incapacity

Dear Len & Rosie,

Last year my wife and I bought a revocable living trust. We own a modest home, some stocks and bonds, three bank Certificates of Deposit, and two insurance policies that are payable to the trust.

I am the only trustee, because my wife, Gloria, was never all that good with handling money. When I die, my eldest son, Josh, will be the successor trustee. He has promised to take care of his mother after I am gone.

I want to know how it is supposed to work. How does Josh become trustee when I am gone? What if I lose my mind and wind up in a Nursing Home? How do my stock broker and the banks know that Josh is supposed to be the trustee. They might think he was some punk coming in off the street to rip us off.

Reuben

Dear Reuben,

Most of the time when clients who already have a trust come into our office with questions such as yours, we learn that they purchased their trust from a trust mill that didn’t even bother to explain how their trust is supposed to work.

According to your letter, you are the sole trustee and your son is the successor trustee. He will become the trustee upon your death, resignation or incapacity as directed by the language of your trust. Because we do not have a copy of your trust, I cannot tell you exactly how this is supposed to happen. This, however, is the way most revocable living trusts work:

If you die or resign, Josh would become trustee automatically. All he would need to prove he was trustee is your death certificate or your letter of resignation as trustee. There will be other documents needed to transfer specific assets such as your home and accounts to Josh as trustee.

But if you become incapacitated, it can get sticky. Who decides whether or not the trustee has become incapacitated? Many trusts are written with provisions that one or two doctors can determine that the trustee is no longer able to handle the job. Other trusts may require the successor trustee to petition the Court for a determination of incapacity. Some trusts have no provision for the removal of a trustee, which means the successor trustee or the beneficiaries may have to ask the court to intervene. In any event, your son will have to talk to doctors and lawyers if you become incapacitated.

The easiest way to handle the issue of incapacity is to avoid it. Ideally, you should resign as trustee before you become incapacitated. Or, you and your wife could amend your trust to appoint your son as co-trustee and give him the authority to act alone. This way, if anything happens to you, he already has the ability to take care of things for you and Gloria. Of course, you must really trust your son to give him that kind of power over your property while you are still alive.

What you should do is contact the trust mill that wrote the trust for you and request an explanation. If they are not much help, and they probably won’t be, then you should consult with a local elder law attorney to review your trust.

Len & Rosie

The absence of an estate plan adds to a family’s trauma when they loose a loved one

Dear Len & Rosie,

Two very dear friends of ours have lived together, unmarried, for over twenty years. He owns the house. Both were married before and have grown children and grandchildren. Each of them are financially well-off, and they have bank accounts, investments and other assets.

When we mentioned that we had a trust, they said they did not have a trust, or even wills, and they want nothing to do with them. I would appreciate any information you could provide about community property and the possible consequences of their decision not to plan for the eventual disposition of their assets.

Alfred

Dear Alfred,

Your friends are being a bit shortsighted. They are setting up their children and grandchildren for the very unpleasant experience of hiring lawyers to fight one another or to simply sort out the mess. The absence of an estate plan adds to a family’s trauma when they loose a loved one. They are not saving money by leaving things to chance.

We assume that your friends want their property to wind up in the hands of their respective children after both of them pass away. Having no estate plan at all is not the best way to make that happen. When one of your friends dies, any assets they own together in joint tenancy will go to the surviving partner. When the surviving partner dies, those assets will to his or her children by intestate succession, leaving other family with nothing.

On the other hand, the surviving partner will have no rights to the assets of the deceased partner, other than those held in joint tenancy. There is no community property  between cohabitating couples, unless they are married or have registered as domestic partners with the California Secretary of State. Any assets owned by the deceased partner, titled solely in his or her own name, belong to the dead partner’s probate estate and will pass to the dead partner’s children. In your friends’ case, if he dies first, she will be left with no interest in their home and may very well be forced to move out. Where is she going to live?

Your friends can avoid these problems by creating wills or a trust that clearly spells out how they each want to dispose of their jointly acquired assets, as well as their separate assets. After one partner dies, a portion of the dead partner’s assets can be held in trust for the benefit of the survivor. For instance, he may want to preserve her right to live in her home of twenty years. He could do so simply by leaving her a life estate in the home in his will, or by creating a trust that holds the home for her benefit. When she dies, the home could then pass to his children, instead of going to her children.

Unless they truly do not care what happens to their property, each other, and their families, your friends really need to pull their heads out of the sand and create an estate plan to distribute their assets they way they want, instead of leaving it all to luck.

Len & Rosie