From the desk of San Diego estate lawyer, Kristina Hess
San Diegans, you may have heard that the only foolproof way to avoid your loved ones having to pass through the time consuming (think 1.5 years if no contests and everything runs smoothly), public, and expensive San Diego Probate Court process is to set up a Living Trust.
This is correct, but ONLY if the Living Trust is “fully funded.” A fully funded living trust means that all of the assets that can be owned (e.g. real estate including rental properties, bank accounts, stocks, bonds, brokerage accounts) are “owned” by the Trust. The assets do not become “owned” by the Trust automatically!
Just because you list your assets on an attached “Schedule A” does not mean the assets are “owned” by the Trust. You have to actually sign a deed transferring your real estate into your living trust. You must sign new signature cards at the bank and re-title investment accounts in the name of your Trust.
And so what happens?
You set up a trust, perhaps your lawyer had you sign a deed putting your real estate into the Trust.
But then, a few years later, interest rates drop and so perhaps you refinance your home. The mortgage lender requires you to take your home out of the trust in order to finance the loan on the property.
Bam! You sign a deed transferring the home out of your trust and then you forget to put it back into the trust when the refinance is done.
So, what happens?
Maybe someone dies suddenly a few years later. All of a sudden you have an unfunded trust.
The Living Trust that you set up to avoid probate court, must now go through a probate petition to put the house in the trust.
Granted this probate petition is less expensive and time consuming than a full blown Probate where there was no living trust, but it is still going to cause an additional expense, court involvement, time, that could have been avoided.
Alternatively, perhaps you bought a rental property but did not list the rental property on your Schedule A and also did not put the rental property into the name of your Living Trust.
If you die, this house will have to go through the full probate process costing your heirs thousands and thousands of dollars.
We have seen this quite frequently.
So, yes, set up your living trust, but make sure your plan will work when the time comes by making sure your trust is fully funded and those assets are properly owned throughout time.
Make sure your plan will work when your loved one need it and your Trust doesn’t FAIL!
To your success,
Kristina Hess
San Diego Trust Attorney and probate attorney