Bequeathing assets involves more than naming beneficiaries. Creating a proper estate plan offers individuals and families the ability to protect their assets for loved ones after they’re gone. Unexpected claims could drain accounts and threaten properties that were intended to be passed on to beneficiaries. There are asset protection tools that help avoid these situations and minimize exposure to creditors.
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The use of revocable living trusts to avoid probate is common in North Carolina. However, one type of property that is rarely transferred to a living trust is automobiles, since doing so involves a trip to the local DMV office and paying to change the title. The title fee is $40, and a highway use tax of 3% of the value of the vehicle must also be paid. What the title agents often don't know, however, is that the use tax is capped at $40 for transfers to a living trust. See N.C.G.S. Section 105-187.6(b)(2). There is no use tax at all for transfers to a living trust in which the owner is the sole beneficiary, but this situation is not as common. N.C.G.S. Section 105-187.6(a)(11).
Here's link to the page on DMV's website that references transfers to a trust.
Given North Carolina's low threshold for requiring full probate - $20,000 for single decedents, and $30,000 for married decedents, it often makes sense to take the time and pay the $80 to transfer vehicles to your living trust. This is especially true if the vehicle is particularly valuable or you plan or keeping it a long time. It could save time, trouble and expense for your loved ones.
Many people come in to see me with the notion that all that they need and want is a "simple" estate plan. Generally that means no living trust, and a will with no trust provisions for surviving family members. I think the main motivator for this is lower cost, but probably also the desire to avoid taking the time and energy to comprehend the workings of a more complex plan.
Simple plans are less expensive and easier to understand, but at what cost? If you have children, grandchildren, or others that you care about and wish to see benefit from your estate, a simple plan offers absolutely no assurance that that will happen.
Here's a couple of brief examples:
These types of circumstances occur everyday and impact many, many families. Children and grandchildren are unintentionally disinherited, and in-laws and creditors end up with the family legacy.
How do you prevent these types of things from happening? Talk to your estate planning attorney about using a trust or trusts as part of your estate plan. It will cost a bit more, and take some more time to implement, but the savings and peace of mind can be priceless.
A Durable Power of Attorney (DPOA) is a part of virtually every estate plan. The DPOA allows the person who signed the document, the principal, to designate an agent, or attorney-in-fact, who will act in his or her stead. The idea is to try to avoid the time, trouble and expense involved in an incompetency and guardianship proceeding.
Some estate plans also include living trusts for probate avoidance, which also can be helpful in avoiding the need for guardianship, since the successor trustee can manage the assets in the trust in the event of the incapacity of the trust grantor.
However, what many people don't realize is that the agent under a power of attorney does not have power to control assets in a trust. It's the trustee that exercises that power. Thus, if mom's checking account is in the name of her trust, and she develops dementia, the DPOA will not be effective to allow the agent to sign checks on the account. That authority belongs to the successor trustee, a separate legal role.
For the successor trustee to gain authority, the original trustee (normally the grantor) must resign, or if that is not possible, the provisions in the trust for trustee succession must be followed. Commonly, the signed statements of two physicians attesting to the incapacity of the grantor are required. These statements, along with a copy of the trust, then become the written authority for the successor trustee to exercise authority regarding the trust.
North Carolina law requires that a DPOA be registered/recorded in the Register of Deeds office in the county in which the principal resides if it is used after the principal has become incapacitated. However, most financial institutions require registration even if the principal has full capacity. Only an original document can be registered. Once registration is completed, certified copies may be obtained from the Register of Deeds.
Click "Continue Reading" for a Comprehensive Living Trust Checklist to determine whether or not your trust needs to be upgraded. Thanks to attorney Thomas J. Bouman for the checklist, which I have modified for North Carolina purposes.
Continue Reading...Practically every day, I discuss with clients the pros and cons of revocable living trusts. In my opinion, the positives generally far outweigh the negatives, but living trusts don't make sense for everyone. There have been innumerable articles and blog postings about the advantages of using a living trust for estate planning, but I thought I'd approach the topic from a different angle - why might you not want to use a living trust:
If even one of these statements describes you, then maybe you aren't the right candidate for a living trust. ;-)
I recently blogged about my disagreement with the North Carolina State Employees Credit Union's policy on mortgages when the property was previously held in the owner's living trust. Somehow SECU became aware of my post, sent me a letter by email objecting to my statements, which, in the interest of fairness, I thought I should share. Click "Continue Reading" for the text of the letter.
By the way, I still find SECU's policy to be unfair to those members who have living trusts, but, of course, that's only my opinion.
Continue Reading...My standard advice for clients who are transferring real property to their revocable living trusts is to check with their title insurance company to make sure they will still be covered. For those insured by Chapel Hill's own Investors Title Insurance Company, all that is required is to notify Investors, who will then issue a simple amendment, at no charge, to show the trust as the insured. Hopefully other insurers will do the same.
Also, don't forget to check with your homeowners insurance policy to ensure continued coverage.
I have long known that the North Carolina State Employees Credit Union (SECU) refuses to refinance any residence owned by a revocable living trust. Their explanation is that they do not have the legal expertise to determine whether the trust affects the borrower's legal title and powers to the property. Other lenders solve this by having an attorney (usually the one who drafted the trust) certify that the trust will not adversely affect the loan transaction.
For my clients that chose to work with SECU, we would simply deed the house out of the trust to the client, and then after the closing, deed it back to the trust. Some trouble and expense, but nothing major.
Last week, a client of mine had been told by SECU that she could refinance without using an attorney or updating her title insurance. However, when they found that the home had been transferred in and out of the trust, they required that she use an attorney for the closing and obtain updated title insurance. This will end up costing her another $800 or so.
I spoke to Hill Scott, with SECU in Raleigh, on behalf of my client, but my pleas fell on deaf ears. I asked to speak to an attorney with SECU (someone who can understand what a revocable living trust is), but was told by Mr. Scott that SECU has no attorneys on staff!
Bottom line - If you have titled your home in your living trust, and insist on working with SECU when refinancing your mortgage, be aware that the costs of the transaction may increase significantly due to SECU's inane policies.
A colleague of mine, Dennis Toman of Greensboro, contacted the North Carolina Deparment of Insurance about the issue of insuring homes owned by living trusts. Bernard Cox, assistant to the Deputy Commissioner, stated that:
We tend to agree with your insurance company that the manual eligibility rule for HO policies would allow this arrangement [keeping the homeowners policy in the name of the individual owner and naming the trust as an addtional insured]. The individual maintains an insurable interest as long as he/she remains primary resident and has life time rights. I am stating the rule would allow it but individual companies do have different underwriting requirements, please understand.
This is good news, but those who own real estate in their living trusts should always check with their insurer. I am informed that GEICO will allow the above-referenced method.
Revocable living trusts are a common estate planning tool for avoiding probate. It is not uncommon for a home to be transferred to the trust for that purpose, as well as occasionally motor vehicles. I normally advise my clients to check with their insurance company to make sure their coverage will not be affected.
However, yesterday I had a conversation with a local independent insurance agent, who said that most of the insurance companies he works with will not insure homes and cars owned by revocable living trusts under standard personal policies. Instead, business policies must be used, which can be more expensive.
For homes owned by living trusts, the insurance companies require a business fire policy, and then for complete coverage a renter's policy must be obtained.
If this causes the insurance costs to increase significantly, it may outweigh any benefit of avoiding probate.
Bottom line - check with your insurance agent or company before transferring a home or a car to your trust. If the new ownership will up your insurance costs, discuss the matter with your attorney to make sure the transfers are still worthwhile from a financial standpoint. For real estate, you should also check with your title insurance company. Finally, make sure your umbrella liability insurance covers your trust assets also.
This is the Press Release issued by the FDIC (emphasis added):
The FDIC's Board of Directors today adopted changes to simplify the rules for determining the coverage available on revocable trust accounts – commonly called payable-on-death accounts or living trust accounts. The interim rules, which are effective immediately, eliminate the concept of qualifying beneficiaries, so that coverage is based on the naming of virtually any beneficiary.
Under the revised rules, coverage for the vast majority of account owners generally is based on the number of beneficiaries named in a depositor's revocable trust account(s). The insurance limit will still be based on $100,000 per named beneficiary. For revocable trust account owners with more than $500,000 in such accounts naming more than five beneficiaries, the coverage is the greater of either $500,000 or the sum of all the named beneficiaries' proportional interest in the trusts, limited to $100,000 per different beneficiary.
"We believe the interim rule will not only result in faster deposit insurance determinations after bank closings, but will help improve public confidence in the banking system," said FDIC Chairman Sheila C. Bair. "We strongly encourage owners of revocable trust accounts to make certain that the names of their beneficiaries are included in the bank's records."
The new rules are effective as of today and apply to all existing and future revocable trust accounts at FDIC-insured institutions.
Comments on the interim rule are due no later than 60 days after the interim rule is published in the Federal Register. Publication is expected to occur within a week.
When doing estate planning, one needs to consider to whom to leave one's property, which is usually not much of a problem. Next, one must decide who will be in charge of the administration the Will - the executor . This choice is sometimes more difficult, but even without suitable family or friends, a professional or corporate fiduciary can be named. Once these decisions are made, the very simplest of wills can be created.
However, a simple will does not address three very important estate planning considerations dealing with protecting assets and family members:
As you can see, it pays to look beyond the basics when developing an estate plan.
They other day a client came in and said that he had heard that probate in North Carolina was a "breeze." Wrong! While probate here is less expensive than in some states, I still counsel my clients to avoid it in most cases. Here are 10 Reasons to Avoid Probate in North Carolina:
My office handles dozens of probate matters every year, so we have first hand experience with all types of estates. I recommend avoiding probate to save time, money and aggravation. Generally, a Living Trust is the best way to avoid probate, but there are other methods as well. An experienced estate planning attorney to help you make the right decision about handling you estate.
The Problem: Continuing care retirement communities have been growing in popularity with seniors for years. Such communities usually require a "buy-in" upon admittance and many provide for a refund of a portion of the fee upon death. The contracts (often called Residence and Care Agreements or the like) generally provide that the refund will be paid to the estate of the resident. The trouble with this is that the refund triggers probate even if there are no other probate assets. Since the refunds are often hundreds of thousands of dollars, unnecessary probate fees of $1,000 or more often result.
The Solution: For those residents with living trusts, this can be avoided by a simple amendment to the Residence and Care Agreement that provides that the refund will be paid to the resident's living trust rather than his or her estate. The amendment (or addendum, as some facilities call it) must be signed by the resident and the management of the facility.
For those residents without living trusts, the cost of having a trust prepared will generally be at least equaled by the probate cost savings alone, not to mention time and trouble avoided by escaping probate.
Living Trusts are a common estate planning technique for avoiding probate and facilitating management of assets in the event of incapacity. If someone has a living trust, it usually makes sense to transfer transfer his or her real property to the trust as part of the trust funding process. This is particularly important for out-of-state real estate, so that no probate will be required in that jurisdiction.
The transfer is done by way of a new deed, which will need to be prepared by an attorney licensed in the state in which the property is located. The cost is usually about $200 per deed.
However, here are some things to be aware of when transferring your real estate to your living trust:
1) Mortgage - Virtually every mortgage has a due-on-sale clause, which means the mortgage company can call the loan due if you transfer your property. However, the federal Garn-St. German Act (Title 12 of the US Code 1701-j-3; aka the Federal Depository Regulations Institutions Act of 1982), provides that there is no due-on-sale violation when a property is placed into a legitimate inter-vivos trust by a borrower who is a natural person, so long as the borrower is, and remains, a beneficiary of the trust; and the trust is revocable and does not confer occupancy rights to another. This covers most living trusts. Of course, you are still liable for the mortgage after the property is transferred to the trust.
2) Title Insurance - When you buy real estate, you generally obtain title insurance to cover you should there later be a question about your legal ownership of the property. As part of the process of transferring your real estate to your trust, you should contact the title insurance company to ensure that your coverage will continue under the trust. Make sure you have it in writing.
3) Homeowner/Hazard Insurance - Likewise, contact your insurance company or agent to make sure your property will still be insured. Again, if it the wording is not in the policy itself, get it in writing.
4) Rental Property - If you have rental property, you should not put it directly in the trust. I always recommend owning rental real estate in a Limited Liability Company to protect your other assets should your tenant sue you. Your living trust can then own the LLC.
5) Married Couples - When married couples own property together in NC, it is generally Tenancy by the Entirety, which means no interest in the property can be sold without both spouses agreeing, the property is protected from creditors of either spouse. This is an important benefit, which is lost if the property is placed in trust. An estate planning attorney can counsel you as the best way to handle it based on your particular set of circumstances.
6) Time-Shares - Time-Shares are generally considered real property and thus will trigger probate in the jurisdiction in which they are located. Thus, it's a good idea to put them in a living trust also.
7) Foreign Property - Countries with legal systems based on English law, such as Canada, Australia, New Zealand, Bahamas, Bermuda,, British Virgin Islands, Cayman Islands, South Africa, etc., generally recognize trusts, so you may be able to change ownership to either your U.S. trust or a trust prepared pursuant to local law. Civil law countries (most other countries in the world) may not recognize trusts.
Today I came across a question and answer column on the Raleigh News and Observer website called "Ask Holly." The answers are written by a Holly Nicholson, a Raleigh Certified Financial Planner who also has a law degree. The person posing the question about avoiding probate and finding a good lawyer erroneously referred to revocable trusts as "reversible" trusts. Ms. Nicholson counseled her to begin the attorney selection process by asking the lawyer about reversible trusts, and then consider using any lawyer who nicely explains that the term is actually "revocable" trusts.
I must respectfully disagree with Ms. Nicholson's recommendation. I believe that it is best to educate oneself about estate planning terms and techniques before attempting to choose a qualifed lawyer. Purposely acting ignorant serves no useful purpose, is deceptive, and is not a good way to start off what should be a relationship of mutual trust. Any attorney worth hiring will be polite and patient regardless of how much or how little a prospective client knows about estate planning.
This article on the website of the National Consumer Law Center provides a glossary of living trust related terms, description of common scams, educational resources, and more.
Living trusts can be great estate planning tools for some, but only if they are sophisticated, personalized documents prepared by a qualified estate planning attorney. I use them often in my practice, but it's not uncommon for me to recommend against them for certain clients for whom living trusts are not a good fit.
The February 9, 2007 issue of USA Today contained an article on Living Trusts. I found the article to provide a good overview of living trusts and their advantages and disadvantages. However, a few things deserve comment:
Many estate planning attorneys charge a flat fee for preparing an estate plan, and the author neglected to mention the other documents that should be included in a complete estate plan - Durble General Power of Attorney, Health Care Power of Attorney, Living Will, and HIPAA Authorization. In addition, most qualified estate planning attorneys probably charge significantly more than $150 an hour. While all of my estate plans are done on a flat fee basis, my own hourly rate is $295.
What the article fails to say is that very rarely are these "scam artists" attorneys. Usually they are fly-by-night companies that sell generic fill-in-the blank forms, or annuity salespeople. See my post Living Trust Scammers Booted out of NC.
My view is that no one should decide for themselves whether a will or living trust is most appropriate, and should not use TOD accounts without being fully informed about their advantages and disadvantages. A qualified estate planning attorney should be consulted in both cases.
Good news in this recent article in the News and Observer:
Andrea Weigl, Staff Writer :
A Wake Superior Court judge has ordered two California companies to stop selling estate planning products to North Carolina consumers while a lawsuit that accuses the companies of bilking seniors out of hundreds of thousands of dollars proceeds.
Earlier this month, Judge Michael R. Morgan ordered American Family Prepaid Legal Corp. and Heritage Marketing and Insurance Services to stop selling or offering their products in North Carolina. In May, North Carolina Attorney General Roy Cooper sued the two companies, alleging that they worked together to defraud elderly consumers.
American Family Prepaid Legal would solicit customers to buy legal services plans to create living trusts to avoid paying probate costs, the lawsuit says. The company billed its living trust, which cost $1,995, as a bargain when compared with probate costs, the lawsuit says. But for someone to pay almost $2,000 in probate costs, his estate would have to be worth more than $500,000, the lawsuit says. Once the consumer signed up for the living trust, a Heritage sales agent visited the home, ostensibly to have the consumer sign paperwork but really to try to sell deferred annuities.
"These companies targeted seniors, using tricky sales practices to pressure them into spending their savings on living trusts and annuities they may not need," Cooper said Wednesday in a statement.
Consumers who think they or their loved ones have been involved in this or a similar scheme are encouraged to call the N.C. Attorney General's Consumer Protection Division at (877) 566-7226.
Some North Carolina attorneys are also guilty of overstating the value of living trusts, implying that probate is much more costly than it actually is, and that estate taxes savings can be achieved only by the use of living trusts (as opposed to wills). Of course, some attorneys go to the other extreme and don't believe it using living trusts in any situation.
I view myself as "neutral," only recommending living trusts when I think there will truly be a cost savings or other benefit. I have had many new clients come into the office requesting living trusts based on advice of friends or articles they had read, when a will is a simpler, cheaper method of transferring their property.
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