INTRO: Consumer articles about estate planning don’t often venture into discussions about privacy and disclosure law as it relates to Living Trusts. So, I thought it would be interesting to outline some of the key privacy and disclosure rules in California. The primary questions are: a) when are certain third parties entitled to notice and a copy of your Living Trust?; and b) what third parties are so entitled? As you’ll see, for married couples who have a trust, when the notice requirement arises is a function of how the trust is structured.
One of the many benefits of a revocable Living Trust is substantial privacy. This is in sharp contrast to the court-supervised probate process that’s virtually guaranteed upon your death if you just have a Will, in which many private details about your assets, creditors and close family members are open to the public.
In general, when you establish a Living Trust, you dictate: who will play key roles on behalf of you and your loved ones; when those roles will commence; how your plan will be implemented; and to whom and when you disclose important estate planning information and give copies of key estate planning documents.
Some people incorrectly believe that you are required to have your Living Trust recorded or register it with some governmental agency. Fortunately, this is not true since your privacy would obviously be compromised if you needed to make your trust a public record. For the most part, you don’t need to disclose the terms of your Living Trust nor give a copy of it to anyone unless you choose to do so.
Of course, you may voluntarily communicate with loved ones about your Living Trust and you may give third parties a copy of the document. However, since you may decide to make significant amendments to your Living Trust in the future, you should exercise caution about when and to whom you elect to provide such crucial, private details.
This broad privacy associated with Living Trusts is, however, trumped to a certain extent by a California Probate Code statute that requires that notification about a trust be given by the trustee within 60 days after part or all of the trust becomes irrevocable. Recipients entitled to the notice include: a) those mentioned in the trust and b) “heirs” (i.e. closest of kin) of the person(s) who established the trust.
The notification must: i) state certain basic data about the trust and who is serving as the trustee (i.e. manager); ii) enclose a full copy of the trust or inform recipients that they may request a copy; and iii) state in certain minimum font size and in bold that any recipient who wishes to contest the trust must do so within 120 days of the notification or 60 days after the recipient receives a full and complete copy of the trust, whichever is later.
A common client question is: “When must I [or we] give a copy of our trust to our children [and/or other loved ones]?” Applying the above-referenced statute, if you are unmarried, the answer is when you die – because that’s when your revocable Living Trust becomes irrevocable. If you are married and have a trust, the answer depends on how your trust is structured.
Those who are married and have a “streamlined” trust – under which all assets owned by both spouses are kept in the same trust pot after the first spouse dies (i.e. the surviving spouse owns and controls all the assets), the trust remains revocable during the surviving spouse’s life. As such, the above-referenced notification requirement is not triggered until the surviving spouse dies.
Alternatively, those who are married and have an “A-B” trust (or other such trust under which “his” and “her” assets are allocated into two or more separate pots after the first spouse dies), the “B” trust – that sub-trust containing the deceased spouse’s assets – becomes irrevocable upon the death of the first spouse. So, with an A-B trust, the notification requirement is triggered at that time and may not be withheld or delayed until the surviving spouse dies.
As I’ve written about previously, a major Federal Estate Tax law change occurred in early 2013. One of the consequences of the new legislation is that most married couples no longer need an “A-B” Living Trusts for Estate Tax purposes. So, for this and other potentially compelling reasons, married couples would be wise to review their trust with an estate planning attorney to evaluate the pros and cons of restructuring it to the simpler, “one pot” trust. A relevant consequence of converting to a simpler trust is that no notification requirement is triggered until after the surviving spouse dies.
This article is intended to provide information of a general nature, and should not be relied upon as legal, tax, financial and/or business advice. Readers should obtain and rely upon specific advice only from their own qualified professional advisors. This communication is not intended or written to be used, for the purpose of: i) avoiding penalties under the Internal Revenue Code; or ii) promoting, marketing, or recommending to another party any matters addressed herein.
ESTATE PLANNING & TRUST ADMINISTRATION: Need to find an experienced estate & trust administrator in Walnut Creek CA? Contact Robert Silverman at 925-705-4474 for legal advice on a Revocable Living Trust, “Summary” Estate Administration, Trust/Estate Beneficiary Representation and Will & Trust Disputes.