Everything You Need to Know About Wills, Trusts, and Estate Plans
At Cutler | Riley Law, our main practice area is estate planning. For most people, an estate plan is a foreign concept that they don’t know much about. For this reason, we have written this article to help teach anyone about the basics of an estate plan.
What is an Estate Plan?
An estate plan is your plan in the event of your death or mental incapacity. A complete estate plan usually consists of the following four documents:
1. Revocable Living Trust Agreement
2. Last Will and Testament
3. Power of Attorney
4. Utah Advanced Health Care Directive
Revocable Living Trust Agreement
Your Revocable Living Trust Agreement contains your plan for what happens upon your death. In this way, your Trust is similar to a Will. One key difference between a Trust and a Will is that a Trust is used and carried out during your lifetime. This is why a Trust is sometimes called a “living trust.”
During your lifetime you hold three positions within your Trust. You are:
1. The Trust-Maker (also known as the Trustor or Grantor);
2. The Initial Trustee; and
3. The Initial Beneficiary.
As the Trust-Maker, you write the rules of your Trust. This means that you can make changes to your Trust at any time during your lifetime. As the Initial Trustee, you have the legal authority to access and control property owned in the name of your Trust. As the Initial Beneficiary, you may use trust property however you’d like.
In your Trust Agreement, you name one or more people to replace you as the trustee when you die. A person who replaces you as trustee is often referred to as a successor or replacement trustee. Each replacement trustee’s responsibility is to carry out your wishes as you have written them in your Trust. These wishes include instructions to: (a) gather all your property into the Trust, (b) pay any outstanding debts and expenses, and (c) divide and distribute your property to the beneficiaries you named in your Trust
How to Put Property into Your Trust
Real Estate
If you own real estate, like your home, then you must transfer ownership of all your real estate into your Trust in order to avoid probate court. This applies even if you still have a mortgage on your real property. The rule of law in Utah is that if any real estate is titled in your name upon your death, then that real estate must go through Utah probate court.
To transfer your real estate to your Trust, you need to sign and record a deed that names your Trust as the title owner. Cutler | Riley can assist you with transferring all your real estate to your Trust. If own real estate that is held in a LLC or other business entity, then please see below regarding how to put a business entity into the Trust.
If you buy real estate in the future, you can either work with us again, or simply ask that the closing documents be prepared so that the deed names your Trust as the owner.
Financial Accounts
It is recommended that you designate your Trust as the death beneficiary of all your financial accounts (like your investment accounts, retirement accounts, checking and savings accounts, life insurance policies, etc.). Using a death beneficiary designation is a non-probate transfer. This means your designated beneficiaries will not have to go to Utah probate court to receive what you have left them in the account.
You can accomplish this by obtaining a beneficiary designation form from the financial institution where your account resides. The form may be found online, or you may have to ask for it. Although each financial institution will have created its own beneficiary-designation form, to fill out a form you generally just need to know that name of the Trust, the date it was signed, and who the trustee is (you). If the form requires a tax ID number, then you should use your social security number.
Tax-Deferred Investments
Regarding Tax-Deferred Investments, such as 401k or IRA accounts, you may want to name a different beneficiary than your Trust for tax purposes. Before submitting any change of beneficiary forms, you should contact your plan administrator or custodian to determine whether a lump sum distribution is required for distributions to a trust. If so, it may be better for income tax purposes to name one or more persons as the beneficiaries, rather than your Trust.
With that said, if your Trust leaves anything to a beneficiary to be held in trust (because the beneficiary is a minor or is disabled, for example), then the benefits of the Trust may outweigh any potential tax consequences and it could be preferable to name the Trust as the beneficiary of your Tax-Deferred Investments.
Vehicles
Most states allow for the transfer of some vehicles upon death without having to involve probate court. “Vehicles” would include automobiles, recreational vehicles, boats, trailers, etc. In Utah, you may transfer up to 4 vehicles upon death without having to involve probate court.
If some or all your vehicles would not avoid probate court, then you may want to transfer ownership of some your vehicles to your Trust in order to avoid probate court.
In Utah this is done by bringing your current title to the Department of Motor Vehicles (“DMV”) and having a new title issued in the name of your Revocable Trust. If you contact the DMV, they should be able to explain how to make this transfer. Additionally, if you make this transfer, you should immediately inform your vehicle insurance carrier of the change.
If all of this seems like more trouble than it’s worth, then you could take the risk of not transferring any of your vehicles to your Trust now and simply put your Trust on title for any future vehicles you purchase since it is often easier to name the Trust as the owner of a vehicle at the time of purchase.
Business Interests
If you own all or part of any non-publicly traded business, like an LLC, Partnership, S-Corp, C-Corp, etc. then it is recommended that you assign your ownership interest to your Trust by signing an “Assignment of All Property to Trust” document included in your estate plan. You may even list each business you own on the list provided to you in that document.
However, each business has its own rules. In some cases, it may be necessary to obtain the approval of the other owners of the business before you are permitted to assign your interest to your Trust. So, check the business’s operating agreement or ask the other owners before making an assignment.
Personal Possessions
Your personal property (jewelry, furniture, tools, paintings, heirlooms, etc.) will be divided up among your beneficiaries according to the percentages you have stated in your Trust Agreement. But if you want to give a specific item to a specific person, you can make explain this in the “Personal Property Memorandum”. Utah allows you to sign and date this document at any time without needing a witness or notary.
Guns
Guns should generally not be transferred to your Trust. There are two reasons why. First, certain types of guns known as "NFA guns" are highly regulated. Some examples of “NFA guns” are machine guns, suppressors and silencers, short barrel rifles and shotguns, and destructive devices. Second, it is possible that one or more of your trust beneficiaries may be legally prohibited from owning the guns in your trust.
If you own a gun you should speak with us about establishing a “gun trust” (unless you are certain that you don’t own an “NFA gun” and that the gun will not be distributed to someone prohibited by law from owning your gun).
Other Property
If you own any other type of property (mineral rights, water rights, promissory notes, timeshares, country club memberships, etc.), you should list those assets on the document titled “Assignment of All Property to Trust” and consult with us and the organization that manages the title to your asset (like a timeshare company) to verify how to assign that property to your Trust.
Trust Certificate aka Certificate of Trust
A Trust Certificate is also included with your estate plan documents. A Trust Certificate summarizes the key points of your Trust while keeping the details private. You will most likely use the Trust Certificate if you have to refinance or are otherwise asked to provide proof of your Trust to a bank or other financial institution.
Last Will and Testament
Although your Trust is basically a substitute for your Will, most estate plans still contain a Will to accomplish two limited but important purposes.
First, your Will acts as a backup to your Trust by transferring any property to your Trust that you forgot to transfer before you died. Your Will does this by stating something like “everything I own when I die should be transferred to my Trust”. This would help in a scenario where you have a vehicle still titled in your name, for example.
Second, if you pass away with children under the age of 18, or who are disabled adults, your Will names their legal guardian in case a court needs to appoint one. This allows you to decide who will take care of your children (instead of a judge).
Power of Attorney
Your Power of Attorney allows you to appoint someone you trust to take over for your financial decisions in the event you become legally incompetent. So, for example, if you fell into coma, suffered brain damage, or developed dementia, the person you appointed could use the Power of Attorney to access your bank account and pay your bills, files your taxes, manage your investments, or do anything else that needs to be done. If you don’t have a Power of Attorney, someone you know would have to go through the hassle of obtaining a Utah court order (and that person may not end up being the person you would have chosen).
Utah Advance Health Care Directive
Like your Power of Attorney, your Utah Advance Health Care Directive (or sometimes called an “Advance Directive,” “Health Care Power of Attorney,” or something similar) also protects you in situations where you become mentally incapacitated. But instead of financial matters, your Directive appoints a person to handle your health care decisions, such as what medications you will take, what doctors you will see, what procedures you will undertake, etc.
Your Directive also includes what is called your “Living Will”. This is your wishes regarding what happens if you are in a coma and on life support. So, for example, it might explain the circumstances in which you would like to be taken off of life support and the types of life support you would like to receive. Without a Directive, the court must appoint someone to make decisions regarding your health care and life support determinations.
Burial/Cremation Wishes
Utah allows you to write down your burial or cremation wishes in a document outside of your Will. As such, if you like, you can write a simple letter to your loved ones that spells out the details of your final arrangements.
Creating Your Estate Plan
At Cutler | Riley, we can help you create your estate plan in three easy steps. First, we schedule a phone call or in person meeting to discuss your needs and answer your questions. As part of this meeting, we gather information needed to draft your documents. The second step is where we draft your documents and email them to you to review and get back to us with questions and changes need. The final step is to meet at our office to sign your documents, which will be printed and placed into an estate planning binder for you.