BY ATTY. WILLIAM HAYES

Estate planning is the process of making sure that you as an individual, or you as a family member, have a plan for how your assets are going to be managed and distributed in the event of death or disability.

This is the gift that you can give to your friends and/or family or your favorite charity or cause. Planning your estate makes sure that not only is there a plan of action in the event of disability or death, but that it’s done in the way that will have maximum benefit from a tax and management perspective.

When our hypothetical couple Devon and Cherish met with their estate planning lawyer, they discussed their vision for their family’s future and how they could best help each member of the family. They discussed any and all of their concerns, including what could be done to benefit their church, their favorite charity, and the family pets. Together they created an estate plan designed to achieve their goals by the use of a living trust.

In addition to the living trust, they also created a property power of attorney, a health care power of attorney, an agreement regarding community property and medical authorization forms. Once those documents were prepared and signed, Devon and Cherish assumed that there was nothing further to do. Were they right?

Cherish and Devon thought that was all they had to do to complete their estate plan. But, when Devon became disabled and later died, Cherish found out how wrong they were.

A trust does not control your assets unless you actually change the ownership title on the assets. This is known as “funding the trust.”

When Devon passed away, it was discovered that the trust was still unfunded. This meant some assets were held in joint tenancy and passed to the surviving joint tenant, Cherish, while other assets passed by beneficiary designation to a named person.

Still other assets may have been separate property, and they became embroiled in a dispute between Cherish and Devon’s children from a prior marriage. Devon had still more assets in his own name. Those assets unfortunately had to go through the very public, costly and long-term court process known as probate.

Funding is the process of transferring title of assets into your trust. Cherish learned that planning is not enough — funding is also critical to an estate plan. An unfunded trust is the equivalent of a treasure chest without any gold in it.

Ownership of most assets should be transferred into your trust. Possible exceptions might be:

• Retirement accounts where the beneficiary is already named, such as IRAs, 401(k)s, 403(b)s, etc. In some circumstances you may want to change the beneficiary designation of these accounts to your trust. You must take these designated accounts into consideration when determining how your overall estate is managed and later distributed.

• Life insurance. However, sometimes it is advisable to put this in a special irrevocable trust in order to reduce estate taxes.

• Custodial accounts, such as UTMA and UGMA accounts or accounts which are otherwise payable on death.

• Checking account. Sometimes people want to leave a small amount in a checking account for day-to-day transactions, especially if they want to protect their privacy and not disclose the existence of the trust.

• Motor vehicles. Sometimes it may be better to leave these outside of the trust.

Many mortgage lenders require you to remove your home from your trust before refinancing. If this becomes necessary, your estate planning attorney can prepare a deed from your trust to you as an individual. If you remove the home from the trust, after the loan closes remember that you must put it back into the trust immediately.

If you remember nothing else from this article, please remember that it is essential that your primary assets be titled in the name of your trust or you may find yourself with more problems than benefits from your trust. The living trust is a fantastic device for estate planning but only when it is used properly.

I have reviewed many trusts where the clients thought that their estate planning was complete and they were often surprised to find that their assets might still be subject to probate. This is particularly so with older trusts prepared before certain changes in the law. Make sure that yours gets the job done.

William K. Hayes is a member of the American Academy of Estate Planning Attorneys. To contact Hayes, call (626) 403-2292. You can visit the Hayes Law Firm website at LosAngelesTrustLaw.com.