This week’s question:

My husband and I are thinking about drawing up a living trust and related documents but are concerned about the need for a separate tax identification number for the trust. We would both be trustees of our family trust. Can you shed some light on this topic?

/s/Jenny J.
Almaden Valley

Dear Jenny—

You have raised a very good question, Jenny. You must be concerned about the possibility of your trust needing separate annual fiduciary income tax returns, state and federal, with accompanying cost and nuisance factors.

Let us assume for the sake of discussion that you do in fact have a “living trust”. This is also called a “revocable” trust. (A few months ago an article appeared in this column pointing out the differences between revocable and irrevocable trusts which can be seen on my website.) The revocable trust or living trust is also known as a “grantor” trust.

You can think of the “grantor” of the trust as the “creator” of the trust, you and your husband. Other terms often used are the “settlor” of the trust or “trustor”. Sorry about all of this redundancy and possible confusion, that’s just the way it is.

Internal Revenue Code rules and Treasury Regulations generally provide that so long as the trust is a “grantor trust” and all income is distributed to or for the benfit of the grantor(s), no federal tax i.d. number (TIN) is required while the grantor, or at least one of the two grantors, serves as Trustee or Co-Trustee. If that is the case, the trust uses the grantor’s personal social social security number of either grantor as its TIN.

Thus, under the Treasury Regulations, if you and your husband have a typical living trust, you would continue to file your usual state and federal tax returns each year and report all income under your own social security numbers. In a sense, the trust is treated as one person for income tax reporting purposes.

As long as you and your husband are both living and filing your normal tax returns, then usually there would be no requirement to file separate state and federal fiduciary tax returns for the trust.

You will want to contact your own attorney, however, if part or all of the trust becomes irrevocable, through death or other means, or if someone else becomes trustee of your trust. Other exceptions apply too, for example, if the trust conducts a business as a sole proprietor. In those situations, a visit with your own attorney or CPA is essential.

Thank you for emailing in your question, Jenny. I think our Almaden Times readers will appreciate it.

/s/Donald J. DeVries
Almaden Valley

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This week’s question:

My wife and I are thinking about a new living trust, wills, and other documents, including a durable power of attorney for asset management and advance health care directive. It sounds like the volume of paperwork is incredible! My question is a simple one: where do we store our documents once they are all signed—at the attorney’s office?

/s/Larry L.

Almaden Valley

Dear Larry–

You have emailed in a very common question, Larry. At the conclusion of most projects dealing with living trusts, wills, and related documents, clients want to know about where to store the papers.

I think it is safe to say that practices vary a little bit from office to office. Our practice has been for many years that we do not like to retain original documents. We typically provide the originals and two copies to the clients and we retain a copy of the signed documents for our file.

With the advent of good photocopiers many years ago, there is really no need for us as attorneys to retain the originals, and under the California Evidence Code, a copy can usually be as good as the original.

We usually recommend that the clients place the original documents in a very safe place, like a safety deposit at the bank and that they retain at least one of the sets of copies at home for ready-reference.

A question that often arises is whether to give a copy to the family, such as adult children or the Successor Trustee of the Trust and/or Executor of the Will. We have found that this is a personal decision that varies from family to family. Some clients like to keep all documents to themselves, so to speak, and others like to provide copies to key individuals.

At the very least, key individuals, like the Successor Trustee of the Trust and the Executor of the Will need to know where to find the documents in case the need arises, like in a certain area of the home.

Sometimes the key individuals are named and sign on bank deposit access cards on file at the bank so as to have ready-access to the important documents in times of need.

Of course, a copy of the Advance Health Care Directive should be provided to the person’s doctors and hospitals, just in case the need arises. In fact, hospitals are now required to ask if patients being admitted have such a document. And for good reason.

Another good reason for clients to have copies of their documents at home is for periodic review of them just to make sure they have their legal papers in order. It is good to review them at least once a year if not more frequently.

/s/Donald J. DeVries

Almaden Valley

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This week’s question:

My parents live here in the Almaden Valley and they have a living trust. My sister and I are very curious about what the trust says but our parents say politely that it is none of our business. Since our parents have said that my sister and I are the beneficiaries of the trust and receive everything when they pass on, can’t we have a copy of the trust and know all about it?

/s/Jimmy J.
Almaden Valley

Dear Jimmy– 

You and your sister have some good questions, but your parents’ business may be just that.

Since your parents are still living and presumably of “sound mind,” they can presumably revoke (i.e., change, modify, or cancel) any part of their trust. It is typically revocable during their lifetime.

Once one of your parents passes on, usually the trust becomes “irrevocable” as to the deceased person’s share, i.e., fixed, permanent, unchangeable.

Revocable living trusts are something like a will. And just as a will “speaks” only as of the date of the testator’s death, a revocable trust confers enforceable property interests in the beneficiaries only at the time it becomes irrevocable. Prior to that time, those beneficiaries have no rights to the trust property, and thus no say in how it is managed. Or even what is in the trust.

California Probate Code §15800 sets forth the rule: “Except to the extent that the trust instrument otherwise provides or where the joint action of the settlor [creator of the trust] and all beneficiaries is required, during the time that a trust is revocable and the person holding the power to revoke the trust is competent: (1) The person holding the power to revoke, and not the beneficiary, has the rights afforded beneficiaries under this division.”

Any interest that beneficiaries of a revocable trust have in trust property is “merely potential” and can “evaporate in a moment at the whim of the settlor.” A settlor with revocation power retains the power and control of the trust estate and can with a stoke of the pen divest the beneficiaries of their interest.

Be sure to discuss the above general principles with your own attorney to see how they may apply to your own situation. There is really no substitute for that.

You may also find a recent case helpful online, decided September 27, 2011. Go to your favorite search engine and enter: Estate of William A. Giraldin or Christine Giraldin v. Timothy Giraldin. It should be up on your screen in a heartbeat. It may be a little tedious, but it’s good reading.

/s/Donald J. DeVries
Almaden Valley

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