TRUST MAY NOT BE BEST OPTION

First published in Newsday Ask the Expert column on January 13, 2007.

The problem: I have been named the trustee of my aunt’s revocable trust. She has approximately $600,000 in assets, including her house. To date, the house is the only asset that she has placed in the trust. As trustee, am I responsible for putting her other assets into the trust? What happens if my aunt owns assets that are not in the trust at the time of her death?

The expert: Linda M. Toga is an estate planning/elder law attorney with an office in East Setauket, New York.

The rules: The person who creates the trust generally is responsible for transferring assets into the trust. As the trustee of your aunt’s trust, you do not have any authority over any assets that are not already in the trust.

How it works: Unless she has signed a power of attorney, your aunt is the only person who can move her assets into the trust. Although revocable trusts are often used to avoid probate, many people die without having placed all of their assets into the trust. If your aunt has accounts with named beneficiaries, the beneficiary designations on those accounts will control how the money is distributed after her death. If your aunt has account without named beneficiaries, those accounts will be art of her estate and will be subject to probate.

Considerable expense and effort is involved in establishing a trust. Unless your aunt strongly wished to avoid probate, I would have recommended that she execute a will to address the distribution of her assets, a power or attorney to address her financial affairs in the event she became incompetent, and a health care proxy to ensure that her wishes with respect to medical treatment be honored.

The results: If, in the future, your aunt has second thoughts about the trust, she can transfer the house out of the trust and revoke it. If she wants to maintain the trust, I would recommend that she execute a “pour-over will” so that any assets she owns outright at the time of her death would flow into the trust and be distributed pursuant to its terms.

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