Here is a list of some of the important things that need to be done when someone dies with a trust.

1.  If the trust owns real estate, a new deed should be prepared to transfer the property from the trust to the person inheriting the property.  Usually, an attorney prepares such a deed for you.

2. If the trust will be earning any income (such as interest, dividends or rental income) after the death of the owner, the trust should probably apply for a federal tax I.D. Number.  If the income is small and for only a short period of time before distribution of the assets, some accountants feel that it is not necessary to get a federal tax I.D. Number for the trust.  It is best to let the estate planning attorney and accountant who are helping you discuss this to decide what to do.

3.  If the person died with more than $1,000,000 of assets (including life insurance death benefits), then it is very important to have federal and State of Hawaii estate tax returns prepared and filed.  The federal estate return is a very complicated document.  You will probably need the help of an estate planning attorney and/or accountant to prepare it.

4.  You should find out the value of every asset owned by the person on the date of death.  For example, if your husband died on October 15, 2003, you should have your home and any other real estate your husband owned appraised to find out what the value was on October 15, 2003.  The IRS allows you to value assets on the “alternate valuation date,” which is generally 6 months after the date of death, instead of using the date of death.  Since stock values or real estate values are usually higher or lower 6 months after death compared to what they were on the date of death, you should seek expert advice as to which date would be better for you for tax purposes.

5.  Debts should be paid.  Or maybe they shouldn’t be paid!  Our law office has handled cases recently in which a Medicaid Lien was improperly place on the home property of a person who was in a nursing home, received Medicaid help, and then died.  We have been able to get the Hawaii State Government to remove Medicaid liens which were improperly placed, so that our clients have not had to pay the huge nursing home expenses.  If there is a Medicaid lien on the property of the person who died, you should get expert advice to decide what you should do.

6.  Most married couples have “A-B Trusts.”  It is important for someone knowledgeable to decide which assets should be transferred to the “A” Trust and which assets should be transferred to the “B” Trust after someone dies.  This can have an important effect on the amount of estate taxes which will be owed when the second spouse dies.

7.  A decision should be made whether to publish a notice to creditors in the newspaper.  If you don’t, creditors (people who are owed money by the person who died) have 18 months to make a claim for the money they are owed.  If you do publish a notice, it will cost some money, but creditors will have only 4 months to present their claims.

As you can see, a trust still requires legal advice and work after a person dies.  If the assets are simple, the estate can often be settled very quickly and inexpensively.  You should at least consult an estate planning attorney before taking or using any assets owned by your deceased spouse, to determine how much legal help you need.

This column is for general information only. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate planning specialist.

Simply listing assets on the trust does not put the assets into the trust, except, sometimes, for tangible personal property such as household goods. Each kind of asset has to be transferred to the trust in a certain way. If I had created a revocable living trust on April 15, 2003, with myself as trustee, I would transfer assets from myself as an individual to “Sanford K. Okura, Trustee of the Sanford K. Okura Trust Dated April 15, 2003.” Look carefully to see what the name of your trust is, and use the correct name when transferring assets to the trust. The following is a list of different kinds of assets and how to transfer each kind of asset to the trust.

STOCKS AND BONDS. If you have an account with a stock broker, contact the broker to change the name of the account to yourself as Trustee of your trust. For U.S. Savings Bonds, any bank where savings bonds are purchased can provide a transfer request form (Form 1851) which must be filled out and sent to the U.S. Treasury together with the original bonds (certified mail, return receipt requested, is recommended).

SAVINGS AND CHECKING ACCOUNTS. For savings accounts and time certificates (CDs), contact the bank or credit union and have them change the name on the account to yourself as Trustee. When you change the name on the account to yourself as Trustee, some financial institutions charge a penalty for early redemption. If so, you may want to wait until there will be no penalty before making the change. If you are married, I recommend that the checking account with which you pay bills be kept as a joint account with your spouse rather than transferring it to the Trust.

SAFE DEPOSIT BOX. If you are not married, change the owner of the safe deposit box to you as Trustee. If you are married, make the owner both you as Trustee of your trust and your spouse as trustee of your spouse’s trust. If the bank will not let you do that, keep the safe deposit box in the individual names of you and your spouse, but add at least one other name as owner.

AUTOMOBILES. An automobile does not have to be transferred to the Trust. As long as there is no probate when you die, title to an automobile can be transferred after death by having the successor sign an affidavit at the Department of Motor Vehicles.

LIFE INSURANCE. If you do not give ownership of your life insurance policies to the beneficiary or to an Irrevocable Trust, then you should own them. Contact your insurance company to request a change of beneficiary form for each policy. The beneficiary on my life insurance would be “THE ACTING TRUSTEE OF THE SANFORD K. OKURA TRUST DATED APRIL 15, 2003.”

REAL ESTATE. An attorney should prepare a conveyance document (Deed, Assignment of Lease, etc.) to transfer the property to the trust and then record the document at the Bureau of Conveyances. If you are not the sole Trustee of your Trust or if the name of your Trust does not contain your name, contact the County Real Property Tax Office to make sure they will not cancel your homeowner’s exemption. Notify your homeowners and hazard insurance carriers of the transfer into the Trust. Ask insurance carriers to name the Trust as an additional insured.

IRA, TAX SHELTERED ANNUITY, OR QUALIFIED PLAN (Pension, Profit Sharing, 401(k), Keogh or ESOP). This subject deserves special treatment. I will discuss it in a future column.

This column is for general information only. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate planning specialist.

Many pet lovers love their pet as much as a parent loves a child. A pet lover wants to be sure that a beloved animal is given proper care. When the owner is gone, a pet cannot provide for its own food and care the way an adult human being can. Therefore, this new law is very appropriate.

Contrary to some newspaper headlines, the new law does not allow pets to “inherit” assets. Instead, it allows a trust to provide for the care of your pets for as long as they live. There must be a trust created for the pets. A simple will is not sufficient. There are three common ways to create a trust. First, you can create a Revocable Living Trust, which you can change at any time until you pass away, at which time it becomes irrevocable. Second, you can create an Irrevocable Trust, which cannot be changed or canceled, but which can protect assets from nursing home costs. Third, you can create a Testamentary Trust, which is an irrevocable trust created by your will after you pass away. Apparently, any of these three methods can be used to create a trust for pets. It would be wise to discuss with an estate planning specialist the advantages and disadvantages of each kind of trust.

If you do create a trust for pets, the trust needs to spell out whether the trustee will be paid. Normally, if a trust does not say how much a trustee will be paid, the law provides a formula to calculate how much the trustee can charge. However, the new law regarding trusts for pets provides that the trustee will not be paid, unless the trust document says so.

The trust funds may be used for the “care, maintenance, health, or appearance” of the pets. Apparently, the trust funds may be used for food, other supplies needed for proper care of the pets, veterinarian services, and grooming services. If the court determines that the amount of assets in the trust “substantially exceeds” the amount needed for the care of the pets, the court may cause the excess amounts to go to the persons who are to inherit the balance left after the death of the pets.

Actually, the new law is not only for pets, but for “designated domestic or pet animals.” It appears that the trust could be for a herd of cattle or sheep, for chickens, or other “domestic” animals.

Unfortunately, as with many laws, this law creates a number of unanswered questions. 1) Can the trust provide for the care of animals which are not yet born? Although I am told that the legislature intended the law to apply only to animals living at the time of the death of the owner, the written law does not say that. It does say that a trust for pets is exempt from the Rule Against Perpetuities, which is a law that states the maximum time limit before a trust must end. Therefore, is it possible that a trust for your pets and their descendants could last forever? 2) Can the trust provide for payment to the person who takes care of the pets? 3) Can the trust or a combination of trusts provide that the pets and their caretaker will be permitted to live in your house for the rest of their lives?

In spite of the unanswered questions, this is a good law which will help bring peace of mind to many pet lovers who have been concerned about the future care of their pets. If you have already provided for your pets in your trust or will, it would be best to make a new trust that complies with the new law.

This written advice was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. (The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice.)

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Trusts began long ago in England, during the Middle Ages. In those days, knights, barons, dukes and others owned property. If a property owner was convicted of a felony, the King could take away his property. A greedy king could get more and more property by declaring that property owners had committed crimes.

Property owners found a legal way to protect their property from the king. The law allowed separation of the “legal” title of property from the “equitable” ownership of the property. The person who had the “legal” title owned the property, but the person with the “equitable” ownership could use and enjoy the property. One sure way to protect the property was to give the legal title to the church, which was the Catholic Church. The king could not take property away from the church. Many property owners gave their legal title to the church, but kept the equitable ownership for their families. This protected the property from the king.

This separation of the legal title of property from the equitable ownership (or use and enjoyment) was called a “Trust” because the property owner was trusting someone else to own the legal title to the property. The use of Trusts continued into modern England, and came to America with the colonists. Trusts have been recognized by English and American law for hundreds of years.

A trust is created by a “trust agreement.” The trust agreement is a contract between two people. It is a legal document. Many trust agreements are 20 to 40 pages long.

The two people who make the trust agreement are the “Grantor” and the “Trustee.” In legal language, to “grant” means to give. The person who is creating the trust is called a “Grantor” because he is granting or giving his property to the Trustee. The Grantor is sometimes called the “Settlor,” because he is settling his affairs in regard to the property he is giving to the Trustee. Sometimes the Grantor is called the “Trustor,” because he is trusting the Trustee with his property.

The person receiving the property is called the “Trustee” because he is being trusted to own the legal title. The Trustee is responsible for taking care of the property, but he cannot take the property for himself or use it for himself. The Trustee’s job is to use the property to take care of the “Beneficiary.” The “Beneficiary” is the person who benefits from the trust, who can use and enjoy the trust property. The Trust Agreement says who the Beneficiary is.

The property in the trust is called the trust “property” or “assets” or “corpus” or “res.” (I have hardly ever seen the word “res” used since I learned it in law school.)

A Revocable Living Trust is one form of trust. “Revocable” means you can cancel the trust at any time and take your property back to yourself. “Living” means you create the trust while you are still living. (A “Testamentary” trust is one created by your will after you die.)

A Revocable Living Trust is usually set up with the same person as Grantor, Trustee and Beneficiary. For example, my own Revocable Living Trust says that I, Sanford Okura as an individual, am giving my property to Sanford Okura as Trustee, to be held for the benefit of Sanford Okura as an individual. As Trustee, I can control the property, manage it, sell it, buy more property, etc. As Beneficiary, I can enjoy the property and use it. If the trust owns any money, I as Trustee can give that money to me as Beneficiary. Since I am both Trustee and Beneficiary, I have complete control and use of my assets, yet I don’t technically own the property. My trust does. Therefore if I die, nothing in the trust has to go to court for probate. My Trust Agreement says that if I die, my wife will take over as Successor Trustee. Without having to go to court, she can take over control of my trust, and use the property for herself and our children. That is how a Revocable Living Trust avoids probate.

This column is for general information only. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate planning specialist.

If you have a revocable living trust, should you transfer ownership of the car to your trust? No, it is not necessary to do that. The probate laws in Hawaii have a special rule about motor vehicles. A motor vehicle (car, truck, etc.) does not have to go through probate, no matter how much it is worth. Probate is a court proceeding that takes 6 months to a year or longer. If you own any real estate at all in your name only or as a “tenant-in-common” at your death, it has to go through probate. If you own assets other than real estate worth $100,000 or more at death (without a beneficiary or joint owner), the assets must go through probate. Motor vehicles are an exception. Since a car does not have to go through probate, you do not have to put it into your trust. If you have already put your car into your trust, that’s O.K. It doesn’t do any harm.

When someone dies owning a car, the person who is to inherit the car can easily have the ownership changed. Just go down to the Department of Motor Vehicle office in the county where you live. Take with you the following papers: the title (certificate of ownership), a certified copy of the death certificate, the odometer reading, a current safety check, and the current registration. They will have you sign a paper called Affidavit For Collection of Personal Property. You also need to pay a transfer fee which is $10 on Oahu, $10 on Maui, $5 on the Big Island, $3 on Kauai. It’s that simple.

What should you do with the car if the owner has to go into a nursing home? Motor vehicles are exempt for Medicaid qualification purposes. That means that an unmarried person with $2,000 or less in other assets can get Medicaid to pay the nursing home expenses, even if the person owns a car. A married couple with $103,640 or less in other assets can get Medicaid to pay the nursing home expenses even if the person in the nursing home owns a car. In theory, a person in a nursing home who has too much in assets to qualify for Medicaid could buy several expensive cars to get cash assets low enough to qualify for Medicaid. However, you should not do that. After the person dies, the government could possibly go after the cars and sell them to repay the amount Medicaid paid for the nursing home patient. I have not heard of the government doing this yet, but legally they probably could.

If the person in the nursing home has some cash but no car, can you safely buy a car to reduce the cash, even though the nursing home patient will never be able to drive the car? Our law office had a case like this last month. The Medicaid eligibility worker claimed that the purchase of the car was a transfer of assets, resulting in a penalty (a waiting period before Medicaid will help.) We convinced the Medicaid worker that, in this particular case, even if there were a penalty, the waiting period was already over, so there should be no delay in Medicaid benefits. As I read the law, it seems to me that there should be no waiting period at all for purchase of a car. If a relative of yours is in a nursing home with too much in assets to qualify for Medicaid, consult with an estate planning attorney experienced in Medicaid planning. There are many cases where we have been able to get Medicaid to pay for nursing home costs when the family thought it was impossible.

Most of us understand what a regular mortgage is. You borrow money from a bank. You sign a mortgage document which gives the bank the right to sell your home in a foreclosure sale if you fail to make payments. Each month you make a payment to the bank. The payment includes interest. You make payments for a set number of years, usually 30 years or 15 years. When you finish making all of your payments, the bank releases its mortgage. You own the home free and clear again.

A reverse mortgage is very different. You borrow money from a bank. You can choose to borrow a lump sum all at once. Or, you can have the bank send you a set amount of money every month. (Every payment the bank sends you is a loan on which interest is charged.) Or, you can choose to have a credit line, like a home equity mortgage, which allows you to decide when and how much money you draw, up to the amount of your approved credit. With a reverse mortgage, you do not have to make any payment to the bank until you die, sell your home, or move out of your home. The bank charges you interest, usually at an adjustable interest rate. You have to pay your own real property taxes and homeowner’s insurance premiums. To get a reverse mortgage, you have to be 62 years old or older. You can qualify for a reverse mortgage even if you have very little or no income. The amount you can borrow depends on your age, the interest rate, and the value of your home. The older you are, the lower the interest rate, and the more valuable your home is, the more you can borrow.

AARP has a website at www.aarp.org/money/revmort/ with a calculator which shows how much you can borrow. For example, if you are 65 years old and live in Honolulu with a home worth $600,000, you can either borrow a lump sum of $254,215, or receive $1,646 a month as long as you live in the home, or get a credit line of $254,215 which, if unused, increases to $364,707 in 5 years, or to $523,222 in 10 years.

With a reverse mortgage, the bank charges you interest on the money you borrow, just as it does with a regular mortgage. However, you do not make any payments while living in the home. Therefore, every month that goes by, the amount of interest you owe the bank is piling up more and more. For example, suppose that you borrow $100,000 on a reverse mortgage. Assume that the interest rate is 8% a year. At the end of one year, you owe the bank $108,000. At the end of twenty years, you owe the bank $260,000. If you die at that time, the house will be sold, the bank receives its $260,000, and if there is any money left over from the sale, it goes to the persons named in your will or trust. (Actually, there would be fees which would be added to the amount you owe.)

Should you get a reverse mortgage? If you need cash, and you don’t care about leaving an inheritance to anyone, then a reverse mortgage may be right for you. However, if you want to leave an inheritance to your children or other loved ones, then a reverse mortgage may not be a good idea. With a reverse mortgage, the interest owing to the bank builds up so much that there may be very little or nothing left for your loved ones at the end. A reverse mortgage also makes it difficult to protect your home from nursing home costs.

If you are considering a reverse mortgage, you may want to ask an estate planning specialist whether it makes sense in your particular situation.