Carlena Tapella

Ask the Experts: How can parents amend a family trust?

Published: Wednesday, May. 29, 2013 - 12:00 am | Page 7B

Figuring out how to make adjustments to a living trust can be a challenge. Carlena Tapella, estate planning attorney with Webb & Tapella Law Firm in Sacramento, has some advice for readers.

In the 1990s, we established an AB family trust and have placed all our assets in the trust's name, with ourselves as trustees. We now wish to convert to a simple family trust, since we do not expect to exceed the $5 million threshold for estate taxes. How will this affect all the documents established as "James and Mary, Trustees Under 1990s Family Trust?" For instance, we have invested in several real estate trust deeds. Must these documents be quitclaimed to the simple trust? Or can the simple trust be restated as a revision of the original AB trust? Thanks for your help.

I assume that by "simple trust" you want to maintain your assets in trust, but not split into separate AB trusts at the death of the first spouse. Instead, the assets will remain in trust until the death of the second spouse, when distribution will be made to your beneficiaries.

In that case, you can always have an amendment prepared for the existing trust. When an amendment is significant, such as the one you would like, some attorneys prepare what is known as an "amendment and restatement" of the trust.

That means your 1990s trust is still in place but is simply "amended and restated" to include the modifications you wish to make. Title to your assets remains the same because your original trust has not been revoked.

My wife and I each have one son from a prior marriage. They both are college graduates. My wife wants to get things sorted out so that when she dies her son is well taken care of. She has been talking about a trust. We have a good relationship, but I do not feel we have to save our money for them. I am not too concerned about my son, who can financially take care of himself. To make peace, I am about to see a financial planner. My heart tells me it is not the right thing to do. What is your view?

To the extent that your wife wants to sort things out now, it is a sensible idea. Far too often, especially when there are later marriages and children from prior marriages, things can get sticky if a husband and wife are not clear on what happens to their assets after their deaths.

As an example, assume you and your wife had wills stating that you would leave your estates to one another, each assuming that your children will be fairly treated after the surviving spouse dies.

If you die before your wife, and she receives all of the assets, she is free to do with them whatever she wants. She could leave everything to her son and your son would receive nothing.

You could certainly view that as her prerogative, just as it would be your prerogative if she predeceases you.

In my experience, however, most couples with children from prior marriages want to be sure that their children are treated as equally as possible after the second spouse dies.

That does not mean, however, that you must agree to an arrangement where the primary goal is to preserve assets for her son, your son, or both. Even though you might have different goals, you should openly discuss those goals and how to achieve them with some mutual compromise.

Each of you might not get everything you want, but talking with a financial planner and an estate planning attorney could avoid potential disagreements after your death.

Need advice on money matters? Ask our panel of experts on the Personal Finance blog and see all their answers: personalfinanceblog

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