DECLARATION OF TRUST
Part 1. Trust Name
This trust shall be known as the {HUSBAND}-{WIFE} AB Living Trust dated {DATE}.
Part 2. Declaration of Trust
{HUSBAND} and {WIFE}, called the grantors, declare that they have set aside and hold in this trust all their interest in the property described in the attached Schedules 1, 2 and 3, which are an integral part of this document. Schedule 1 lists the shared and community property of both grantors placed in this trust. Schedule 2 lists the separate property of {WIFE} placed in this trust. Schedule 3 lists the separate property of {HUSBAND} placed in this trust. All of that property is called the "trust property" generally.
The grantors acknowledge receipt of the trust property and agree to hold it in trust, according to this Declaration of Trust.
The trust property shall be used for the benefit of the trust beneficiaries and shall be administered and distributed by the grantor(s) or their successor trustee(s) in accordance with this Declaration of Trust.
The term "this Declaration of Trust" includes any provisions added by valid amendment.
Part 3. Character of Trust Property
While both grantors are alive, property transferred to this trust shall retain its original character as community or separate property, as the case may be. If the trust is revoked, the grantor(s) shall distribute the trust property to the grantors based on the same ownership rights they had before the property was held in trust.
{WIFE}-{HUSBAND} AB Living Trust – Declaration of Trust 2014 Rev. 2 — Page 1 of 17 Part 4. Adding Property to the Trust
Either grantor, or both, may add property to this trust at any time by adding a written description of the property to the appropriate Schedule attached hereto, or by a separate writing.
Part 5. Grantors' Rights
A. Payments From Trust During Grantors' Lifetimes
The grantors shall pay to or use for the benefit of the grantors as much of the net income and principal of the trust property as the grantors request. Income shall be paid to the grantors at least annually. Income accruing in or paid to trust accounts shall be deemed to have been paid to the grantors.
B. Rights Retained by Grantors
As long as both grantors are alive, both retain all rights to income, profits and control of the trust property listed on Schedule 1.
As long as {WIFE} is alive, she retains all rights to income, profits and control of any property listed on Schedule 2.
As long as {HUSBAND} is alive, he retains all rights to income, profits and control of any property listed on Schedule 3.
Part 6. Amendment and Revocation
A. Revocation by Grantor
As long as both grantors are alive, either one may revoke their separate interest in this trust as set out in Schedules 2 or 3, respectively, at any time, without notifying any beneficiary. Revocation may be in writing or any manner allowed by law. Neither grantor may revoke their shared interest in this trust, as set out in Schedule 1, without the written, signed, and notarized consent of the other.
{WIFE}-{HUSBAND} AB Living Trust – Declaration of Trust 2014 Rev. 2 — Page 2 of 17 B. Amendment by Grantor
While both grantors are alive, this Declaration of Trust may be amended only by both of them acting together. All amendments must be in writing and signed and notarized by both grantors.
After the death of one grantor, the surviving spouse can amend his or her revocable living trust, Trust A, the Surviving Spouse's Trust, as defined in Part 11.
C. Amendment or Revocation by Other Person
The power to revoke or amend this trust is personal to the grantors. A conservator, guardian or other person may not exercise it on behalf of either grantor unless the grantor specifically grants the power to revoke or amend this trust in a Durable Power of Attorney.
Part 7. Homestead Rights
If the grantors' principal residence is held in this trust, the grantors have the right to possess and occupy it for life, rent-free and without charge, except for taxes, insurance, maintenance and related costs and expenses. This right is intended to give the grantors a beneficial interest in the property and to ensure that the grantors, or either of them, do not lose eligibility for a state homestead tax exemption for which either grantor otherwise qualifies.
Part 8. Trustees
A. Original Trustees
{HUSBAND} and {WIFE} are the grantors and original trustees of this trust and any other trust or child's subtrust created under this Declaration of Trust. Either grantor alone may act for and represent the trust in any transaction, except that while both are alive and not incapacitated, transactions having a value in excess of $30,000 shall require the written authorization of both grantors.
{WIFE}-{HUSBAND} AB Living Trust – Declaration of Trust 2014 Rev. 2 — Page 3 of 17 B. Trustee at Death of Original Trustee
When one grantor dies, the other grantor shall serve as sole trustee.
C. Successor Trustee at Death or Incapacity of Both Grantors
When both grantors have died or both have become incapacitated, as defined hereinafter, {SUCCESSOR TRUSTEE} shall serve as successor trustee.
D. Trustee's Responsibility
The surviving grantor or successor trustee(s) shall serve as trustee of all trusts created under this Declaration of Trust.
E. Terminology
The term "trustee" includes the grantors and any successor trustees or alternate successor trustees serving as trustee of this trust. The singular "trustee" also includes the plural. The term “spouse” or “spouses” means one or both of the grantors. The terms “first spouse” means the first spouse to die and “second spouse” means the second spouse to die.
F. Resignation of Trustee
Any trustee other than the grantors may resign at any time by signing a notice of resignation. The resignation shall be delivered to the person or institution who is either named in this Declaration of Trust, or appointed by the trustee to next serve as the trustee.
G. Power to Appoint Successor Trustee
If no one named in this Declaration of Trust to serve as trustee is willing and able to serve as trustee, the last acting trustee may appoint a successor trustee and may require the posting of a reasonable bond, to be paid for with the trust property. The appointment must be made in writing, signed by the trustee and notarized.
{WIFE}-{HUSBAND} AB Living Trust – Declaration of Trust 2014 Rev. 2 — Page 4 of 17 H. Bond
No bond shall be required of any trustee named in this Declaration of Trust.
I. Compensation
No grantor shall receive compensation for serving as trustee. The successor trustee shall be entitled to a compensation customary for professional services at the required level of expertise.
J. Liability of Trustee
With respect to the exercise or non-exercise of discretionary powers granted by this Declaration of Trust, the trustee shall not be liable for actions taken in good faith. Such actions shall be binding on all persons interested in the trust property.
Part 9. Actions Required at the Death of the First Spouse
At the death of the first spouse to die, the surviving spouse (or, if both spouses die simultaneously or the surviving spouse is mentally incapacitated, the successor trustee), shall have two principal duties, namely (1) Division of the trust property into Trust A and Trust B, and (2) Distribution of the deceased spouse’s separate property to the deceased spouse’s final beneficiaries.
Part 10. Division of Trust Property Into Trust A and Trust B
At the death of the first spouse to die, the surviving spouse (or, if both spouses die simultaneously or the surviving spouse is mentally incapacitated, the successor trustee) shall legally divide the property held in the {WIFE}- {HUSBAND} AB Living Trust between two separate trusts, known as Trust A, the Surviving Spouse’s Trust, and Trust B, the Bypass Trust. The surviving spouse (trustee) shall follow the requirements of California and federal law in the creation, settlement and administration of these trusts, and would be well advised to consult with an attorney and/or an accountant in order to be sure that these requirements are met in a timely fashion. The expenses of trust
{WIFE}-{HUSBAND} AB Living Trust – Declaration of Trust 2014 Rev. 2 — Page 5 of 17 settlement and administration are chargeable one-half to the assets of the deceased spouse and one-half to the assets of the surviving spouse.
A. Trust A Property (Surviving Spouse’s Trust)
All trust property of the surviving spouse shall be placed in a trust known as Trust A, the Surviving Spouse's Trust. This means all trust property listed in Schedule 2 (if {WIFE} is the surviving spouse) or in Schedule 3 (if {HUSBAND}is the surviving spouse).
B. Trust B Property (Bypass Trust)
The trust property listed in Schedule 1 shall be placed into Trust B, the Bypass Trust. The assets contained in the Bypass Trust shall not be distributed until the death of the surviving spouse.
Part 11. Terms of Trust A, the Surviving Spouse's Trust
During his or her life, the surviving spouse retains all rights to all income, profits and control of the property in Trust A.
The surviving spouse may amend or revoke Trust A at any time during his or her lifetime, without notifying any beneficiary. Trust B (the Bypass Trust) becomes irrevocable at the death of the first spouse.
Part 12. Terms of Trust B, the Bypass Trust
All property held in Trust B shall be administered as follows:
A. Revocation
Trust B is irrevocable.
B. Life Beneficiary
The surviving spouse is the life beneficiary of Trust B.
{WIFE}-{HUSBAND} AB Living Trust – Declaration of Trust 2014 Rev. 2 — Page 6 of 17 C. Payments From Trust B
The surviving spouse or successor trustee shall pay to or spend for the benefit of the surviving spouse the net income of Trust B (the Bypass Trust), including but not limited to rental income, promptly when received. Such income may be spent for the health, education, support, comfort, welfare and maintenance of the surviving spouse, in accordance with his or her accustomed standard of living. Income accruing in or paid to Trust B accounts shall be deemed to have been distributed to the surviving spouse.
D. Surviving Grantor’s Duties and Powers
The surviving grantor (or successor trustee) shall have the duty to manage the assets contained in the Bypass Trust (Trust B) in a sound and prudent manner, to attend to required maintenance, and to take all measures necessary and reasonable to preserve the value of these assets. The surviving grantor (or successor trustee) in his or her sole discretion shall have the power to control, manage, sell, lease, or encumber the assets contained in the Bypass Trust (Trust B), and to take all legal steps and to engage all professional assistance necessary to achieve those ends, provided that in the event of a sale, the proceeds thereof shall at the death of the second spouse be divided in proportion to the grantors’ respective shares of the Trust B assets.
E. Division of Bypass Trust (Trust B) Assets
Unless otherwise specified in an Amendment to the present document, signed by both grantors and notarized, the division of Bypass Trust (Trust B) assets upon the death of the second spouse shall be on the basis of one half of the Trust B assets to each spouse’s beneficiaries named in this Declaration of Trust.
F. Trustee's Duty to Inform Beneficiaries
The surviving spouse or successor trustee shall, within a reasonable time after filing the annual federal income tax return of the Bypass Trust (Trust B), give copies to the final beneficiaries and shall keep them informed in writing at least annually of any substantial issues affecting the Trust. In the event the
{WIFE}-{HUSBAND} AB Living Trust – Declaration of Trust 2014 Rev. 2 — Page 7 of 17 surviving spouse or trustee determines that property held in Trust B should be sold or otherwise disposed of while the spouse remains alive, the spouse or trustee shall consult with all beneficiaries prior to initiating any transaction; but the spouse or trustee’s sole discretion shall govern.
Part 13. Actions Required at the Death of the Second Spouse
At the death of the second spouse, the successor trustee(s) shall have three main duties, namely: (1) Comply with state and federal requirements for the settlement and termination of the trusts, and (2) Distribute the assets of Trust A (the Surviving Spouses’ Trust) to the final beneficiaries of the second spouse, and (3) Distribute the assets of Trust B (the Bypass Trust) to the final beneficiaries of both spouses in accordance with the terms of this Declaration of Trust. The expenses of this final settlement and administration are chargeable one-half to Trust A and one-half to Trust B.
Part 14. Incapacity of Grantors
A. Determination of Incapacity
The determination of a grantor's lack of mental capacity to manage this trust shall be made by that grantor’s personal physician, or if the grantor has none, by a Board-certified psychiatrist qualified in gerontology who is not a friend or social acquaintance of either grantor. The physician shall render the decision in writing.
B. Incapacity of One Grantor
While both grantors are alive, if one of them becomes mentally incapacitated, the other grantor shall serve as sole trustee, until the incapacitated grantor is no longer incapacitated.
C. Incapacity of Both Grantors
If both grantors become mentally incapacitated, the successor trustee shall serve as trustee until at least one of the grantors is no longer incapacitated.
{WIFE}-{HUSBAND} AB Living Trust – Declaration of Trust 2014 Rev. 2 — Page 8 of 17 The successor trustee shall pay trust income at least annually to, or for the benefit of, the grantors. Income accruing in or paid to trust accounts shall be deemed to have been paid to the grantors. The trustee may also spend any amount of trust principal necessary, in the trustee's discretion, for the health, education, support, comfort, welfare and maintenance of the grantors, in accordance with their accustomed standard of living, until at least one grantor is no longer incapacitated, or until the grantors' deaths.
D. Incapacity of Surviving Spouse
If, after the death of one spouse, the surviving spouse becomes mentally incapacitated, the successor trustee shall serve as trustee of Trust A and Trust B until the surviving spouse is no longer incapacitated.
The trustee shall pay income from both Trusts A and B at least annually to, or for the benefit of, the surviving spouse. The trustee may also spend any amount of Trust A (the Surviving Spouse’s Trust) principal necessary, in the trustee's discretion, for the proper health, education, support, comfort, welfare and maintenance of the surviving spouse, in accordance with his or her accustomed standard of living.
Part 15. Beneficiaries
A. Wife's Beneficiaries
At the death of {WIFE}, the trustee shall distribute her property listed on Schedule 2, or otherwise placed in this Trust as her property, as specified in this section.
{Here list specific bequests of Wife’s separate property to wife’s beneficiaries}
B. Husband's Beneficiaries
At the death of {HUSBAND}, the trustee shall distribute his property listed on Schedule 3, or otherwise placed in this Trust as his property, as specified in this section.
{WIFE}-{HUSBAND} AB Living Trust – Declaration of Trust 2014 Rev. 2 — Page 9 of 17 {Here list specific bequests of husband’s separate property to husband’s beneficiaries}
Part 16. Terms of Property Distribution
All distributions are subject to any provision in this Declaration of Trust that creates a child's subtrust or a custodianship under the Uniform Transfers to Minors Act.
A beneficiary must survive the grantor for 120 hours to receive property under this Declaration of Trust. As used in this Declaration of Trust, to survive means to be alive or in existence as an organization.
All personal and real property left through this trust shall pass subject to any encumbrances or liens placed on the property as security for the repayment of a loan or debt.
If property is left to two or more beneficiaries to share, they shall share it equally unless this Declaration of Trust provides otherwise. If any of them does not survive the grantor, the others shall take that beneficiary's share, to share equally, unless this Declaration of Trust provides otherwise.
Part 17. Simultaneous Death
If both grantors die simultaneously, or under such circumstances as to render it difficult or impossible to determine who predeceased the other, for purposes of this living trust it shall be conclusively presumed that both died at the same moment, and neither survived the other. The trustee shall then distribute all remaining property to each spouse's final beneficiaries, named in Part 15.
Part 18. Payment of Grantors' Debts and Taxes
The trustee may pay out of trust property such amounts as necessary for payment of debts, estate taxes and expenses of the last illness and funeral of either spouse.
{WIFE}-{HUSBAND} AB Living Trust – Declaration of Trust 2014 Rev. 2 — Page 10 of 17 Part 19. General Administrative Provisions
A. Controlling Law
The validity of this trust and construction of its provisions shall be governed by the laws of California.
B. Severability of Clauses
If any provision of this Declaration of Trust is ruled unenforceable, the remaining provisions shall nevertheless remain in effect.
Certification of Grantors
We certify that we have read this Declaration of Trust and that it correctly states the terms and conditions under which the trust property is to be held, managed and disposed of by the trustees, and we approve this Declaration of Trust. ______Dated: ______{WIFE}, Grantor and Trustee
______Dated: ______{HUSBAND}, Grantor and Trustee
{WIFE}-{HUSBAND} AB Living Trust – Declaration of Trust 2014 Rev. 2 — Page 11 of 17 CERTIFICATE OF ACKNOWLEDGMENT OF NOTARY PUBLIC
State of California ) ) ss. County of ______)
On ______before me, ______(here insert name and title of the officer), personally appeared ______, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
______Notary Public for the State of California
[NOTARIAL SEAL] My commission expires:
{WIFE}-{HUSBAND} AB Living Trust – Declaration of Trust 2014 Rev. 2 — Page 12 of 17
SCHEDULE 1
SHARED PROPERTY PLACED IN TRUST
1. {MARITAL RESIDENCE AT ADDRESS} 2. {JOINT ACCOUNTS SHARED BY SPOUSES} 3. {ANY OTHER COMMUNITY ASSETS}
{WIFE}-{HUSBAND} AB Living Trust – Declaration of Trust 2014 Rev. 2 — Page 13 of 17 SCHEDULE 2
WIFE'S SEPARATE PROPERTY PLACED IN TRUST
All {WIFE}'s interest in the following property:
1. {List of Wife’s separate property}
{WIFE}-{HUSBAND} AB Living Trust – Declaration of Trust 2014 Rev. 2 — Page 14 of 17
SCHEDULE 3
HUSBAND'S SEPARATE PROPERTY PLACED IN TRUST
All {HUSBAND}'s interest in the following property:
1. {List of Husband’s separate property}
{WIFE}-{HUSBAND} AB Living Trust – Declaration of Trust 2014 Rev. 2 — Page 15 of 17 [NOTES -- NOT PART OF TRUST DOCUMENT]
This template is intended to create a legal document for the use of spouses in second or subsequent marriages in a community property state such as California who wish to ensure that their property passes to their respective children from a previous marriage. The document, like all Living Trusts, is also intended to avoid the need for a probate proceeding.
Without such a document, when one spouse dies, his or her property (including his or her share of community property, such as the marital residence) normally passes to the other spouse. The children of the first spouse then become dependent on the good will of the second spouse to receive anything when the second spouse dies.
What the AB Living Trust does is to transfer the community property at the death of the first spouse into a Bypass Trust. The surviving spouse becomes the life beneficiary, but not the owner, of the assets in the Bypass Trust. When the second spouse dies, the assets in the Bypass Trust are divided among the respective beneficiaries of each spouse, on terms defined in the trust document. In the template, each spouse’s children receive one half; but the document can be modified to vary this as the parties may desire. In this way the children of both spouses from previous marriages are secured in the right to receive their respective parent’s intended share of the trust property.
This template is intended to be supplemented by a Last Will and Testament executed by each spouse dedicating to the AB Living Trust all assets that are not already in it. In this way there will be no assets in each spouse’s estate that need to go through the probate process in court, and probate should be unnecessary.
In order to give effect to this document, once completed, real estate already owned needs to be formally transferred into the trust and newly acquired real estate needs to have title vested in the trust. Documents dedicating personal property of special value (other than routine household items) should also be prepared and attached to the trust document.
The parties also need to agree on a person or firm to act as successor trustee. This can be either a mutually trusted friend who is competent to handle financial affairs and who will consult with a lawyer and/or CPA as required, or it can be a legal or accountancy or banking firm with trust administration experience.
{WIFE}-{HUSBAND} AB Living Trust – Declaration of Trust 2014 Rev. 2 — Page 16 of 17
This template is intended for relatively uncomplicated situations where the total property of the spouses is less than the current federal estate tax threshold (currently $10.5 million), so that estate tax issues do not arise.
This template is offered as an alternative to available templates having a similar purpose, but written in language only a lawyer could understand and love. Nevertheless, before finalizing this document, parties should consult with an attorney to determine whether it meets their needs and whether it complies with current law and regulations. At the death of the first spouse, consultation with a lawyer or CPA familiar with trust administration is strongly urged to ensure that the proper paperwork is timely filed. At the death of the second spouse, consultation with a lawyer or CPA familiar with trust administration is almost certainly necessary. Failure to file the proper paperwork in a timely manner can have expensive consequences for the beneficiaries.
Use of the template does not create an attorney-client relationship between the author of the template and the user, and the author of the template cannot assume liability for any use or misuse that is made of it. More information about this type of legal document can be found by searching the web for “Bypass Trust” or “AB Living Trust” generally. A useful guidebook for trustees, outlining the paperwork that the trustee has to do at the death of each spouse, is Patricia Rice’s Basics of Trust Administration – California.
Martin Nicolaus Nicolaus Law Office http://nicolaus.com
{WIFE}-{HUSBAND} AB Living Trust – Declaration of Trust 2014 Rev. 2 — Page 17 of 17