Learn more about trust and probate administration after a death in the family by reading the answers to some of our most frequently asked questions:
Q: My Father/Mother/Spouse Just Passed Away. What Should I Do And What's Required Of Me?
A:It depends on how assets were held and what the decedent did to prepare for his or her passing. In California, generally if a decedent did nothing, or even if they prepared a Last Will & Testament, their estate will probably need to go through a long and expensive Probate Court Proceeding, before assets can be distributed to the decedents beneficiaries. If all assets were held in a payable on death account or were in a “beneficiary designated” account (e.g., life insurance and/or retirement accounts), those assets can usually be moved with a death certificate and a minimal amount of paperwork. However, it's rare that all assets were held in this manner. It is interesting to point out however, that sometimes people try to “outsmart” the system by holding all of their assets this way, but more often than not, there are negative tax consequences, unintended beneficiaries to an estate, and/or a loss of asset preservation (for mom or dad) while they are alive when these methods are relied upon. (So, if you decide to try and outsmart the system this way, you have been warned...) In addition to setting up a Will, holding assets in a beneficiary designated account, or a lack of planning altogether (all of which may require a Probate), assets in California are passed onto loved ones in Revocable Trusts and Irrevocable Trusts. Trusts provide the least costly, most efficient, and flexible manner in which to pass your estate on to loved ones.
Q: What's California Trust Administration And Why Is It So Important To Administer A Trust?
A:Some people think that once they have drafted and funded their living trust, everything is done. And in a sense it is done, at least from the standpoint of the person who created the trust. But it is important to point out that after that person passes away, Trust Administration must be completed by the Successor Trustee named in the trust. And make no mistake about it, there are a lot of tasks for that Trustee to complete and it is usually not so easy for them to do this work on their own. So what kind of things am I talking about? Well, the responsibilities and duties that are required of a Trustee to administer a trust are similar to the duties that a Personal Representative takes on, when appointed to that position in a Probate court. For instance, a Successor Trustee must give notice to beneficiaries, file tax returns, properly appraise, inventory, as well as manage the trust assets, pay off any creditors and ultimately make distributions to beneficiaries. In the process of carrying out these duties, the Trustee must look to the trust document itself and see what it specifically requires. Every trust is different and as such, requires different procedures. These differences depend a lot on the original planning that was tailored to suit a particular persons circumstances as well as the tax planning and asset protection needs of his or her family. Failure by the Trustee to adequately carry out these duties could have devastating consequences on an estate plan. It is therefore extremely important that your Trustee know they must act, after you pass away. Generally a Successor Trustee will carry out his or her duties with the help of an experienced estate planning attorney, so you needn't be too concerned about their level of sophistication. On the other hand, if your Trustee can handle the work and wants to go it alone, there is no legal requirement that he or she seek the help of professionals. Even though there are many duties for the Trustee to carry out, trust administration is generally less expensive and easier than Probate. Plus trusts can be structured to suit your families exact needs both personally as well as from a tax planning and asset protection perspective. Without a doubt, most of the time, the effort to administer a trust is well worth it's cost in California.
Q: My Parents Didnt Put Their Assets Inside Their Trust. I Am The Successor Trustee. What Do I Do?
A:Failure to “fund” a trust with one's assets is a fairly common mistake these days. Whether is it because people tried and failed to complete an estate plan with do-it-yourself living trust documents, refinanced their home without the proper guidance to ensure that their home was put back into their trust after refinancing, or they just plain never got it right in the first place – the result is always the same when a decedents total assets exceed $166,250 and/or the decedent held real estate outside of his or her trust: the successor trustee is forced to go to court to try and fix the problem after the Settlor (e.g., usually mom or dad) passes away. In California to do this, you must file an 850 Petition with the court (commonly referred to as a Heggstad Petition) to try and convince a judge that mom or dad really wanted to hold their asset(s) in their trust but they just made a mistake, or forgot, or whatever you can think of, to convince that judge to issue an order to fund their trust after it is too late (i.e., after mom or dad passed away). Although this is a bad place for a Trustee to find themselves, it is still far less expensive and time consuming to go to court with an 850 Petition than to go to court under a regular Probate Court Proceeding. If the 850 Petition is granted, a Successor Trustee can continue on, with the “normal” trust administration. If not, all bets are off, as mom or dads estate is going to be stuck in a long and expensive Probate for the next couple of years.
Q: What's California Probate? How Much Does It Cost? How Long Does It Take? What's Involved?
A:Probate is a legal proceeding to wind up a persons legal and financial affairs after death. In California, probate is conducted in the Superior Court of the County where the decedent lived. Probate proceedings usually take anywhere from 6 months to several years and probate generally is very expensive. Some people think if they have a Will they can avoid Probate. The opposite is true though. Having only a Last Will virtually guarantees that a probate will need to be opened to transfer your assets to beneficiaries. How does Probate work? The person who is nominated in the Will petitions the probate court to be appointed Executor. If there is no Will, California law provides a list of people who have priority to be appointed Executor. In any case, heirs and relatives are given notice about hearings and they can come monitor or even contest proceedings. In the easiest probates, the executor makes an inventory of estate assets, locates and pays off creditors, files tax returns, and manages the assets of the estate. After all the duties of the Executor have been completed, the estate's assets are distributed to the heirs and the probate is finalized. If your estate goes through the probate process, legal expenses of roughly 4% on the first $100,000 of the estate; 3% on the next $100,000; 2% on the next $800,000; and 1% on amounts over $1,000,000 will be incurred. That means an estate with property including the family home, bank accounts, and the like of one million dollars will incur $23,000 in legal fees. Executors are entitled to the same exact fee for their work so double that amount for them. Sometimes in exceptionally complicated probates, the court will award even larger fees for the Executor and Attorney. Also, court costs, appraisal fees, and asset selling costs are more expenses incurred in a probate. Although this is an extremely simplified explanation of what it means to go through probate, it does explain the main two reasons of why everyone is trying to avoid it with a revocable living trust. That is, it takes a long time to go through Probate Proceeding and is much more expensive than a simple Revocable Living Trust which accomplishes the same exact thing.
Q: What Are The Most Common Causes Of Fights That Lead To California Trust And Probate Litigation?
A:There are many reasons that can lead to trust and probate litigation in California. But, in my opinion, there are three extremely common causes. The first set of reasons surrounds arguments that the person who created a Trust or Last Will and Testament was not in his or her “right mind.” The argument goes that either the Trustmaker or Testator did not have the mental capacity to create his or her documents, or that they were under the duress or undue influence of someone who was exerting pressure on them. This does indeed occur often enough. Such issues do not frequently crop up when estate planning is carried out with an experienced attorney however. That's because experienced attorneys usually employ several methods to prevent future challenges to the Trust or Will being created. As the primary precaution, experienced attorneys will always question and counsel clients alone to figure out their intent. If we feel the least bit uncomfortable with our clients circumstances, we will require him or her to go out and get an independent medical doctor to evaluate our client and say that he or she has capacity. Finally, as a boot and suspenders approach, I sometimes even have my clients go talk to a second attorney and get a “Certificate of Independent Review,” where the other attorney also discusses my clients wishes with him or her and confirms that their plan is exactly what he or she wanted. I have never had anyone successfully challenge one of my estate plans because of these precautions. The second major area that leads to litigation deals with how a Trust or Will is interpreted. Unfortunately, many estate planning documents are not written clearly enough so that a layman, attorney and/or judge can all perfectly understand what the Trustmaker or Testator intended. Interestingly, this is not a huge issue when families get along well and the estate is being split “fairly.” Too often however, these prerequisites do not exist and the estate planning documents are unclear. This is particularly true with do-it-yourself documents such as Legalzoom, Nolo, and We The People Wills and Trusts. When you combine poorly written documents with families who have a history of discord (especially in the case of blended families) and/or the dispositive provisions in the Will or Trust favors one over another... Look out because litigation is right around the corner! To prevent the likelihood of fights over the interpretation of estate planning documents, it is extremely important to hire competent counsel to clearly draft those documents in the first place. The third common cause of trust litigation stems from “supposed bad acts” carried out by a Trustee, after the Trustmaker has passed away. When Trustees do not act reasonably or prudently, they breach their fiduciary duty. Sometimes the breaches are extensive, such as outright theft. This brings up the most overlooked, yet incredibly important, decision you can make with your trust: Choosing your Trustee. You must have a lot of faith in the person(s) you put in control to be your Successor Trustee(s). If you are unsure about anyone, you are probably better off hiring a private professional fiduciary or a bank to be the Trustee. Again, this is where an experienced estate planning attorney can guide clients and make all the difference for people setting up a Trust or Will. This is especially important when there are children from a prior relationship. In short, there are many reasons that lead to California Trust and Probate Litigation but most of the time an experienced trust attorney can guide clients away from such pitfalls.