Articles Posted in LIVING TRUSTS

Estate planning requires you to appoint one or more people to act as your agent or fiduciary under a number of conditions. A power of attorney designates an agent to act in your name while you’re still alive. If you create a revocable trust, a trustee manages those properties you choose to transfer into the trust. And after you’ve passed away, a personal representative or executor supervises your probate estate.

You may have cause to change the appointments and designations of these agents during your lifetime. When, as is often the case, your intended agents are family members, bad blood can lead to significant conflict that may be exasperated by your death. A recent California case illustrates this. Please note this example is provided purely for informational purposes and should not be construed as a binding statement of California law.

Sisters Fight Over Fate of Their Mother’s House

Disinheriting a child sounds like a harsh act. The word conjures up images of an angry parent taking out a lifetime of disappointment with a child by denying him or her any inheritance. Yet there are many cases where disinheritance is simply based on the testator’s appraisal of his children’s relative financial positions.

An interesting historical example of disinheritance involved the former king of Great Britain, Edward VIII, who succeeded his father, King George V, in January 1936. The new king was surprised to learn he inherited nothing from the £3 million estate of his father. King George reasoned that since Edward would enjoy the income from properties held in trust for him as king, he would leave his private fortune to his other four children. (This later became an issue when Edward abdicated the throne in favor of his brother.)

While your own estate may not amount to a king’s ransom, it’s not uncommon to intentionally exclude a financially secure child from a will or trust in favor of providing for other children or family members. California law, however, requires clear manifestation of your intent to disinherit a child. If you make a will or trust and subsequently have additional children, California presumes you intended to provide for those children in your estate unless you amend your estate planning documents accordingly. Absent such explicit language, those children will automatically inherit the same share of your estate as if no will or trust existed at all.

When it comes to drafting your last will and testament or other California estate planning documents, it’s important you work with an attorney who is not only knowledgeable and experienced, but also someone who is impartial and not looking to benefit financially from your future estate. To that end, the California Probate Code specifically prohibits making a transfer by will, trust or similar instrument to the person who drafted that instrument or anyone related to that person. This means, for example, that a probate court will not honor a will leaving a person’s estate to the attorney who drafted that will–or the attorney’s wife, law partner, child, et cetera.

There is an exception, however, for attorneys who are already related by blood, marriage or civil partnership to the person making the will. If your son is an attorney and drafts a will for you where he’s a beneficiary, that would be valid under California law. Things can become more complicated when dealing with attorneys related by marriage, as a recent California Court of Appeals case demonstrates. This case is only discussed here for informational purposes and should not be construed as a statement of the law and is only for illustrative purposes.

Step-Children Can Complicate the Process

Given the state of the economy, many people are giving loans to their children. While it is very generous of parents to loan money to their children, it can create several problems down the road. Most parents give money to their children but do not expect to ever be paid back. Even if the parents expect to be paid back many children do not make any payments on the loan or they consider it a gift that does not need to be repaid. This can can cause tension and resentment between those children who did not receive a gift or loan from their parents and those who did.

It also causes problems after the parents have passed away. Typically, the child who did not receive any money will expect their siblings share of the estate to be reduced by the amount of the debt. The child who did receive the money usually will say that the money was a gift or that it was paid back a long time ago. If disputes arise, it would be up to the probate court to resolve them.

If you do want to loan money to your children it is important to have the amount of the loan and the interest in writing. If it is not in writing, it is important to keep evidence of the amount that was loaned and whether any payments were received over time. The biggest problem occurs when the child stops making payments on the loan. The law has a statute of limitations, meaning that a claim for money must be brought within a specific time period. The statute of limitations on loans is six years after the due date of the loan. Therefore, if a child does not pay on a loan, the parents have to enforce the loan within six years of the last payment due date. Most parent will not sue their children for not paying on the loans while they are still living and thus the claim to the money by the parent’s estate will be barred by the statute of limitations.