TRUST ADMINISTRATION

Published on: July 9, 2016

When Does My Trust Become Irrevocable?

Under California law, “Unless a trust is expressly made irrevocable by the trust instrument, the trust is revocable by the settlor.” This means that if you make a living trust as part of your estate plan, you are free to amend or revoke the trust at any time. You may, however, choose to make the trust (or part of a trust) irrevocable, in which case the trust should include clear language to that effect.

Court Upholds Husband’s Partial Revocation of Trust After Wife’s Death

Confusion over whether a trust is revocable can lead to litigation following the death of the settlor. Here is a recent example from here in California. This is only an illustration and not a binding statement of California law on the subject of revocable trusts.

Published on: June 19, 2016

Who Pays for a Lawsuit Contesting My Trust?

by Scott C. Soady

When you create a trust as part of your estate plan, the trustee is obligated by California law to be “impartial” with any beneficiaries you name. In other words, if you specify the trust assets should be divided equally among your children after your death, your trustee cannot favor one child over another. This requirement of impartiality is especially important if your trustee is also a beneficiary. You do not want the beneficiary-trustee misusing trust assets to benefit themselves at the expense of the other beneficiaries.

One consequence of this impartiality rule is that when someone challenges or contests your trust, the trustee may normally not use trust assets to defend against such a challenge unless it touches upon the validity or assets of the trust itself. So if someone files a lawsuit claiming they are a rightful beneficiary of the trust—or someone else is not a rightful beneficiary—the trustee should not get involved. Of course, California law only establishes a default position. In making a trust, you are free to instruct the trustee to defend against any and all lawsuits at the trust’s expense.

Daughter Contests No-Contest Clause in Mother’s Trust

Published on: June 18, 2016

Does My Estate Have to Pay Taxes After I Die?

by Scott C. Soady

An often overlooked aspect of estate planning is taxes. After all, death does not extinguish any tax debt that you may owe to the Internal Revenue Service or the State of California. It is possible your estate will owe tax for income earned on your assets even after your death.

Federal Government Collects on Unpaid Estate Tax Bill

For example, the estate of some wealthy Californians may be liable for the federal estate tax. The estate tax is technically a “tax on your right to transfer property at your death.” But most estates will never owe this tax because the law contains a sizable exemption before tax is assessed. For individuals who die in 2016, the exemption is $5.45 million. There is also an unlimited “marital deduction” for transfers from a deceased spouse to a surviving spouse.

Published on: May 29, 2016

How and When to Create a Spendthrift Trust

by Scott C. Soady

Parents often want to leave an inheritance for their children. But what if your children are not the most financially responsible people? A trust can provide a flexible means for managing your money after your death so that a “wild child” won’t squander your life’s work.

It is common for a will or living trust to contain special provisions for children. Such a children’s trust leaves your estate to a trustee, who can then make distributions to your children for their health, education and maintenance, while reserving outright distributions until they reach a specified age, such as 21 or 25. But if your children are already adults at the time you are making an estate plan, you might consider a living trust with what is usually known as a “spendthrift” clause.

Basically, a spendthrift trust is where one person is named as beneficiary and another serves as the trustee. It is up to the trustee to make sure the beneficiary does not simply squander the principal assets in the trust. You can establish the spendthrift trust to give the trustee specific instructions and authority. For example, you might direct the trustee to give the beneficiary a fixed amount of income from the trust or each month. Or you might limit it further, saying the trustee will only make payments for the beneficiary’s rent or education. You may even allow the trustee to cut off the beneficiary entirely and redirect the trust’s principal to an alternate beneficiary.

Published on: May 11, 2016

Can a Beneficiary Question the Handling of a Revocable Trust?

by Scott C. Soady

A trust refers to any agreement where a person—the settlor—transfers certain property to a trustee, who must then administer that property as directed by the trust instrument. In estate planning, a revocable living trust allows the settlor to name herself as trustee during his lifetime and a successor trustee who takes office upon the settlor’s death. The trust is “revocable” in that the settlor may remove some or all of the property from the trust while she is still alive. But once the settlor dies, the trust may become irrevocable and the successor trustee is bound by the settlor’s instructions.

Daughter Not Entitled to Trust Information Prior to Father’s Death

A trust typically names one or more beneficiaries. For example, you might create a revocable living trust naming your children as beneficiaries upon your death. Trust beneficiaries enjoy certain rights under California law. In 2012, the California Supreme Court held that when a living trust names someone other than the settlor as trustee, the beneficiaries could seek a court order demanding an accounting of the trust’s finances for the period when the trust was still revocable—i.e., during the settlor’s lifetime.

Published on: May 1, 2016

Disposing of Household Effects in Your Estate Plan

by Scott C. Soady

Something to consider when you are making an estate plan is taking stock of just how much stuff you own. While we generally discuss an estate in terms of major assets (real estate, bank accounts, brokerage portfolios, etc.) there is also quite a bit of tangible personal property or household effects included. Some personal property can be quite valuable, such as artwork or antique furniture. But much of your tangible property has primarily personal or sentimental value—think of family photographs, books, and various mementos scattered throughout your house. Upon your death, someone must take responsibility for all of these items.

Your estate plan should specify how to distribute your tangible personal property. For example, you might direct your children to divide all household effects between themselves, with your executor settling any disagreements and disposing of any unwanted items. Similarly, if you place your assets in a living trust, you may authorize your trustee to decide the best means of disposing of the contents of your house.

Failure to Clean Out House Drains Trust Assets

Published on: April 30, 2016

How Do I Transfer Property from One Trust to Another Trust?

by Scott C. Soady

Unlike a last will and testament, estate planning through a living trust involves the transfer of title to assets during your lifetime. For example, if you want your house to be part of a revocable living trust, you must execute and file a new deed transferring ownership from yourself to the trustee—which in most cases is also you. Failure to properly transfer an asset means a probate court may determine it is not part of the trust at all and should pass instead under your will.

San Diego Court Finds New Trust Sufficient to Transfer Real Estate

What about cases where you create a new trust and want to transfer assets into it from an earlier trust? A San Diego appeals court recently addressed this question. In this case a man, now deceased, created a revocable living trust in 1985, into which he transferred a parcel of real property located in San Diego. The man created a second, irrevocable trust in 2009, which listed the same property on the schedule of trust assets. The man did not, however, sign a deed transferring the property from the 1985 trust to the 2009 trust.

Published on: April 16, 2016

Court Resolves Family Fight Over Marie Callender Heir’s Trust

by Scott C. Soady

When you create a revocable living trust, your trustee has a legal duty to ensure your wishes, as expressed in the language of the trust document, are carried out. There may be pressure from family members or other interested parties to alter the trust’s meaning for their benefit, but at the end of the day, a California court will always look at the intentions of the person making the trust. Since most trust disputes occur after the settlor’s death, it is therefore important to seek the assistance of a qualified California estate planning attorney in drafting any trust instrument.

San Diego Court Rejects Unusual Trust Calculation Method

Recently the California Fourth District Court of Appeal, which has jurisdiction over San Diego and surrounding counties, decided a major case involving trust interpretation. The settlor was the late Donald Callender, the son of Marie Callender, the famous California restauranteur. Although the family’s namesake restaurant chain was sold in the 1990s, Donald Callender retained an interest in the licensing of the Marie Callender’s name, which combined with his other assets left a trust worth over $143 million at the time of his death in 2009.

Published on: April 8, 2016

What Happens When My Business Plan Conflicts With My Estate Plan?

by Scott C. Soady

Estate planning can get complicated when you own your own business, especially if you have one or more partners. You need to take care that your personal estate planning—your will or trust—does not conflict with any documents governing your business relationships. Such conflicts can create significant legal and tax issues after your death.

Business Partner’s Objections Hold Up Administration of Trust

A recent case decided by a Los Angeles appeals court offers a helpful illustration. Two men formed a real estate management company in 1969. The company is a holding vehicle for nearly two dozen other corporate entities. The agreements between the two men apparently provided that one could not transfer his interest in the business without the consent of the other.

Published on: February 21, 2016

Defective Language in a Will or Trust Can Lead to Probate Problems

by Scott C. Soady

A good estate plan should provide clear directions regarding the disposition of your property after your death. If your estate plan includes a trust, it is important to transfer title to any any assets you wish to place in the trust. Even if you have a trust, you still need a properly executed will to ensure there are no “loose ends” when it comes to administering your estate.

Sons Fight Over Ownership of Deceased Father’s Property

Here is an illustration from a recent California case of what can happen if an estate plan is not completely in order. In 2001, a man with three adult sons created a living trust as part of his estate plan. He simultaneously signed a deed transferring a parcel of real property in Long Beach into the trust. The subsequently signed an amended trust in 2006 together with a will.