TRUST ADMINISTRATION

Published on: February 14, 2016

What Happens If My Heirs Die a Few Days After Me?

One scenario you need to consider as part of your estate planning is the possibility of you and your heirs dying at the same time. A common example of this would be a husband and wife killed in a car accident. If each spouse signed a will leaving their estate to the other, this could create a conundrum. This is why it is generally a good idea to include a survivorship clause in your will. Such a clause specifies a time period a person must survive you in order to inherit under your will. Any person who dies within the specified time period will be treated as if they died before you.

Twin Sisters Die Within Days, Litigation Ensues

A recent San Diego case illustrates how survivorship clauses work. This case is only an illustration and not a complete statement of California law on this subject. This case involves a pair of sisters—twin sisters, actually—who sadly died within five days of each other.

Published on: January 5, 2016

Dealing With Non-California Property in a California Trust

by Scott C. Soady

Estate planning is especially important when you own property in more than one state. Although your will is generally subject to the law of the state in which you reside at the time of your death, there may be a need to open an additional (or “ancillary”) estate in any other state where you own real estate or other property outside of California’s jurisdiction. In some cases, your estate may be liable for another state’s taxes.

Brothers Fight Over Nebraska Property in California Court

Here is a recent example. A California husband and wife created a living trust and transferred all of their property into it, including two pieces of farmland in Nebraska that the wife’s family had owned for more than a century. According to the terms of the trust, after the couple died, the trust’s assets were to be equally divided between their two children. The trust also required a division of the trust into “A” and “B” subtrusts after the first spouse died. This is a common estate planning tool used to keep the surviving spouse’s property in trusts separate and apart from the deceased spouse’s property.

Published on: November 24, 2015

What are Irrevocable Trusts?

by Scott C. Soady

When lawyers talk about trusts and estate planning, they generally mean revocable living trusts. These are flexible estate planning tools whereby a person (known as a settlor) transfers assets to a trustee. In living trusts, the settlor and trustee can be the same person. Basically, if you create a living trust and name yourself trustee, you continue to manage your assets during your lifetime, but upon your death those assets do not pass as part of your probate estate. These trusts are “revocable” because you retain the right to amend or revoke them at will during your lifetime.

There are also irrevocable trusts in estate planning. As the name implies, these trusts cannot be amended or revoked by the settlor once made. So why would anyone choose to make a trust irrevocable? The two main reasons are taxes and creditors. A revocable trust may keep assets out of your probate estate, but they remain subject to taxation and creditor claims. For example, if you place your assets in a living trust, someone who sues and obtains a monetary judgment against you individually can still enforce it against the trust assets. The trust is not a liability shield.

Similarly, any assets in a revocable trust remain part of your taxable estate. For most people this is not a big deal, as only wealthy estates are subject to federal estate tax (and California no longer imposes its own inheritance tax). Still, there are cases where an irrevocable trust can help minimize your tax burden and maximize the benefits to your designated heirs.

Published on: November 23, 2015

California Court Upholds L.A. Clippers Sale in Trust Dispute

by Scott C. Soady

Two years ago, the Los Angeles Clippers made national headlines not for their on-the-court performance but because of an audio recording of the team’s owner, Donald Sterling, making remarks deemed “deeply offensive” to minorities by the National Basketball Association. After the recording became public, NBA Commissioner Adam Silver suspended Sterling and threatened to cancel his franchise if he did not immediately sell the team. Subsequently, Sterling authorized his wife to negotiate a sale of the Clippers. In May 2014, Sterling’s wife accepted an offer from former Microsoft CEO Steve Ballmer to purchase the team for $2 billion.

But that was not the end of the matter. After initially agreeing to the Ballmer sale, Sterling changed his mind and refused to sign a binding term sheet committing him to the deal. The team itself was part of Sterling’s revocable living trust, where Sterling and his wife served as co-trustees, so his approval was necessary. Sterling’s wife responded by filing a lawsuit seeking to remove her husband as co-trustee, citing his lack of mental capacity.

The trust itself required “certification by two physicians who regularly determine capacity” before removing Sterling as trustee. A neurologist diagnosed Sterling with cognitive impairment secondary to primary dementia Alzheimer’s disease.” A second physician confirmed this diagnosis, adding Sterling was “at risk of making potentially serious errors of judgment, impulse control, and recall in the management of his finances and his trust.”

Published on: September 17, 2015

Why Is It Important to Make Your Estate Plan As Soon as Possible?

by Scott C. Soady

It is never advisable to wait until you are on your deathbed to finish (or start) your estate planning. This is especially true if there are potential complications with your estate, such as a pending bankruptcy, divorce or other issues that might affect the distribution of your property. By waiting until the last minute, your estate plan may lead to confusion-and litigation-among your heirs.

Bankruptcy, Last Minute Estate Planning Leads to Litigation

Here is a recent example from here in California. This case involves a man who suffered a stroke in July 2011 and died in the hospital a few weeks later. While hospitalized, the deceased signed a will and revocable trust, as well as a quitclaim deed purporting to transfer 22.5 acres of land to the trust, with his sister serving as trustee. The will, meanwhile, named the deceased’s daughter as executor. Complicating matters somewhat was the decedent’s Chapter 13 bankruptcy petition, which was still pending at the time of his death but later discharged at the daughter’s request.

Following the bankruptcy discharge, the decedent’s son recorded the quitclaim deed transferring the land to the trust. The daughter, acting as executor of the probate estate, asked the probate court to determine whether the deed was valid; if it was not, the land would pass to the estate and not the trust. She further argued the quitclaim deed did not accurately reflect her father’s wishes and conflicted with the terms of his bankruptcy discharge.

Published on: March 22, 2015

The Importance of Managing Trust Assets

by Scott C. Soady

A living trust can help provide for both you and your children. Married couples often establish a joint trust to manage their assets during their lifetimes, and when one spouse dies, the other spouse may continue to benefit from the trust. A trust may also make provisions for children or other descendants, but it is important to structure the trust so your priorities and intentions are clear.

While trusts generally help individuals avoid probate, there are unfortunately times where disagreements over a trust’s provisions may lead to litigation between family members. Here is a recent example from a California Court of Appeal decision regarding a trust. This case is provided simply as an illustration and should not be taken as a comprehensive statement of California law on the subject of trusts.

Cavagnaro v. Sapone

Published on: February 13, 2015

Using Age Provisions in a Will or Trust

by Scott C. Soady

Prince Harry, the younger son of Prince Charles, the Prince of Wales, and his former wife, the late Diana Spencer, turned 30 last year. This milestone means Prince Harry will receive more than $17 million from his late mother’s estate, according to the modified terms of a trust established as part of her estate plan.

Diana, Princess of Wales, made a last will and testament in 1993 and amended it in 1996. She left the bulk of her estate in trust for her two sons, Prince Harry and Prince William (now the Duke of Cambridge). Originally, the trust assets were to be paid to each prince when they turned 25. But the executors of the estate obtained a “variance” from an English probate court, modifying the terms to delay distribution until the children turned 30.

Age Provisions in Trusts

Published on: December 12, 2014

Winding Down Your Business Through Estate Planning

by Scott C. Soady

A comprehensive estate plan can address the disposal of your personal assets, such as your home or retirement accounts, and any business interests you may hold. Many Americans are self-employed or participate in a business partnership. Winding down these business arrangements is a critical component of the estate planning process.

As with property, you may transfer your ownership of a business to another through a will or trust. In some cases, however, this may not be practicable. If you are a self-employed professional, such as an attorney or physician, and you do not have a surviving partner or successor, it is essential that you leave your executor or trustee with instructions on how to terminate your business-informing clients, disposing of confidential files, et cetera. If you are in a partnership or similar arrangement, such as a multi-member limited liability company, you should also make sure any agreements governing such businesses contain appropriate language dealing with your or a partner’s death.

A Family Legal Dispute

Published on: December 5, 2014

Failure to Leave a Will Can Lead to More Than Just “Sibling Rivalry”

by Scott C. Soady

It is important to make a last will and testament before your declining health renders you incapable of doing so. In a deteriorating physical or mental state, you may be subject to the undue influence of others who may wish to take control of your property for their own benefit. And while the law in California and other states will not recognize a will signed as the result of undue influence, settling this may require long and often costly litigation which can deplete your estate and deprive your chosen beneficiaries of the fruits of your labors.

Green v. McClintock

Here is a recent example from another state. This involved the estate of Kenneth Green, who died of cancer in 2010. Green and his brother, Albert, had fought for years over the disposition of their mother’s estate. She died in 1995 without leaving a will. She did, however, leave a substantial farm in Allegany County, Maryland, and other cash assets. Neither brother bothered to open an estate for their mother until 2002, when Kenneth Green decided to take action.

Published on: November 5, 2014

Can a Creditor Challenge a Trustee’s Mismanagement?

by Scott C. Soady

When you create a living trust, you transfer personal assets to a trustee, who then manages those assets on your behalf. In most cases, this won’t be a problem, since you can name yourself as trustee during your lifetime. But when someone else serves as trustee, he or she owes a duty, not only to you as the person creating the trust, but to any persons you name as beneficiaries of your trust. Under California law, a trustee may not misuse (or co-mingle) trust assets for his or her personal benefit to the detriment of any beneficiaries.

Recently, a California appeals court addressed a question that apparently had not been considered before: Does a trustee owe a creditor a duty to avoid self-dealing? The appeals court answered no, reversing a lower court’s decision to the contrary.

Vance v. Bizek