San Diego Estate Planning Lawyer Blog
The term “trust” refers to an arrangement in which one person holds property for the benefit of another. In estate planning we commonly use revocable and irrevocable trusts as tools to bypass traditional probate. You give your assets to a trustee, who then administers the property for the benefit of the persons you name in the trust instrument.
Sometimes the word “trust” is used to signify something else. For example, you may have heard the term “Totten trust” used by banks. A Totten trust is really not a trust; it is a type of payable-on-death bank account. The person establishing the Totten trust has the unrestricted ability to withdraw money from or close the account. The “beneficiary” is simply the person who receives the remainder of the account, if any, upon the account holder’s death.
Court Imposes “Constructive Trust” After Stepson’s Mistake
While a Totten trust is also a useful device for bypassing probate, it should not be confused with trusts established for the benefit of someone else. A Los Angeles appeals court recently considered these issues in a case involving a trust that was wrongfully converted into a Totten trust.
At the center of this case is a woman who passed away in 2012. She had previously established a revocable trust with her late husband. She also had a separate will. After her husband’s death, she continued as the trustee.
The trust’s main asset was a property in Los Angeles, which the woman leased to a family business co-owned by her husband’s three sons from a prior marriage. Eventually one son came to own the business outright. He also helped care for his stepmother in her declining years.
After the woman was diagnosed with dementia, the stepson, acting under her power of attorney, closed her checking accounts and moved them into a new account designated “in trust for” her. The stepson and his wife were both listed as co-owners on the account. A bank official later testified that despite the “in trust for” description, this was in fact a Totten trust account owned by the stepson and his wife, with the stepmother as the “beneficiary” only if she survived them.
The stepson died a few months before his stepmother. The stepson’s widow then changed ownership of the account into her sole name and treated the money as her own. The executor and successor trustee of the stepmother’s estate then sued, claiming the stepson and his wife had obtained the stepmother’s funds through “fraudulent of otherwise wrongful conduct.”
The California Second District Court of Appeals eventually agreed with the executor that a “constructive trust” should be imposed in this case. Regardless of how the bank classified the account, the court said the evidence showed the stepson “intended to create irrevocable trust accounts” for the benefit of his stepmother. The court said the wife’s actions in removing her stepmother’s name from the account and using the funds for her own purposes constituted an illegal “repudiation” of the trust.
Need Help With Your Estate Planning?
When making your own estate plan, and especially when acting on behalf of a family member, you need to make sure that your actions match your intentions. An experienced San Diego estate planning lawyer can help you make sure there are no mistakes or errors that might compromise your family’s finances. Contact the Law Office of Scott C. Soady to speak with a qualified lawyer today.