A living trust can be an excellent estate planning tool. The benefit of a trust is that assets can pass directly to your chosen beneficiaries without the need for probate. But if your wishes change during your lifetime, it’s important to amend your trust in a timely manner and ensure that any assets previously placed in trust are properly registered. Never assume that a bank or other institution managing your asset is aware of changes to your trust or estate plan.
An unpublished California appeals court decision from last year shows what can happen when a trust amendment is not properly administered. The case involved two trusts established by Marjorie Fae Howard. Howard created her first living trust in 1992 with herself as trustee and her son, Lawrence Howard, as successor trustee upon her death. The trust provided for an equal distribution of Howard’s assets between her three children, including Lawrence.
Subsequently, Marjorie and Lawrence Howard had a falling out. In 2002 she removed his name from a number of assets jointly registered in their names, including her automobile and safe deposit box. By November 2002, Marjorie Howard retained an estate planning attorney to prepare a new living trust to replace the 1992 trust. The 2002 trust named another of Marjorie’s sons, William Howard, as successor trustee. Whereas the 1992 trust provided for an equal distribution between the three children, Marjorie now wished to give William and her third son, Joe, $125,000 upfront before distributing any remainder equally among all three sons.
The 2002 trust was a new creation rather than an amendment to the 1992 trust. This meant Marjorie Howard had to transfer any assets placed in the older trust into the new one. Since the 1992 trust was “revocable,” she was free to do so. One asset in the 1992 trust was a Wells Fargo securities account. In November 2002, Howard sent a letter to Wells Fargo instructing it to transfer the account into the 2002 trust. Wells Fargo never did so and ownership remained, on paper, with the 1992 trust.
Judicial Intervention Required to Establish Ownership
In 2005 Howard amended her 2002 trust to further reduce Lawrence’s inheritance. He would now only receive a $100,000 distribution upon Marjorie Howard’s death with no share of any remainder. By this time the Wells Fargo account had moved to another brokerage but remained titled in the name of the 1992 trust.
Howard died in December 2005. William Howard, the successor trustee for the 2002 trust, tried to resolve the title to the Wells Fargo account without success. When Lawrence Howard discovered the account was still in the name of the 1992 trust-which named him as successor trustee and one-third beneficiary-he attempted to re-register the account in his name.
Litigation ensued. William Howard sought a court order re-titling the account in the name of the 2002 trust that he controlled. The trial court granted this request, noting that “clear and convincing evidence” showed Marjorie Howard’s intent to transfer all of her assets out of the 1992 trust and into the 2002 trust. Last year, nearly six years after Marjorie Howard’s death, a California Court of Appeals panel in Los Angeles upheld the trial court’s order.
The Howard case is considered “unpublished” by the California courts and therefore not a statement of binding law (beyond the parties to the case). It is, however, illustrative of the problems that can arise when trying to amend or update a living trust. Estate planning does not end when you sign a will or trust instrument. Especially when it comes to living trusts, you must take care that each and every asset is properly registered to ensure there’s no dispute as to ownership after your death. Before you consider entering into any living trust you should consult with an experience California estate planning lawyer. If you have any questions or concerns, please contact the Law Office of Scott C. Soady.
Amending a Trust
Disinheriting a Child or Heir in a Will or Trust