San Diego Estate Planning Lawyer Blog
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
In this case, a married couple established a trust in 1978. Like most living trusts, the couple intended for the trust to provide for them during their lifetimes, and after they were gone, to benefit their daughter and her three children. The husband died in 1991. At that time, the trust was divided into four sub-trusts-this is done for tax-planning reasons that need not be discussed here-with the wife named as the beneficiary of all trust income. Upon the wife’s death, the remaining trust assets would be divided among her daughter and grandchildren.
The wife remarried in 1998. Her new husband was subsequently appointed by a probate court as his wife’s conservator and successor trustee in 2007. The trust itself contains four pieces of real property located in and around San Francisco. One of those properties is a home where the wife’s daughter lives.
The wife’s second husband, now acting as trustee, asked a probate judge for permission to sell this home. He argued it cost the trust more than $1,300 per month to maintain the property. By selling the house and investing the proceeds in an income-generating asset (such as a mutual fund), the trust could start earning income for the wife-the trust’s beneficiary-rather than continuing to subsidize losses.
The daughter objected. She argued the sale would represent an improper reduction of the principal assets of the trust. The court disagreed. As the Court of Appeal observed, the proposed sale merely changed the “form of the principal.” Although the sale would obviously pose a short-term inconvenience for the daughter-as she will be evicted from the house-the trustee’s function is to preserve the long-term viability of the trust assets. In other words, selling the house now means there will be more money later to distribute to the final beneficiaries of the trust, including the daughter.
Establishing a Trust
In establishing a trust, it is crucial to select a successor trustee who will manage your assets according to your wishes. While a trust can simplify probate, it is not a simple undertaking. Before creating a trust you should always speak with a qualified California estate planning attorney. Contact the Law Office of Scott C. Soady today if you have any questions.