LIVING TRUSTS

Published on: June 19, 2016

Who Pays for a Lawsuit Contesting My Trust?

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 27, 2016

Can I Transfer Ownership of My Stocks Without a Will?

by Scott C. Soady

While real estate and cash are the first assets you might think about in connection with estate planning, you should not neglect your stock portfolio. According to a 2015 Gallup poll, approximately 55% of Americans have money invested in the stock market. The law in California and many other states offers a process for transferring your stock without having to go through a formal probate process.

What is a TOD Registration?

Although stock offerings are regulated by the federal government through the U.S. Securities and Exchange Commission, the actual registration of stock ownership is handled under state law. And just about every state has adopted the Uniform TOD Security Registration Act. The “TOD” stands for “transfer on death.”

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: 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 2, 2016

Is My Will a Matter of Public Record?

by Scott C. Soady

Privacy is always an important consideration when it comes to family and financial matters. This includes estate planning. For example, you may not want the general public—or even certain family members—to know about the specifics of your estate and how you choose to distribute it.

Famously Reclusive Author’s Will Sealed by Court Order

The well-known American author Harper Lee, who wrote To Kill a Mockingbird and its 2015 sequel, Go Set a Watchman, was famous for maintaining her privacy. The publication of Watchman more than five decades after Mockingbird was considered a major literary event. Lee died in February, 2016.

Published on: March 30, 2016

Do I Have to Treat All My Children the Same in My Will or Trust?

by Scott C. Soady

Multiple children can complicate your estate planning. If you have children at different levels of maturity, you should take that into account when making a last will and testament or revocable living trust. Keep in mind the law does not require you treat your children identically. It is okay to make certain provisions for one child but not the other.

Keeping an Inheritance in Trust

It is a common estate planning practice to give part (or all) of your estate to a trustee who can manage your assets for the benefit of your children. Such a trust can be structured to allow the trustee to spend any necessary funds for your child’s health, education, and maintenance. The child would then be entitled to distributions of the trust’s principal at a certain age. This can even be done in multiple stages. For example, you could specify a child will receive one-third of her inheritance when she turns 21, another third when she turns 25, and the remainder when she turns 30.

Published on: March 6, 2016

Planning for Succession in a Living Trust

by Scott C. Soady

When you create a revocable living trust as part of your estate plan, it is typical to name yourself as the initial trustee. This allows you to retain maximum control over the trust assets during your lifetime. But there may come a time when you are no longer physically or mentally capable of administering the trust yourself. This is why your trust should always contain a disability clause that provides a clear method for determining when and how you may be removed in favor of a successor trustee.

Father’s “Disability Panel” Conflicts With New Wife

A disability clause may be especially helpful in cases where the person making the trust is under the undue influence of someone else. A recent case from here in San Diego offers a useful illustration of this point. This case involves a still-living man who created a trust in 1998, which he revised in 2008. Under the 2008 revision, the man appointed his three children and one of their spouses as a “disability panel” to make a “final, binding, and controlling” determination should he become disabled and unable to continue as trustee. If and when the disability panel made such a finding, one of the man’s sons would take over as successor trustee.

Published on: March 5, 2016

What is the Best Way to Leave Money to a Child?

by Scott C. Soady

If you plan to leave money or other assets to a minor as part of your estate plan, you need to consider how such a gift will be administered. Minors—that is, anyone under the age of 18—generally cannot manage their own funds. Under California probate law, a court may appoint a guardian for the minor’s estate, which may include a gift left to him or her under someone else’s estate plan. But there are other alternatives to consider.

The California Uniform Transfer to Minors Act

Let us say you want to leave your niece, who is currently six years old, a gift of $10,000 in your will. Assuming you die before she turns 18, your will can specify this gift will be made to her father (your brother) under the California Uniform Transfer to Minors Act (CUTMA). This is a law that basically allows you to make a gift to a minor through an adult “custodian.” So in this scenario, your estate would give the $10,000 gift to your brother, who would serve as custodian of the funds for your niece. The custodian is largely free to invest and manage the money as he sees fit, provided he must turn whatever funds there are to the minor when she reaches the age of 18.