The Way A Trust Works

Dear Len & Rosie,

My family has a living trust with two properties that amount to around $1.5 million and also a few hundred thousand dollars in cash in various bank accounts. My Grandmother and Grandfather were the owners of the properties and money until they passed away a couple years ago at the ages of 94 and 96. My father is 75 and is the last living child (both his brothers have passed), and according to my grandparents’ trust has since acquired everything, although no paperwork has changed and everything still appears in my grandparents’ names.

My father is having a lot of heart trouble and is in the hospital as I write after suffering his 4th seizure this morning, he is ok for now. The living trust has the beneficiaries in order of my father, my oldest brother, my middle brother and then me. Both of my brothers have moved out of the state so my father and I would like to amend the trust to list me as the primary beneficiary. I am the one who will have to deal with everything anyway when my father passes.

Toby

Dear Toby,

It seems fairly clear from the context of your letter that your father never got around to seeing an attorney about his parents’ trust after they passed away. And you may also be a bit confused about the way trusts work.

We cannot be sure without actually reviewing your grandparents’ trust, but if the trust left everything to your father upon their deaths, then the properties and cash should be distributed outright to your father, unless his inheritance is supposed to be held in trust for your father’s lifetime benefit. If your father were to pass away, his interest in his parents’ trust will likely belong to his probate estate and shall then pass under the terms of your father’s will, if he has one.

What you and your father ought to do is to review his parents’ trust with an attorney to verify what ought to be done. He should also look into his own estate plan and should probably create his own revocable trust.

You also need to understand that there is a distinction to be made between who inherits a trust when someone dies (the beneficiaries) and who shall have the responsibility of administering the trust, paying the bills and taxes, and distributing what’s left to the beneficiaries (the successor trustees). It certainly makes sense for your father’s estate plan to name you as his successor trustee, if you’re the only child who lives nearby. But your father shouldn’t name you as his sole beneficiary unless he wants to disinherit his two other sons. There’s nothing preventing your brothers from inheriting California properties if they live out of state, or even out of the country. Unless that’s what your father wants. He needs to see a lawyer soon.

Len & Rosie
 

Daughter named as a joint tenant won't share.

Dear Len & Rosie,

My mother-in-law passed away recently. She added her daughter, my sister-in-law, to her bank account and mutual funds when she could no longer manage things on her own. After her death, my sister-in-law withdrew all of the money out of the accounts even though her mother had a will splitting her estate fifty-fifty with her children.

Please warn your readers about this happening to them. Our case is in court now, but we have to prove my mother-in-law’s intention that everything was be divided equally. Our case looks really weak, but if at least I can spread the word. You never know what a sibling might do when a death occurs. Parents need to know to be very specific when making out their wills.

Sharon

Dear Sharon,

Experience has lead us to expect the worst from people when a parent or other relative whose estate they have an interest in dies. In most cases, children get along well with one another and are happy to cooperate to make things fair. But more often than we would like to acknowledge, otherwise normal, kind and caring people become crazed and turn on their siblings like wolves fighting over a bone.

It is unfortunate that we cannot assume the good intentions of our children. The best way to make sure our assets are divided the way we want upon our deaths is to create an estate plan, either a revocable trust or a will, that clearly and concisely spells it out. Your mother-in-law did this, but she threw her estate plan out the window when she made the mistake of adding her daughter to her accounts as a joint tenant. Joint tenancy property does not pass through probate, no matter what the will says. Your husband has an uphill battle. To win he has to prove your mother put his sister on the accounts for convenience only.

How could this have been avoided? The easiest way would have been for your mother-in-law to have put both children on her accounts instead of just her daughter. Or, she could have added her daughter to her bank accounts using the bank’s power-of-attorney forms. This would have allowed your sister-in-law to pay her mother’s bills without becoming a joint owner of her mother’s bank accounts. If your mother-in-law owned enough assets that avoiding probate was important to her, then she should have created a trust.

Adding children to your accounts as a joint tenant is a cheap and easy way to avoid probate. But in your case, it backfired. You can be sure that your lawyers will earn more money in this lawsuit than they would have earned in probate fees if the estate had been subject to probate. Its a hard lesson to learn, Sharon, but maybe you’ll get lucky and win in court. Good luck.

Len & Rosie