You must fund your trust with your assets

Dear Len & Rosie,

My husband died three weeks ago. He had a trust of his own. If he has some accounts that are not in the trust, and have no beneficiary listed, who inherits those? He has two sons. I, his wife, am co-executor of his will and co-trustee of his trust with his oldest son.

Margot

Dear Margot,

Once your husband created his trust, his only real job after that was to fund his trust with his assets. Trusts avoid probate, but only for those assets that owned titled in the name of the trustee of the trust. If he left accounts in his name alone, outside the trust, and without any joint tenants or beneficiaries, then he didn’t finish the job. Now it’s up to you and your step-son to do it.

These non-trust assets will pass under the terms of your late husband’s will. Since he has a trust, it’s more likely than not that the will is a “pour-over will” that leaves the estate to the trust.

If the total value of the non-trust assets are worth less than $150,000, then there’s no probate necessary. The persons inheriting these accounts, the “successors in interest”, can collect the accounts directly, without probate, using small estate declarations under California Probate Code section 13101. You’ll have to wait 40 days or more after your husband’s date of death to do this, however, and there are other issues to consider, such as whether or not the trust requires a taxpayer identification number obtained from the IRS.

If the total value of the non-trust accounts in the probate estate is worth more than $150,000, then there are only two options. The first is probate. This is expensive and time consuming.

The alternative to probate is to petition the court seeking an order declaring that these assets are really owned by the trust, no matter what the account statements say. There’s an appellate court decision in California, called “Estate of Heggstad”, that basically stands for the proposition that if your husband’s trust document includes a list of trust assets, then the trust document itself may be a valid assignment of assets to the trust, despite your husband never having gone to his banker and broker to retitle his accounts into the name of the trust.

There’s also another appellate decision in a case named “Heaps vs. Heaps” that can be used to drag into a trust non-trust assets that were purchased with trust property. A good example of this is if your husband sold a home held within his trust and put the money into a brokerage account titled in his name alone.

These techniques don’t work in every case. Our point is that you don’t necessarily have to file for probate if a trust isn’t funded properly. You and your step-son should gather your husband’s account statements, deeds and stock certificates, together with his trust and other estate planning documents, and review everything with a trusts and estates attorney.


Len & Rosie

Beware of Selfish Siblings

Dear Len & Rosie,

My father passed away a year ago. He had a living trust and my brother is the trustee. There are five children surviving. My mother is also deceased. After my dad’s death, my sister, my brother the trustee and I began clearing the house of forty-five years worth of possessions. We took out two dumpsters of garbage, and gave loads and loads of items to the Goodwill. This took us many emotional months to accomplish. Our other two siblings were not interested in helping and when asked if they wanted anything responded by telling us to take whatever we wanted. The valuable items were divided - we got first choice as the other two were not interested - but we did give them a share.

Now my brother the trustee received a certified letter from our oldest sibling stating that she is entitled to an accounting of the distribution of the items. We do not know her motive. She may request some of these items or maybe she wants money. What is our legal obligation to her request? Isn’t the trustee entitled to divide the items as he believes is fair?

Annette

Dear Annette,

The problem with being a trustee is that despite being closely related to the trust beneficiaries, your brother is still a fiduciary. He’s like the person standing behind the counter at the bank. He owes each beneficiary a fiduciary duty, which is equally a duty of competence (don’t mess up) and a duty of loyalty (treat all beneficiaries fairly).

As we have told readers before, a trustee of a trust has as much work to do as the executor of an estate in probate. The advantage of a trust is that your family gets to avoid the built in time delays of probate, as well as the statutory probate fees that are very lucrative for lawyers.

A trust also gives a family the opportunity to cut corners. If everyone gets along, trust administration could be little more than a paperwork drill of paying off debts and taxes and shoveling everything into the names of the beneficiaries. But the decision as to whether or not to take the “quick and dirty” route isn’t one your brother the trustee gets to make. Trust beneficiaries are entitled to an accounting, and if your older sister did not waive an accounting, she’s still entitled to one.

Your brother has a choice. He can either attempt to provide your sister with an accounting, or he can ignore her and hope she’ll go away. Just understand that if she hires a lawyer and petitions the court, there is a very good chance the judge will order a full accounting. Your brother can argue that your sister waived a trust accounting, at least with respect to the personal possessions, but he hasn’t got anything in writing.

People like your sister who are unwilling to pitch in and help the family when there’s an illness or death are the same people who insist on squeezing every last dime out of a trust or estate, no matter how much work others have to do. Both behaviors are an expression of selfishness. The lesson here is that trustees should seek legal help when administering a trust, if only to make sure that they are doing everything correctly and that if they cut corners, they aren’t going to expose themselves to future liability.

Len & Rosie