Category Archives: Estate Planning, Trust and Probate

What is Probate?

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Probate is the process of after death transfer of assets and payment of debts under the supervision of the Superior Court of California. The process takes about one year and is open to the public. Major procedures in the probate process are:

  1. File petition with the Probate Court
  2. Provide notice to all heirs and beneficiaries
  3. Publish in local newspaper public notice of petition
  4. Attend court hearing and obtain letters of authority
  5. Marshall assets
  6. Prepare inventory and appraisal
  7. Notice third party creditors, pay or deny creditor’s claims and if necessary sell assets
  8. Report and account for assets to the court and obtain approval of the court for all actions taken by the personal representative
  9. File ex parte petition for final discharge and order to close probate

An estate is all property owned by the person who has died (the “decedent”).  A decedent’s property includes life insurance proceeds on life insurance policies owned by the decedent.

The Actors in a Trust

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The Actors

A person owns an asset. The owner acquired the asset, controls the asset and benefits from the asset. A trust is a written document creating three separate actors for the asset.

Creator – The owner of the asset creates the trust is known as the settlor or trustor

Trustee – The trustee is the person who has the responsibility or duty of caring for the asset.

Beneficiary – The beneficiary is the person who enjoys the asset

When a trust is created, the creator, trustee and beneficiary are the same person. But on the death of the creator, different people step into the shoes of the trustee and the beneficiary. The trustee has duties and responsibilities relating to the care and distribution of assets and the beneficiary receives the assets or the benefits of the assets.

Undue Influence and Will Contests in Probate Court

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Undue Influence and Will Contests in Probate Court

 Author: Mark W. Bidwell, 949-474-0961 www.BidwellLaw.com

California law states the execution or signing of a will, trust or amendment is ineffective to the extent the execution was procured by duress, menace, fraud, or undue influence. In California allegations of undue influence and incapacity are often made against the primary care giver who becomes the successor trustee of the Trust or executor of the Will. Undue influence requires three events at the time of the will or trust execution.

First requirement: the existence of a confidential or fiduciary relationship between the testator and the person alleged to have exerted undue influence.

Second requirement: active participation by such person in preparation or execution of the will or trust.

Third requirement: an undue benefit to such person or another person under the will or trust is obtained.

It is not unusual for a person to want to give more money to the person who provided love and care in the elder years. But the situation immediately completes two of the three prongs of undue influence, that of a confidential relationship and an unequal benefit. As a result litigation turns on the element of active participation. Legal representation is needed to defend against the charge of undue influence or to prove the existence of undue influence.

Independent Administration of Estates Act (the “IAE Act”)

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Independent Administration of Estates Act (the “IAE Act”), Probate Code §§ 10400 et seq.

The IAE Act allows you to cut through some of the red tape.

Probate Code § 10500.  (a) Subject to the limitations and conditions of this part, a personal representative who has been granted authority to administer the estate under this part may administer the estate as provided in this part without court supervision, but in all other respects the personal representative shall administer the estate in the same manner as a personal representative who has not been granted authority to administer the estate under this part.

But you will still require court supervision for the following acts.

Probate Code § 10501.  (a) Notwithstanding any other provision of this part, whether the personal representative has been granted full authority or limited authority, a personal representative who has obtained authority to administer the estate under this part is required to obtain court supervision, in the manner provided in this code, for any of the following actions:

   (1) Allowance of the personal representative’s compensation.

   (2) Allowance of compensation of the attorney for the personal representative.

   (3) Settlement of accounts.

Ancillary Administration

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Ancillary Administration for California Real Estate Property

Author: Mark W. Bidwell, 949-474-0961 www.BidwellLaw.com

Ancillary administration is needed when someone living in another state dies and has assets in California.  Generally, unless the Probate Code provides otherwise, ancillary administration of a decedent’s estate is subject to all other provisions of the Probate Code concerning the administration of a decedent’s estate.

Proper Venue (California Probate Code Section 7052) If a person who died (nondomiciliary decedent) is not a resident of California the proper venue is the county where the nondomiciliary decedent owned property and either died in that county or is the first county in which a petition for ancillary administration is filed.

Alternatives to Probate

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Alternative Asset Transfers on Death to Avoid Probate

Mark W. Bidwell, 949-474-0961 www.Bidwelllaw.com

Trusts

A Trust is a contract between the creator of the Trust, (the “Settlor”) and a Trustee for the benefit of another person, (the “beneficiary”). The Trust is created while the person is living, hence the term “living trust.”  Typically at the date of creation of the Trust the Settlor, Trustee and beneficiary are the same person. Legal title of property is transferred from the Settlor to the Trust. The Trust document identifies a third party as the “Successor Trustee.” The Successor Trustee assumes his or her duties upon the death of the Settlor. The Successor Trustee has the authority to transfer assets legally titled into the trust from the deceased Settlor to the beneficiaries identified in the Trust. 

Designated Beneficiary Contracts

Contracts with designated beneficiaries are life insurance policies, IRAs, Keoghs, and 401(k) accounts. Contracts between the owner of the asset and the financial institution are transferred by the owner designating the beneficiaries in writing to the financial institution. Legal title of these assets is transferred without probate. Benefits are paid directly by the financial institution to the named beneficiaries.  Bank accounts that are set up as pay-on-death accounts (PODs) or “in trust for” accounts (a “Totten Trust”) with a named beneficiary also pass to the beneficiary without probate.

 

Joint Tenancy

Joint tenancy is a way for two or more people to own property in equal shares so when one joint tenant dies the property passes to the surviving joint owner without having to go through probate court. A decedent’s ownership in a joint tenancy automatically transfers by operation of law to the surviving owner and is not part of an estate for transferring, but is included in the estate for assessing estate taxes.  Paperwork needed to transfer real estate owned in joint tenancy is an affidavit death of joint tenant and a death certificate, filed and recorded with the county recorder.

 

Small Estate Declaration

Small estate declaration is for estates that do not contain real estate and are less than $100,000. Transfer of legal title to the heirs (or the beneficiaries named in the Will) is accomplished by using a declaration. This method is called the Section 13100 Procedure. 13100 is the section of the California Probate Code authorizing this type of transfer. This procedure has certain rules:  1) it cannot be used to transfer legal title to real property; 2) a period of 40 days must pass before transfer is made; 3) a written declaration of the facts signed under penalty of perjury must be provided to the holder of the asset by the person requesting transfer.

AB, Exemption, Credit Shelter and Bypass Trusts

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AB, Exemption, Credit Shelter and Bypass Trusts

Author: Mark W. Bidwell, 949-474-0961 www.BidwellLaw.com

A hybrid trust is the AB Trust, also known as the credit shelteror bypass or exemption trusts. This trust is created by a married couple and is revocable. Upon the death of the first spouse, the assets of the first spouse are placed into an irrevocable trust. The purpose of the irrevocable portion of the trust is to protect the estate tax exemption of the deceased spouse.

The Internal Revenue Service defines the estate tax as “a tax on your right to transfer property at your death.” Each person in the United State has an exemption amount that is not subject to estate taxes. There is no California estate tax.

Currently, the first $5 million of a decedent’s assets transfer to the decedent’s heirs without paying any federal estate tax. The $5 million exemption sunsets in the year 2013 and the exemption amount is reduced to $1 million.

Assume the first spouse dies in 2013 and the married couple has no trust, but does have $2 million in assets. The federal government does not tax widows and widowers. So the deceased spouses $1 million transfers to surviving spouse estate tax free. Now the surviving spouse has $2 million in assets. Upon the death of the second spouse, the first $1 million in assets will transfer to the children estate tax free, but the second million dollars will be subject to estate tax.

The irrevocable exemption trust, also known as a credit shelter trust, also known as a bypass trust, also known as an AB trust preserves the exemption amount of the first spouse to die. The deceased spouse’s assets are placed in the irrevocable trust and are effectively taxed. But the exemption amount offsets any estate taxes. At the death of the second spouse both trusts are combined and distributed to the children. This type of trust doubles the exemption amount.

Irrevocable Compared to Revocable Trust

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Irrevocable Compared to Revocable Trust (For Advanced Estate Planning)

Author: Mark W. Bidwell, 949-474-0961

There are two types of trusts, revocable and irrevocable. Irrevocable trusts cannot be changed or revoked. Irrevocable trusts are used for reduction of estate taxes and post death control of assets. Trusts that are irrevocable upon creation are used for advanced estate planning to reduce or eliminate federal estate taxes. Trusts that become irrevocable on death and do not require the immediate distribution of assets are used for either charitable purposes or to restrict access to the assets of the trust by the children and grandchildren of the trust creator.

Revocable trusts can be amended, restated and revoked. The vast majority of trusts created in California are revocable trusts that require the timely distribution of assets on death to beneficiaries of the trust who have attained 18 years of age.