Posts in Probate
What is a pour-over Will?

A pour-over Will is a document used to transfer assets to the trustee of a revocable living trust. The assets which are "poured over" into the revocable living trust are then administered pursuant to the terms of the revocable living trust (along with the assets that were already held by the living trust).

A pour-over Will is deemed valid if:

(a) the trust is identified in the Testator's Will; and

(b) the terms of the trust are provided in:

(i) a written document that was signed (other than the Will) before, during, or within 60 days after the signing of the pour-over Will; or

(ii) the Will of someone else who died before the Testator.

The specific statutory provision related to the validity of a pour-over Will can be found in Probate Code Section 6300, which provides:

(a) A devise, the validity of which is determinable by the law of this state, may be made by a will to the trustee of a trust established or to be established by the testator, by the testator and some other person, or by some other person (including a funded or unfunded life insurance trust, although the settlor has reserved any or all rights of ownership of the insurance contracts) if the trust is identified in the testator’s will and its terms are set forth in a written instrument (other than a will) executed before, concurrently with, or within 60 days after the execution of the testator’s will or in the valid last will of a person who has predeceased the testator (regardless of the existence, size, or character of the trust property). The devise is not invalid because the trust is amendable or revocable, or both, or because the trust was amended after the execution of the will or after the death of the testator.

(b) Unless the testator’s will provides otherwise, the property so devised (1) is not deemed to be held under a testamentary trust of the testator but becomes a part of the trust to which it is given and (2) shall be administered and disposed of in accordance with the provisions of the instrument or will setting forth the terms of the trust, including any amendments thereto made before or after the death of the testator (regardless of whether made before or after the execution of the testator’s will).

(c) Unless otherwise provided in the will, a revocation or termination of the trust before the death of the testator causes the devise to lapse.

Often clients acquire assets after creating a trust and forget that those assets should be re-titled in the name of the trust. The pour-over Will, while it may not avoid probate, can be viewed as a back-up document to ensure that all of the client's assets pass in accordance with the provisions of his living trust.

What is ademption?

If you provide for a specific gift of property in your Will, but you don't own it at the time of your death (perhaps you sold it, gave it away or lost it), that gift has been "adeemed." California's approach to ademption generally depends on the testator's intent. California Probate Code Sections 21132-21135 provide some specific rules regarding ademption that are worth noting.

Specific Gifts

If a testator leaves a specific gift to a beneficiary, but not all of it is owned at the time of the testator's death, then we can look to California Probate Code Section 21133, which describes additional substitute property the beneficiary may be entitled to. This section provides:

A recipient of an at-death transfer of a specific gift has a right to the property specifically given, to the extent the property is owned by the transferor at the time the gift takes effect in possession or enjoyment, and all of the following:

(a) Any balance of the purchase price (together with any security agreement) owing from a purchaser to the transferor at the time the gift takes effect in possession or enjoyment by reason of sale of the property.

(b) Any amount of an eminent domain award for the taking of the property unpaid at the time the gift takes effect in possession or enjoyment.

(c) Any proceeds unpaid at the time the gift takes effect in possession or enjoyment on fire or casualty insurance on or other recovery for injury to the property.

(d) Property owned by the transferor at the time the gift takes effect in possession or enjoyment and acquired as a result of foreclosure, or obtained in lieu of foreclosure, of the security interest for a specifically given obligation.

Thus, for example, if one writes a Will that says, "I leave my home on 123 Main St. Los Angeles, CA to Roger." and then that person later sold half of the property and took back a secured promissory note from the buyer, the promissory note would also be part of the gift to Roger.

Conservator, Agent, or Trustee

If you provide for a specific gift of property and later while you are incapacitated, your (a) agent under a durable power of attorney, (b) successor trustee, or (c) conservator sells or encumbers the property , then the beneficiary will receive money in an amount equal to the net sales price of the property or the amount yet unpaid on the loan on the property (including the property itself). California Probate Code Section 21134 provides the specific details:

(a) Except as otherwise provided in this section, if, after the execution of the instrument of gift, specifically given property is sold, or encumbered by a deed of trust, mortgage, or other instrument, by a conservator, by an agent acting within the authority of a durable power of attorney for an incapacitated principal, or by a trustee acting for an incapacitated settlor of a trust established by the settlor as a revocable trust, the transferee of the specific gift has the right to a general pecuniary gift equal to the net sale price of the property unreduced by the payoff of any such encumbrance, or the amount of the unpaid encumbrance on the property as well as the property itself.

(b) Except as otherwise provided in this section, if an eminent domain award for the taking of specifically given property is paid to a conservator, to an agent acting within the authority of a durable power of attorney for an incapacitated principal, or to a trustee acting for an incapacitated settlor of a trust established by the settlor as a revocable trust, or if the proceeds on fire or casualty insurance on, or recovery for injury to, specifically gifted property are paid to a conservator, to an agent acting within the authority of a durable power of attorney for an incapacitated principal, or to a trustee acting for an incapacitated settlor of a trust established by the settlor as a revocable trust, the recipient of the specific gift has the right to a general pecuniary gift equal to the eminent domain award or the insurance proceeds or recovery unreduced by the payoff of any encumbrance placed on the property by the conservator, agent, or trustee, after the execution of the instrument of gift.

(c) For the purpose of the references in this section to a conservator, this section does not apply if, after the sale, mortgage, condemnation, fire, or casualty, or recovery, the conservatorship is terminated and the transferor survives the termination by one year.

(d) For the purpose of the references in this section to an agent acting with the authority of a durable power of attorney for an incapacitated principal, or to a trustee acting for an incapacitated settlor of a trust established by the settlor as a revocable trust, (1) “incapacitated principal” or “incapacitated settlor” means a principal or settlor who is an incapacitated person, (2) no adjudication of incapacity before death is necessary, and (3) the acts of an agent within the authority of a durable power of attorney are presumed to be for an incapacitated principal. However, there shall be no presumption of a settlor’s incapacity concerning the acts of a trustee.

(e) The right of the transferee of the specific gift under this section shall be reduced by any right the transferee has under Section 21133.

Life can bring unexpected changes to one's assets; however, the law does provide some mechanisms to ensure that your beneficiaries are taken care of in common situations.

What can a married person transfer by a Will?

A spouse can transfer his or her separate property and 1/2 of community property and quasi-community property. Problems arise when a spouse tries to transfer more than 1/2 of the community and quasi-community property by a Will or otherwise.

Forced / Widow's Election

When a deceased spouse attempts to transfer by Will more than his or her 1/2 interest in community property, the transfer is voidable by the surviving spouse. Although rarely used nowadays, in situations where one spouse is particularly wealthy, he or she may utilize a strategy to specify in the Will that all of the community property is to be held in an irrevocable trust for the benefit of the surviving spouse during her lifetime. The Will may further provide that the surviving spouse can either agree to this arrangement, or make an election to enforce the surviving spouse's right in 1/2 of the community property and give up the right to the lifetime benefit of the deceased 1/2 interest in community property.  This is known as a "forced" or "widow's" election.

Aggregate vs Item Theory of Community Property

Sometimes the problem of transferring a specific item of community property may be handled by having spouses agree to using the  aggregate theory of community property. The aggregate theory of community property essentially is the idea that each spouse owns 1/2 of the community property by value rather than by item. Therefore, under the aggregate theory, a spouse may bequeath 1/2 of his or her assets without making mention of a specific asset. Under the item theory, a spouse only has the power to dispose of his or her 1/2 interest in any particular community property asset. California's default rule is to follow the item theory unless the spouses agree in writing otherwise.

Although the subject of a deceased spouse transferring a surviving spouse's interest in community property may be fairly infrequent, this concept highlights an important point. A person may not dispose of assets that he or she does not actually own.

What are the benefits of using a revocable living trust rather than only a Will?

The revocable living trust is considered by many practitioners to be the central document in modern estate planning for individuals in California. As you may already know, the assets held in a valid revocable trust pass without the need for the time and expense associated with probate. Thus, in many people's eyes, using a revocable living trust renders all of the benefits of a Will, without the downsides.

The trust document is the "instruction manual" that your successor Trustee (the person or corporate entity who you've put in charge after you become incapacitated or die) will use to manage and distribute your assets. Generally, the successor Trustee will be one or more individuals or corporate entities that you specifically name in your trust to succeed you. However, even if the successor Trustee you've named is unavailable or dies, the California Probate Code provides a statutory framework to resolve such issues. Specifically, California Probate Code Section 15660 provides:

(a) If the trust has no trustee or if the trust instrument requires a vacancy in the office of a cotrustee to be filled, the vacancy shall be filled as provided in this section.

(b) If the trust instrument provides a practical method of appointing a trustee or names the person to fill the vacancy, the vacancy shall be filled as provided in the trust instrument.

(c) If the vacancy in the office of trustee is not filled as provided in subdivision (b), the vacancy may be filled by a trust company that has agreed to accept the trust on agreement of all adult beneficiaries who are receiving or are entitled to receive income under the trust or to receive a distribution of principal if the trust were terminated at the time the agreement is made. If a beneficiary has a conservator, the conservator may agree to the successor trustee on behalf of the conservatee without obtaining court approval. Without limiting the power of the beneficiary to agree to the successor trustee, if the beneficiary has designated an attorney in fact who has the power under the power of attorney to agree to the successor trustee, the attorney in fact may agree to the successor trustee.

(d) If the vacancy in the office of trustee is not filled as provided in subdivision (b) or (c), on petition of any interested person or any person named as trustee in the trust instrument, the court may, in its discretion, appoint a trustee to fill the vacancy. If the trust provides for more than one trustee, the court may, in its discretion, appoint the original number or any lesser number of trustees. In selecting a trustee, the court shall give consideration to any nomination by the beneficiaries who are 14 years of age or older.

As you can see in part (d) above, even though probate may be avoided by using a revocable living trust, the beneficiaries may still use the court system to assist in matters such as appointing a trustee of a trust.

Another reason people may gravitate towards use of a revocable living trust is the relatively private nature of trust administration. Because probate is a court proceeding, the open public can get access to whatever may be filed in a particular probate. While trust documents must be disclosed to beneficiaries under certain circumstances such as when the creator of a trust passes away, that is the exception and not the rule.

At the end of the day, the time delay and cost associated with probate proceedings is often enough to convince people of the necessity of utilizing a revocable living trust.