Posts tagged probate
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.

Is a durable power of attorney better than using a revocable living trust?

A durable power of attorney allows you (the "principal") to name someone (i.e., your "agent") to manage your assets. This can be especially helpful if you become incapacitated and want to avoid having a conservator appointed.

In fact, most comprehensive estate plans prepared by lawyers include a durable power of attorney. Durable powers of attorney, however, have some disadvantages that revocable living trusts do not have. 

Probate

A durable power of attorney does not avoid probate at the time of death.

Fiduciary Duty

Agents under a durable power of attorney generally have fewer obligations than trustees of a trust, and are tasked with only typical fiduciary obligations. The agent under a power of attorney is also not required to act on your behalf.

Accountings 

Agents under a durable power of attorney are not required to keep beneficiaries reasonably informed, unless demanded by the principal or by court order.  In contrast, a trustee of a trust has an obligation to keep beneficiaries reasonably informed of the trust and its administration.

Acceptance by Financial Institutions

One practical downside of durable powers of attorney is that financial institutions are often reluctant to accept the document. Sometimes banks and other institutions have internal policies requiring their own forms be used. Assets titled in the name of a trust, on the other hand, typically do not have this problem as financial institution usually feel more confident in relying on trust documents.

How can I prevent a family allowance during the probate of my estate?

A family allowance can be a serious drain on the assets of a decedent's estate. As such, one may want to consider options to soften its potential blow. It's important to note that family allowances are not a major issue for most clients. Some situations more than others may call for considering one of the following options to limit his or her family members' ability to request a family allowance.

Waiving a family allowance

Under California Probate Code Section 141(a)(5), a surviving spouse may waive his or her right to a family allowance. The waiver must be in writing, and the surviving spouse must do so voluntarily and have knowledge of the relevant facts. The precise form of a waiver is beyond the scope of this post; however, more specifics are laid out in California Probate Code Sections 140-147.

Another strategy is to force the surviving spouse or other family members to decide between a gift left to them in the deceased spouse's Will or to request that a court grant a family allowance. Prior to death, the deceased spouse would include provisions in his Will which would cause the beneficiary to forfeit their gift if  a family allowance is requested.

If the gift is substantial, and there's a risk that a judge may deny or only grant a small family allowance, the family members may think twice before requesting a family allowance. There's no statutory support for this approach, and to date, this technique does not appear to be tested in a court of law; however, it may be a worthwhile strategy to consider in situations where a waiver is not possible.

The impact of a family allowance cannot be underestimated, and for certain clients, it is imperative to think through how it might affect their estate plan.

What is a "family allowance" in probate?

During the probate of an estate, certain family members of the deceased person may request an allowance to be paid from the estate for their maintenance. California Probate Code Section 6540 states that:

(a) The following are entitled to such reasonable family allowance out of the estate as is necessary for their maintenance according to their circumstances during administration of the estate:

(1) The surviving spouse of the decedent.

(2) Minor children of the decedent.

(3) Adult children of the decedent who are physically or mentally incapacitated from earning a living and were actually dependent in whole or in part upon the decedent for support.

(b) The following may be given such reasonable family allowance out of the estate as the court in its discretion determines is necessary for their maintenance according to their circumstances during administration of the estate:

(1) Other adult children of the decedent who were actually dependent in whole or in part upon the decedent for support.

(2) A parent of the decedent who was actually dependent in whole or in part upon the decedent for support.

(c) If a person otherwise eligible for family allowance has a reasonable maintenance from other sources and there are one or more other persons entitled to a family allowance, the family allowance shall be granted only to those who do not have a reasonable maintenance from other sources.

In other words, this statute covers people who primarily relied on the deceased person for support. It also limits the ability of those who already have a reasonable amount of resources from requesting an allowance.

Family allowances are problematic because of the significant amount of time it takes to go through the probate process in California. Often, probate administration lasts a year or more. Thus, for example, if a decedent named non-family members as beneficiaries of his or her Will, it's possible that the family allowance would eat away at the named beneficiaries' inheritance.

Some counties limit the amount of time that a family allowance will last, but California Probate Code Section 6543 states that:

(a) A family allowance shall terminate no later than the entry of the order for final distribution of the estate or, if the estate is insolvent, no later than one year after the granting of letters.

(b) Subject to subdivision (a), a family allowance shall continue until modified or terminated by the court or until such time as the court may provide in its order. 

In other words, the family allowance may continue until (1) the judge issues the final order distributing the assets of your estate, or (2) if the liabilities of the estate exceed its assets, no later than one year after "Letters" (the document officially appointing your Executor or Administrator) is granted.

It's therefore important to talk with an estate planning lawyer to determine whether a family allowance poses a significant risk in your particular case.