What’s new in 2012

Posted in Administration, Legislation at 12:03 am

When a person dies with just a few assets not otherwise formally disposed of, California law provides for “small estate procedures” to handle those assets. Until December 31, 2011, the limits for a “small estate” to be handled with those procedures have been $100,000 in general assets and up to $20,000 in real estate.

Starting January 1, 2012, the new limits will be $150,000 in general assets and up to $50,000 in real estate.


Michael Jackson’s estate planning (or lack thereof)

Posted in Litigation, Probate administration, Wills at 1:41 pm

If you’d like to see the documents filed so far in the Michael Jackson probate matter, here they are: http://www.scribd.com/doc/16974369/Michael-Jackson-Probate-Filings.

In brief, Michael Jackson’s parents are asking the court to appoint Katherine Jackson (Michael’s mother) as guardian of his three children, as administrator of his estate, and as a special administrator to immediately assume control of his assets.

The probate petition is drafted as if Michael Jackson didn’t have a will; supposedly, an attorney has an original will signed by Michael Jackson which will be filed for probate. In California, a person in possession of a decedent’s will has 30 days from the death to deposit the will with the superior court in the county where the decedent lived.


Is funding the bypass trust optional?

Posted in Administration, Trust administration at 8:35 am

A common questionI encounter concerns the administration of a joint trust after the first spouse has died. In California, a typical living trust estate plan will take the form of a joint trust, which splits into two (or three) subtrusts when one of the spouses passes away.

The typical model is that the property that belonged to the person who passed away should be transferred into the “B” or Bypass trust. In some circumstances, another trust – referred to as the Q-TIP or “C” trust – will also be funding with some of the property from the person who passed away.

The other trust – the “A” trust, also known as the Survivor’s trust, holds the property of the spouse who is still living.

It’s not unusual for the surviving spouse – especially if they didn’t pay attention during the estate planning process, or if they used a trust mill or an attorney who couldn’t be bothered to explain the estate plan which was developed – to be surprised to learn that they’re obligated to take half of the property they’re accustomed to thinking of as “theirs”, and to move it into a new bank account or brokerage account.

(The exact details of the split between the A, B, and maybe C trusts depends on the property you own, how title was held (separate property versus community property), and the terms of your trust, so it’s not possible for me to describe exactly what to expect without actually reading your trust and understanding your property situation.)

In any event, unless the joint trust has been specially drafted to preserve flexibility at the first death, the trustee of the trust – typically the surviving spouse – is required to move assets into the bypass trust.

Why is this required? Because the different trusts – A, B, and C – are treated differently from a legal and from a tax point of view. For example, the B and C trusts are typically distributed according to the rules created by both spouses together; while the surviving spouse typically has the power to give the property in the A trust to anyone they choose.

In practical terms, this is most often an issue where the surviving spouse and the spouse who passed away had different ideas about who should receive their property – often because the surviving spouse remarries, or because this was a second marriage for one or both of the partners, and some of the children weren’t the biological offspring of both partners.

What happens if the bypass trust isn’t funded? The trustee – either the surviving spouse, during their lifetime, or the successor trustee – may face a lawsuit from frustrated beneficiaries, who are angry that their inheritance has been taken away from them or mismanaged.


California court upholds asset protection for trust beneficiary

Posted in Litigation, Trust administration at 8:21 am

A California appellate court issued an opinion on February 22, 2007 in Young v. McCoy 2007 Cal App Lexis 224 which will provide encouragement and comfort to trust creators who seek to preserve assets for their beneficiaries.

The court ruled that a creditor cannot force the trustee of a discretionary trust to make a distribution to the beneficiary, if the trustee has reasonably determined that the beneficiary does not need a distribution to provide for their health, education, maintenance, or support.  The practical effect is that – since there is no distribution – the creditor cannot get their hands on the funds which have been preserved for the beneficiary.

This opinion concerns a case where the beneficiary was convicted of attempted murder – but it is likely to be helpful to people in much more mundane circumstances faced by many families, such as divorce, business disputes, and even bankruptcy created by overwhelming medical bills following catastrophic injury or illness.

If your estate plan does not provide asset protection for your family – or if you are using the state’s default estate plan, which does not provide asset protection for beneficiaries – you should think seriously about sitting down with competent estate planning counsel to make sure you’re doing everything you can to provide for the people who depend on you, and the people you care about most.


The Duties of a Trustee

Posted in Trust administration at 5:39 pm

One frequent topic of interest to people serving as trustees – and to people whose inheritances are being (mis?) managed by trustees – is exactly what the trustee is obligated to do. The following is a description of the main duties of a trustee of an irrevocable trust in California:

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