After doing estate planning over 20 years, I can offer this simple advice: The best estate planning you can do is to maintain good relationships with your family. Estate planning documents are very important to avoid probate and to provide an orderly and efficient transfer of your assets. But the best drafted living trust cannot restore bad relationships.
Every estate planning attorney has a few clients that play the revolving beneficiary game with their estate plan. They get mad at a child (often for good reason) and amend their living trust to disinherit the child. Two years later they decide to reinstate that child as a beneficiary and amend their living trust again. And this may go on for several cycles with different children.
In Gregge v. Hugille (July 2016), the California Appellate Court ruled that a disgruntled beneficiary gets his day in court.
In 1990, William and his wife created a living trust. His wife died shortly after, and, following her death, William amended his trust six times.
- In 1997, William amended his trust to leave $900,000 to a trust for his grandchildren with the remainder to his four children – each to receive 30% or 35%, except for son Michael, who was only to receive 5%.
- In 2000, Willam disinherited Michael.
- In 2001, William removed Michael’s children as beneficiaries of the grandchildren’s trust.
- In 2002, William reinstated Michael’s children as beneficiaries of the grandchildren’s trust
- In 2005, William removed one of Michael’s children, Cameron, as a beneficiary of the grandchildren’s trust
- In 2008, Willam reinstated Michael as a beneficiary with an equal share as his siblings, and he reinstated Cameron with an equal share as the other six grandchildren.
In 2011, William died with trust assets in excess of $4.2 million.
One of William’s grandchildren, Bennett, filed a petition in California probate court challenging the validity of the 2008 amendment. If the 2008 amendment was ruled invalid, Bennett would get a bigger share. Bennett alleged that William was incompetent when he signed the 2008 amendment and that Michael exerted undue influence over William.
To stave off the litigation, Cameron offered to waive his share in the grandchildren’s trust thereby giving the other grandchildren a bigger share. The trial court liked this offer, and dismissed Bennett’s claim citing public policy disfavoring will contests.
Bennett appealed, and the appellate court reversed the trial court’s ruling. It held that the trial court’s decision was an abuse of discretion and ruled that Bennett was entitled to a trial on the merits.
Moral of the story: Be slow in your decision to disinherit a child. It may be entirely appropriate to disinherit your child, but leaving a paper trail of disinherit, reinstate, disinherit and reinstate, looks unstable, and could open the door for a disgruntled heir to challenge your final wishes.
The Sutter Street Theatre in Folsom is presenting Charlotte’s Web each weekend in September and the first weekend in October. Click here for tickets. Directed by Allen Schmeltz, it is great entertainment for the whole family in a wonderful intimate theatre! And if you’re lucky, you might get an autograph from Wilbur.
The California courts are becoming quite lenient in ruling that assets are in a trust. Here is the State Bar of California Trust and Estate Section’s summary of Carne v. Worthington, filed April 13, 2016, Fourth District.
Decedent executed a revocable trust in 1985 (the “1985 Trust”), and real property located on Via Regla was transferred to the 1985 Trust. Decedent executed an irrevocable trust in 2009 (the “2009 Trust”) which stated, “I transfer to my Trustee the property listed in Schedule A, attached to this agreement.” The sole asset listed on Schedule A was the Via Regla property. Decedent’s daughter filed a petition to confirm the validity of the 2009 Trust and that the Via Regla property was an asset of the 2009 Trust. The trial court found the transfer of Via Regla to the 2009 Trust was not valid because decedent was required to transfer title to the Via Regla property by a deed, and because decedent did not personally own the property at the time of the transfer.
The appellate court reversed. The language quoted above in the 2009 Trust was sufficient to convey the property to the 2009 Trust, and decedent was not required to execute a deed. While decedent did not own the property individually at the time of the transfer, his signature on the 2009 Trust was sufficient to convey title from the 1985 Trust to the 2009 Trust because the 1985 Trust was a revocable inter vivos trust, he owned the property as sole trustee of the 1985 Trust, and he had the power to transfer real property owned by the 1985 Trust.
Although this is a very favorable ruling, I highly recommend you actually transfer title of your assets to your trust, so your children do not have to rely on the kindness of a judge to avoid probate.
The fresh start that comes with the turn of the calendar is a good time to take simple steps to protect your family.
If you already have a living trust estate plan:
- Are your “Role Players” up to date and still the people you want in those roles – Guardians to raise your minor children, Successor Trustees to manage your assets if you become incapacitated or when you pass away to administer your living trust, and Health Care Agents to make health care decisions for you if you cannot?
- Is your trust Funded? Are your assets titled in your living trust? One of the main reasons you established your living trust was for your children to avoid the high cost and burden of probate. If you have refinanced since you set up your trust, your home may no longer be titled in your trust and will go through probate. Have you transferred title of your non-retirement plan investment accounts and bank accounts to your trust? If not those accounts may have to go through probate.
- Do you have enough Life Insurance? If you have young children, you should have at least a large term policy for you and for your spouse, and the beneficiary of the policies should be your living trust.
- Have you named the contingent beneficiaries of your Retirement Plans? You’ve probably named your spouse as primary beneficiary. But have you named your children as contingent beneficiaries? And if you have retirement plans of more than $200,000, you may want to use a Stand Alone Retirement Plan Trust to protect the funds for your children from divorce claims and lawsuits.
If you haven’t done your estate planning yet:
You should. And it is not nearly as difficult as you think. In most cases, our clients complete their living trust estate plan in two one hour meetings at a very reasonable fee. And our clients consistently thank us for making the process pleasant and easy.
Make 2016 the year you protect your family.