Few areas of law engender as much uncertainty and animosity as trust and probate litigation. It can be especially painful because you find yourself in disagreement with your siblings, even in the painful aftermath of the death of a parent or other family member. Added to that is the fact that the Probate Code is full of arcane rules and procedures that make even very experienced lawyers cringe. Because it is your family, often you think you can handle things yourself, but quickly you realize how incredibly twisting and turning the Probate Code can be. If your siblings have counsel, even if you are not the Trustee (or even if you are), the process can be daunting.
The inter-locking nature of wills and trusts is, itself, not very well understood by both parties/beneficiaries and even by most lawyers. It is not uncommon for there to be a family trust and a will, which can mean there is an open probate action, which can be daunting. There is also an open trust administration action, and also an open trust administration action. All trusts need to be administered. Trust administration is when the Trustee manages the Trust’s assets and liabilities following the terms of the Trust. Sometimes that means distributing assets (like money) and sometimes that means selling assets (like real estate) and sometimes that means managing assets (like investments in the stock market).
So often, people create trusts to avoid probate litigation and then they do not properly fund the trust by changing titles of properties and bank accounts. They include a “pour over will” that “pours” everything into the Trust, but if assets are not properly moved into the Trust before the death of the original Settlor of the Trust, assets are stuck in probate.
There are two important cases that tell us we can move assets into a trust if the Settlor did not retitle the assets before death, but “would have meant to” if they had thought about it. Those cases are Estate of Heggsted (1993) 16 Cal. App.4th 943 and Ukkestad v. RBS Asset Finance, Inc., (2015) 235 Cal. App. 4th 156. These are very helpful because Probate is a process – it requires oversight over the probate administrator (or executor of the estate) by a court. Most Trusts, however, require very little judicial oversight, unless the beneficiaries are in disagreement about how to administer the Trust. Even if they don’t agree about how to administer a trust, the Trustee has a good deal of power to manage the Trust Administration in a reasonable manner, so long as they are following the rules as set forth in the trust document and not breaching their fiduciary duties to other beneficiaries. So called, “Heggsted” Petitions go through the Probate Court to move assets into the trust; while this process may take less time than a full probate, it is still a process that is time-consuming and can be difficult.
You can avoid many of these problems when you make a trust by ensuring that your trust does what you want it to do. This is a big reason why it makes more sense to have an experienced and well lawyer carefully draft a trust for you rather than getting one online or from a paralegal.
A good trust document should clearly lay out what assets are included in your Trust, your estate plans – how you want your assets divided – and what the Trustee’s powers are to continue the trust or terminate the trust. This is especially tricky if you do not understand California community property rules. The Probate Code section 100(b) permits spouses to devise or bequeath their one-half share of the community property as they see fit. But many trust lawyers are not well-acquainted with the complex rules regarding California community property and quasi-community property and therefore do not pay close attention to what is and is not community property. This is especially important in second marriages where each party has children from prior marriages to whom they may prefer to leave their share of the community property assets (or their separate property assets). If you are in this situation, it is imperative that you speak with a Trust lawyer who also understands California family law and community property.
The second important step is to retitle your assets into the name of the trust to help avoid probate. You should have a “pour over will” that tells a Probate Court that the assets you have that are not in your trust should pass to your trust via probate.
Finally, you should have a clear plan of succession for Trustees, with clearly delineated powers and obligations, so that once you either pass away or become incapacitated, you minimize the risk of litigation over the way a Successor Trustee administers the trust.
Good trust administration after the death of the original Settlors (the people who made the trust) begins with good drafting and titling of assets into the name of the trust. Trustees have certain powers by law, but the trust document itself is the agreement under which they become a Trustee. That means the more the trust document details Trustee powers and obligations, the more you as drafter of the trust documents can ensure that your children will not be litigating over the trust assets and administration.
If you are a Successor Trustee or a beneficiary of a trust who is not the Successor Trustee, then a close reading of the trust is necessary to understand what your rights and obligations are with respect to the trust. Many trusts include standard language, especially those from a discounted trust drafter (which many lawyers are, and of course the online trust drafting software), but bespoke trusts that are carefully drafted by a Trust lawyer will likely contain specific language regarding the Trustee’s duties and obligations.
In closing, avoiding litigation is best done in the planning and drafting stages. You should do your due diligence when selecting and hiring a trust planning and drafting attorney, make sure the Trust is very clear about your wishes and the Trustee’s powers, and, if this is a second marriage for you or your spouse, especially if there are stepchildren on either side, your lawyer should be well-versed in California community and separate property rules. I think it is also important to set time lines as boundaries in a trust document. If you leave the trust open-ended, the new Trustee can drag out the distribution of assets, and nothing creates a litigation posture like beneficiaries who are mad that the Trustee will not distribute assets to them.
M. Jude Egan