Helping Clients Thrive!
Helping Clients Thrive!
Estate Planning
Modifications and Revocations of Revocable Trusts
The wording of your revocable Trust dictates the methods by which it can be modified or revoked. It is important that you follow your initial modification and revocation provisions in your Trust. If not, your change will not be effective.
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This requirement to comply with your own Trust’s dictates seems obvious but for decades, courts have allowed modifications and revocations even if they did not comply with a trust’s provisions – usually these changes had to be notarized, and were not. This approach by the courts was called the “Statutory Method”. But Probate Code, Section 15401 has a sentence that states use the Statutory Method “unless the Trust instrument provides otherwise”. This means that the Statutory Method could not be used if the Trust itself required another method for modification and/or revocation of the Trust, even for the original Settlor. In spite of this sentence, numerous courts allowed everyone to rely upon the Statutory Method and discard any other requirement that the Trustee had imposed on himself/herself. Now, however, the California Supreme Court in Haggerty v. Thorton (2024) 15 Cal.5th 729 clarified this “deviation” and ruled that the Trust’s language controls. If the Trust has certain requirements for modification or revocation, these requirements must be honored. After all, this is the Settlor’s desire, even if the Settlor himself or herself did not follow their own instructions.
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Takeaways:
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(1) Initial Provisions. Pay attention to the modification and revocation provisions of your revocable trust – make sure that they are perfect for you; they are some procedures you want – dating the changes, having a notary or not, having other approvals (like the Special Trustees or other individuals close to you).
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(2) Follow Your Provisions. Review these provisions for modification and revocation of your revocable trust when you review your estate planning regularly. Our Estate Planning Review Program suggests a review every 2-3 years. We work with you, initially free of charge, to make sure your estate planning is accurate. And follow the provisions/procedures you set forth; in making changes OR change the procedure by doing a change under the way you previously elected.
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(3) Trustee’s Requirements. Trustees administering a Trust are bound by valid provisions of their Trust – make sure that modifications and revocations are valid and follow the valid provisions in your distributions. Sometimes, you might consider court approvals if you, as Trustee, cannot adhere to the modification or revocation procedure that the Settlor was to follow, forgot, etc.
Trust Defense – Attorneys Fees and Costs (Recoverable? Sometimes & Sometimes Not)
While a Trustee of a Trust is empowered to hire an attorney to assist the Trustee (1) in the administration of the Trust, and (2) for litigation to defend the Trust. However, if there is litigation that also benefits the Trustee, as a beneficiary (or otherwise) the Trustee must bear his or her own costs and fees incurred; they are entitled to reimbursement from the Trust.
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Many Trusts have Trustees who are also beneficiaries. Zahnleuter v. Mueller (2023) 88.Cal.App.5th 1294 has recently evaluated the duty of impartiality of a trustee under Probate Code, Section 16003. When a Trust has two or more beneficiaries, the Trustee has a duty to deal impartially with them and to act impartially in investing and managing the Trust property, taking into account any differing interests of a beneficiary. That is a hard standard to apply.
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Basically, if the Trustee is also a beneficiary, their defense of their interests is not entitled to reasonable attorney fees or costs. The Trustee, as an individual, must pay their own attorneys fees and costs without payment or reimbursement by the Trust. In the accounting, the Trustee will be surcharged and thus required to disgorge any fees and costs gained through the litigation.
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Takeaways:
The following should be considered whenever a Trustee, who is a beneficiary, is involved in trust litigation –
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(1) The Trustee is advised to avoid taking sides between beneficiaries in disputes as to the validity of amendments unless there is a specific provision directing a Trustee to defend against such claims; and,
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(2) If the Trustee knows of a dispute that might not support the Trustee’s use of trust assets for attorney’s fees, the Trustee is well advised to be protective of their interest with a petition for instructions to the Court for guidance and clarification as to whether the Trustee may use trust assets to pay the Trustee’s attorneys fees. Alternatively, the Trustee may use the Trustee’s own, personal assets to pay the attorney fees and after litigation is completed seek reimbursement from the Trust with Court approval.
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(3) Approval of the payment of attorney’s fees during litigation should be gained by the Trustee, who should submit detailed accounts to the Court at regular intervals. To the extent that some of attorney fees incurred are for the administration or litigation unrelated to this dispute for Trustee’s benefits, those fees should be identified and Court approval gained for their payment.
GREEN BURIALS AUTHORIZED
California has become one of the five states allowing a composted burial of humans after death. The law takes effect in 2027 but regulations are being developed currently. It is expected that the regulations will follow the approach of cremation and its distribution of ashes.
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The composting process involves placing human remains in a steel box with biodegradable materials, which help the body depose naturally. That decomposition will produce soil, which can then be given to family members who may spread it or use it to grow plants. The regulations will dictate the final process.
If you desire this environmental approach for your final resting place, it is important to make that election within your estate planning documents – normally, we prepare Disposition Instructions for the agent you elect to follow your directives for your last resting place. Lacking such Instructions, this procedure may not be possible as your agent/executor/trustee may be hesitant to individually adopt this new approach in light of the opinions & desires of other family members.
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This is just one aspect of your estate planning – normally there is a need for the Trust, Will, Advance Care Directive, Durable Power of Attorney, Personal Gift Distributions, etc. Probate should be avoided – the court proceeding that occurs if you do not have a Trust. The cost of a set of trust documentation is far less than the costs of a probate; trust administration is private while the Will probate process is public though the court system.
PROVIDING NOTICE OF A TRUST ADMINISTRATION TO BENEFICIARIES AND CREDITORS
Beneficiaries
Under California law, the trustee must send a notice of trust administration to the beneficiaries of the trust. These are the individuals named in the trust to receive the trust’s assets. The notice must also be sent to the heirs at law of the settlor of the trust. These individuals would have inherited the decedent’s assets if he had died without a will.
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Creditors
A trustee is not required, but may wish to consider, sending notice to creditors of the trust as well. The following is a general overview of this process:
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There is generally no legal requirement that a trustee provide notice of a trust administration to the creditors of the settlor.
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This is true regardless of the fact that the trust assets may be liable for the settlor’s debts.
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Giving notice to creditors can be useful to guard against unknown or contested claims against the settlor’s estate, because the creditors will only have 120 days to file a claim before it is barred. Otherwise, the deadline for filing a Creditor’s claim is one year from the date of death.
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Providing notice to creditors may be handled differently than providing notice to beneficiaries of the trust. The trustee or personal representative may file a probate proceeding for the estate and publish notice of that proceeding in the local newspaper. Therefore, the trust’s assets will be protected from the claims of unknown creditors.
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Always, always connect with your attorney. There are many strategies when dealing with creditors. As a Trustee, you do not want to suffer a claim by a creditor because of providing or not providing notice to a creditor.
​DUTIES OF TRUSTEE IN ADMINISTRATION OF A TRUST
(Coordinate All Actions with your Attorney)
Immediate Matters:
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Make proper funeral and burial arrangements and pay funeral expenses. (Review Disposition Instructions)
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Retain an attorney and through him/her, gain a competent certified public accountant. (Your attorney lends this process).
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If prior year income tax returns were not completed, file (or arranged to have filed) income tax returns for year of death and for all prior years which are due but were not filed at the time of death.
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Determine, locate and notify beneficiaries of their interest. Send formal notice.
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Determine, secure and protect assets. Liquidate any asset in a high-risk investment.
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Dispose of all perishables; secure the home and its personal property. (No one should take anything).
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Open estate/trust bank account and all monies (collection and payment should be sent through it; not your personal or deceased’s account).
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Review insurance coverage and insure estate against fire and other perils.
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Make provision for the immediate needs of the deceased’s spouse and any other dependents of the deceased.
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Collect income generated by the estate’s assets or payable to the deceased.
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Pay bills, mortgage payments, insurance premiums, credit cards.
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Re-direct mail.
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Cancel health insurance coverage, driver’s license, cable, telephone, club memberships, subscriptions, credit cards and obtain any refunds where appropriate.
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Notify Social Security.
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Locate all insurance policies to determine what coverage applies and if a claim for life insurance proceeds should be made.
Interim Matters:
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Prepare inventory of original assets including safety deposit box listing, real estate, monies on deposit at financial institutions, life insurance, any interest in an estate or trust and any other investment such as mortgage.
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Arrange valuation of assets where necessary.
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Advertise for creditors, prepare inventory of debts and give notice to known creditors (but contact your attorney – one year statute of limitations).
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Ascertain any debts to family members and locate evidence regarding loan balance.
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Consider any claims or potential claims against the estate and obtain legal advice if necessary.
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Set aside reserve funds for estimated debts, taxes (including potential taxable capital gains on property and any possible litigation) and estate trustee’s compensation.
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Prepare interim release and make interim distributions to beneficiaries if appropriate; where a clearance certificate has not yet been obtained and there are no outstanding prior year income tax returns, interim distributions should seldom exceed one-half the estate value; if there are outstanding prior income tax returns or the estate trustee is not familiar with the affairs of the deceased, no interim distribution should be made until a clearance certificate with respect to the terminal return has been obtained.
Final Matters:
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Convert investments and other assets to cash and deposit to estate account or, if estate balance is substantial and final distribution will be delayed, invest balance in interest-earning investments pending final distribution to beneficiaries.
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Re-register assets in estate’s/Trustee’s name, if applicable.
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Prepare transfer/deed for conveyance of real property.
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Settle to pay all legitimate claims against the estate; Set aside reserve sufficient for any outstanding litigation.
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Apply for any benefits payable on death, life insurance proceeds, death benefits from pension plans or annuities, and deposit to estate account.
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File a Trust Return, if appropriate.
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Prepare and maintain estate accounts for approval by the beneficiaries or examination by the court if a passing of accounts is appropriate or required.
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Prepare checks and pay shares to beneficiaries.
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Advise beneficiaries regarding the inclusion of income form estate in income tax, if appropriate.
FAMILY CHRONICLES
Every one of us has a family (and extended families). With our “inner circle”, we have shared many experiences and loving times. Those who follow in our footsteps always want to know their roots as well as the experiences and stories that shaped their development, their opportunities in life, and their destiny.
Recently, we found No Story Lost, a company that captures your life experiences. They have a simple process through which you respond to questions and then a writer prepares a hard-bound booklet for you, with text by the writer (which you edit to your satisfaction) and photographs that you supply. It’s a superior product from everything on the market; their rating is a “5”. The pricing is inexpensive from under $1,000 to about $1,500, depending on how many pages you elect.
Take the time to tell your stories, your memorable experiences, your challenges, opportunities, accomplishments, and how you’ve made the family and the world around you a little better during your lifetime.
It’s a fun project and one your great, great, great, great-grandchildren will cherish and thank you for taking the time to tell them about your life experiences.
Website: www.NoStoryLost.com