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.

Recently we discussed some common drafting techniques that are used when creating Wills and Trusts. In this post, we want to continue that discussion and point out some other things that estate planning lawyers do to help their clients avoid ambiguities when it comes time to administer their estate or trust.

Including Assets Not Subject to Testamentary Distribution

This concept is simple. Your Will or Trust should not attempt to transfer assets that are not able to be transferred by a Will or Trust. A simple example is assets that you hold as "joint tenants" with other people. By operation of law, as soon as you die, the other joint owners automatically become the owners of that asset. Including a provision where you try to transfer your interest in joint tenancy property may cause confusion among the beneficiaries and result in a fight among them, and the other joint tenants.

Residuary Clause

It's impossible to account for each asset that you own. That's why a "residue" provision is always included in Wills and Trusts. Essentially, the "residue" is everything else that is leftover after the gifts are distributed and expenses are paid for. Ensuring that you've named one or more beneficiaries to receive the residue ensures that the balance of your estate will be given to intended beneficiaries rather than passing by intestacy.

Change in Assets

Many years can pass from the time you create your estate planning documents to when you pass away. During that time, unexpected changes may happen to your assets. For example, you may decide to draw down on the equity in your home or move from one house to another. Therefore, it's important to anticipate these types of events. In your Will or Trust, you should include an explicit provision stating whether a particular asset will get distributed subject to, or free of, debt. When making a gift of your home, rather than mentioning a specific address, consider referencing your "personal residence" so that if you move, your then current home will be transferred to the appropriate beneficiary.

Disinheritance

If you decide that you would like to exclude your spouse or a child from receiving any assets of your estate, it is best to include a specific disinheritance provision explicitly stating your intent not to provide for them. Without including such a provision, a spouse or child may be able to assert that they are entitled to a portion of your estate as "omitted" heirs.

The mechanisms and provisions employed by estate planning lawyers are too numerous to inventory. Sometimes a great deal of thought and creativity must be used to draft a provision. Explaining your wishes is the first step towards ensuring that your lawyer can help you prepare documents that accurately capture what you want.

Unlike other states in the US, the probate process in California (which is required if one dies with only a Will or without any estate planning documents at all), is (a) time consuming and (b) expensive. As a result most people in California should consider utilizing a revocable living trust as the primary estate planning vehicle as it minimizes the risk of encountering the probate process.

Probate proceedings in California require notices and hearings, which take time to complete. In addition, a number of ancillary issues might arise during the public probate process that requires attention, such as dealing with creditor claims. If that weren't enough, the fees incurred during the probate process are usually much higher than the fees associated with administering a revocable living trust with comparable assets. California Probate Code Section 10800 describes how the fee for the Executor of an estate is calculated:

a) Subject to the provisions of this part, for ordinary services the personal representative shall receive compensation based on the value of the estate accounted for by the personal representative, as follows:

(1) Four percent on the first one hundred thousand dollars ($100,000).

(2) Three percent on the next one hundred thousand dollars ($100,000).

(3) Two percent on the next eight hundred thousand dollars ($800,000).

(4) One percent on the next nine million dollars ($9,000,000).

(5) One-half of one percent on the next fifteen million dollars ($15,000,000).

(6) For all amounts above twenty-five million dollars ($25,000,000), a reasonable amount to be determined by the court.

(b) For the purposes of this section, the value of the estate accounted for by the personal representative is the total amount of the appraisal value of property in the inventory, plus gains over the appraisal value on sales, plus receipts, less losses from the appraisal value on sales, without reference to encumbrances or other obligations on estate property.

The lawyer handling the probate for an Executor or Administrator is also entitled to the same statutory amount.

The other major benefit is that a revocable living trust helps you avoid a conservatorship if you become incapacitated. This is because your trust can allow for a successor Trustee to step in and take control of trust assets to manage and use them for your benefit. This avoids the need to have a court proceeding to appoint a conservator to manage your affairs (which, by the way, is expensive and can be highly inconvenient for your family).

Although a revocable living trust has great advantages, there are a few disadvantages. Despite, the disadvantages, however, the benefits often far outweigh the downsides.

Drafting estate planning documents requires careful consideration of not only your current situation in life, but also how circumstances might change over the course of the remaining years you are alive. A well-drafted set of estate planning documents should carry out your wishes as they exist today and also provide enough flexibility to account for changes that may arise. 

Your Will and Revocable Living Trust may be modified or revoked during your lifetime, so steps can be taken to update them if necessary. In fact, major life changes such as marriage, the birth of a child, or a death in the family are almost certainly times when you should be reviewing your estate planning documents.

Below are some of the things that an estate planning lawyer might consider as he or she is drafting your documents.

Clear Definitions

Sometimes people use words in a colloquial manner that don't necessarily match what they intended in their Will or Trust. For example, if a person states that they want their assets to "be distributed to their children," are they including step-children, adopted children, or foster children? Defining key terms can help to clear up any confusion after the person passes away.

Alternate Beneficiaries

Often people will specify a gift to a beneficiary, but fail to consider what will happen if the beneficiary isn't alive at the time the gift is to be made. Should the gift go instead to that person's children? If not, should the gift be given to someone else? It's always important to consider contingencies when it comes to gifts.

Gifts to Young People

One aspect that people often forget is that minors may be legally unable to receive a gift from your estate. Moreover, even if they could, it may not make sense to give substantial gifts to young people who are not mature enough to handle the responsibility. In such situations, one may want to provide that the gift is to be held by a custodian or in a special trust for the minor beneficiary until he or she is old enough to manage it themselves.

Survivorship

What if a beneficiary related to you died shortly after receiving the gift from your estate? In that situation, it's possible that the anti-lapse rules (found in California Probate Code Section 21110) would apply and the beneficiary's children would receive the gift instead. If that's not your intent, including a requirement that the beneficiary outlive you for a certain number of days in order to receive the gift can help avoid this outcome. Here's the text of California Probate Code Section 21110:

(a) Subject to subdivision (b), if a transferee is dead when the instrument is executed, or fails or is treated as failing to survive the transferor or until a future time required by the instrument, the issue of the deceased transferee take in the transferee’s place in the manner provided in Section 240. A transferee under a class gift shall be a transferee for the purpose of this subdivision unless the transferee’s death occurred before the execution of the instrument and that fact was known to the transferor when the instrument was executed.

(b) The issue of a deceased transferee do not take in the transferee’s place if the instrument expresses a contrary intention or a substitute disposition. A requirement that the initial transferee survive the transferor or survive for a specified period of time after the death of the transferor constitutes a contrary intention. A requirement that the initial transferee survive until a future time that is related to the probate of the transferor’s will or administration of the estate of the transferor constitutes a contrary intention.

(c) As used in this section, “transferee” means a person who is kindred of the transferor or kindred of a surviving, deceased, or former spouse of the transferor.

Thinking through the various permutations can be difficult for the uninitiated, and certainly gaining the perspective of a skilled estate planning lawyer will help avoid problems down the road.