Generally speaking, inheritance is not subject to tax in California. If you are a beneficiary, you will not have to pay tax on your inheritance. There are a few exceptions, such as the Federal estate tax. However, an estate must exceed $11.58 million dollars per person in 2020 to be subject to estate tax in the U.S. The estate tax is paid out of the estate, so the beneficiaries will not be liable for paying the estate tax, technically speaking—although it would deplete the amount left in the estate for distribution.

With the exception of the estate tax for estates exceeding $11.58 million dollars per person, California does not have a state-level inheritance tax. That is not true in every state. Some states have enacted inheritance taxes on estates of any size.

If your inheritance is in Trust, a portion of the income might be subject to income tax. If the trust generates income after the trust creators (the “Grantors” or “Settlors”) pass away, the new income will be subject to income tax. For example, if the Trust owns a rental property, the rental income is subject to income tax. However, when the house is sold, the beneficiaries do not pay tax on the proceeds. Income tax only applies to income generated after the Grantors pass away, not the principal (the amount originally received).

If you receive an inheritance in California, consider yourself lucky. You can receive your California inheritance without anticipating major tax liability in most cases.

A Trust is an entity that hold assets. Living Trusts are set up to benefit the Trust creators, (also referred to as the “Settlors,” or “Grantors,”) during their lifetimes. Living Trusts also provide the terms for management and distribution of the assets once the Grantors pass away.

Living Trusts are typically drafted by an estate planning attorney. Once the terms of the Trust are established, the assets are transferred into the Trust. For example, if the Grantors own a home, the home will be legally transferred into the name of the Trustee; the Grantors will sign a deed transferring the title of the home to the Trustee and record the deed with the County Recorder’s office. The Grantor’s bank account(s) and other assets will also be transferred into the Trust. The Trustee then becomes the legal owner of the assets.

The Trustee is the Trust manager. Typically, the Grantors of a Living Trust are the original Trustees during their lifetimes. The Grantors/Trustees will manage their own assets. The Grantors can also appoint a family member, friend, or even a licensed fiduciary to manage the Trust assets. The Trustees makes the financial decisions regarding the Trust assets.

The Trust beneficiaries are the people who receive the benefit of the Trust assets. Typically, the Grantors are the original beneficiaries of their own assets during their lifetimes. The Grantors decide who will be the beneficiaries after the Grantors pass away. The terms of the Living Trust govern how and when the beneficiaries will receive the assets.

Once the Grantors of a Living Trust pass away, the beneficiaries receive the remaining assets. Typically, the beneficiaries are the Grantors children or relatives. In California, children do not have an automatic right to inherit their parent’s assets unless the Parent dies without a Will or Trust. A Trust can be created to benefit whoever the Grantor want to pass assets to.

The Successor Trustee is the person who takes over management of the Trust assets after the Grantors pass away. The Successor Trustee then must follow the terms of the Trust and manage the Trust assets. Sometimes this means selling the assets and distributing the proceeds to the beneficiaries immediately. Some Trusts are set up to provide for the beneficiaries over a lifetime in incremental payments. The method in which the assets will be distributed to the beneficiaries depends on the terms of the Trust. At some point the assets are distributed to the beneficiaries and the Trust terminates.

Why do people create Living Trusts? Trusts help facilitate the transfer of assets to the beneficiaries through a trusted person (the Trustee) without having to go through the lengthy probate process. Probate is the court supervision of the distribution of a person’s assets after death. Trusts can also help people reduce estate taxes and put conditions on how assets will be managed and distributed after death.

How do you replace a Trustee? The answer depends on the language in your Trust document. Most trusts have a specific section that outlines the procedure in which a Trustee can be replaced.

Some Trustees step down willingly. In certain instances, you can have a Trustee sign a document called a Resignation by Trustee, and have the new Trustee sign a document called an Appointment or Acceptance of Trustee. This is the easiest method. An attorney who handles estate planning can typically draft these documents for you. Most Trusts name a specific person or entity to take over as the Successor Trustee or Second Successor Trustee if the original Trustee is unwilling or unable to act.

What happens if the Trustee won’t willingly step down? You may need to go to court. In order to forcibly remove a Trustee, you may need to file a lawsuit in probate court to suspend or remove the Trustee.

In order for you to succeed in forcibly removing the Trustee by court order you have to gather and submit documentary evidence and testimony to prove to the judge that the Trustee has committed some Breach of Trust, such as Trustee theft (misappropriation), self-dealing, unreasonably delaying the distribution of assets, refusing to follow the terms of the trust, or failing to perform their fiduciary duties as Trustee in some way. Once the lawsuit is filed, you can subpoena financial records if necessary.

If you attempt to remove a Trustee by court order, prepare yourself for a legal battle. The Trustee will likely hire an attorney and object to the lawsuit. The average lawsuit takes 18 months to 2 years to resolve, sometimes longer. The Trustee may attempt to use trust assets to fund the lawsuit. Unfortunately, you will have to bear your own attorneys’ fees if you file a lawsuit against the Trustee. You may be able to find an attorney to take your case on a contingency fee basis, under which the attorneys’ fees come out of the amount you receive from the trust or estate at the end of the case.

Replacing a Trustee can be easy if the Trustee agrees to step down. If the Trustee refuses to step down, you will need to seek the assistance of the court. If you believe you will need to file a lawsuit to replace your Trustee, contact an attorney who specializes in trust and estate litigation for a consultation.

The Following is a Transcript of this Video. For More Information, CLICK HERE

Hi, this is Keith Davidson from Albertson & Davidson.

In this video, I’m discussing whether or not a Trustee can loan money to the Trust.

So, let’s say a Trust is short on cash.  It owns real property.  Maybe it owns some other illiquid asset, a business, and they need to pay some expenses.  And so the Trustee wants to loan the Trust money and get paid back at a later date.

The problem with any type of transaction between the Trustee and the Trust is it violates the Trustee’s duty to avoid conflicts of interest.

A Trustee has to remain neutral.  It cannot have a conflict with the Trust.  And any time the Trustee enters into any type of transaction with the Trust, it is, by definition, a violation of the Trustee’s conflict of interest duty.  It cannot do those type of transactions.

So that means that the Trustee would have to take an extra step if the Trustee wants to loan the Trust money – which is you either have to go to Court and get Court-approval or you’d have to fully disclose the transaction to the beneficiaries and get all of the beneficiaries’ consent.

So it is possible for a Trustee to loan money to the Trust, but the Trustee does need to be a little careful about how they do it, because, ultimately, if the Trustee wants to be paid back with interest, there’s going to be the potential that a beneficiary is going to say they charged too much interest or they didn’t structure the deal properly and fairly to the beneficiaries.

And so, in order to avoid those type of conflicts, the Trustee, number one, should just not loan money to the Trust.  Try to get a loan from some other source.  Or, number two, if that’s the only option available, then the Trustee really needs to be careful and make sure that everything is fully disclosed to the beneficiaries and that everybody has consented to it before following through on the transaction.

The Following is a Transcript of this Video. For More Information, CLICK HERE

Hi, this is Keith Davidson with Albertson & Davidson.  In this video, we’re discussing the trustee’s sale of assets.

If a trustee sells a trust asset, can you reverse that sale?  Can you bring the asset back into the trust?  And the answer, generally speaking, is no.  Typically when a trustee sells property, the beneficiaries will not be able to recover that property back to the trust.  And this is because most trust documents and the California Probate Code give the trustee the authority to sell assets.

Now there are some limitations.  For example, a trustee must sell the asset for a fair market value.  They have to act reasonably.  But even if the trustee sells an asset for less than fair market value, that doesn’t mean that the beneficiaries will be able to get the property back.  They might be able to get damages against the trustee for selling the asset too low, but it doesn’t necessarily mean the property will be coming back.

If the trustee was perpetrating some sort of fraud on the trust, and did a sale to a third party but it actually was a related party to the trustee, because it was part of the fraudulent scheme, then the beneficiaries may be able to recover an asset and bring it back into the trust.  It really just depends on the facts and circumstances.

But those types of cases happen very rarely.  Typically, a trustee is going to have the right to sell trust assets as long as they sell it for fair market value, they’re not going to get in trouble for selling trust assets.  And even if they do sell it for less than fair market value, it will be a damage claim against the trustee.  The trustee will have to pay money.  It won’t necessarily be a recovery of the asset and bringing it back into the trust.

The Following is a Transcript of this Video. For More Information, CLICK HERE

Hi, this is Stewart Albertson with Albertson & Davidson.  And I want to talk to you about bad trustees doing bad things to your interest in a trust.

We do many, many consults with clients where they come in and say, “I’m the beneficiary of a trust.  I have a right to these assets and the trustee is refusing to distribute those assets to me.  What am I to do?”

And what I will tell you what you shouldn’t do is write more than one letter.  Let’s be clear that letters don’t work, but you’ve got to have some writing to the trustee saying, “Hey, I have a right to this distribution under the trust terms, give me my trust distribution.”  If the trustee still ignores you, then, unfortunately, you’re going to have file a Petition with the Probate Court.  That is the best way to hold one of these trustees accountable or get them to act in a way that you want them to.

In this example, we would generally file a Petition for Instructions with the Probate Court asking the Probate Court to order the trustee to follow through with the trust terms and make the rightful distribution to the beneficiary.  So that is one way we hold these trustees accountable.

But, what happens if the trustee is not making this distribution because they’ve gone and used these assets themselves.  In other words, they have fraudulently taken these assets from the trust and used them in a manner that the trust does not permit.  Perhaps they’ve taken vacations, gone gambling, spent money on their expenses, and they’re not giving you the distribution you’re entitled to.

In that case, not only are you going to want to file the Petition for Instructions that orders them, the trustee, to make the distribution to you.  You’re going to want to go after that trustee for damages.  You’re going to want to surcharge that trustee.  You’re going to ask the Probate Court to give you damages, order damages against the trustee where they have to reach into their own pocket and pay back money to you for the damages caused to the trust.

Again, we’d only want to send one letter in these kind of cases just to set the record that we tried to work with the trustee.  If the trustee still won’t follow through with what you’re doing, file a Petition for Instructions to get the court to order them to follow through.  And if you find out during that process that the trustee has stolen assets, or misappropriated assets, you’re going to want the court, or ask the court to impose an Order for Sanctions against the trustee so that they have to pay back the damages they’ve done to the trust.

The Following is a Transcript of this Video. For More Information, CLICK HERE

Hi, this is Keith Davidson with Albertson & Davidson.  In this video, I want to discuss when you can sue for trust mismanagement.

If you believe that your trustee is mismanaging the trust assets, perhaps they’re not investing properly, perhaps they’re actually taking money or using money for their own benefit, you really need to take action as soon as possible to make sure that you can stop any harm from happening to the trust, or any further harm from happening to the trust.  But you do need to have at least some evidence or some facts to support your claim that there is trustee mismanagement.  So you usually start either by filing a Petition in the Probate Court and asking that the court hold the trustee accountable for whatever harm has occurred.  Or, if you’re not fully advised of all the harm, then you’re going to want to demand an accounting from the trustee.  Ask the trustee to account for their actions.  If the trustee refuses, then you go to court and you ask the court to order the trustee to account for his or her actions.

Once you have the accounting, then you can see what has occurred in the trust administration.  You can issue subpoenas or do discovery, and you can start gathering the facts and the evidence you need to see what the mismanagement was and what actions need to be taken to right that harm.

So if you’re a beneficiary and you suspect trust mismanagement, you really need to take action as quickly as possible to number one, be advised of what is happening.  What is the financial information that you need to know to see what’s going wrong?  And, number two, hold the trustee accountable for the harms and losses that they’ve caused to the trust estate.

The Following is a Transcript of this Video. For More Information, CLICK HERE

Hi, this is Stewart Albertson with Albertson & Davidson.  And I want to talk to you about how do you sue a trustee in California?  So, if there’s a trustee of your trust and the trustee has breached the terms of the trust; in other words, not following the terms of the trust, not making distributions to you as a rightful beneficiary.  What you can do is you can file a Petition in the Probate Court under Probate Code Section 17200.

Probate Code 17200 is the gateway to the Probate Court and it gives a litany of issues that you can bring to the Probate Court and ask it to help you as a beneficiary of the trust.

One of those things is to surcharge a trustee who’s done inappropriate actions, to remove a trustee who’s been inappropriate in the way that they’re administrating the trust.  So, ultimately, the short answer to this question is if you have a trustee who’s not following the terms of the trust, is being abusive to you as a beneficiary, is not standing up for your interest in the trust, is not making the trust property productive, is refusing to disclose information to you; any of the above, you should file a petition with the Probate Code under Probate Code Section 17200 and ask the Probate Court to step in and either admonish the trustee, remove the trustee, order the trustee to follow the terms of the trust.

Those are the things you can do to sue a trustee in California.

The Following is a Transcript of this Video. For More Information, CLICK HERE

Hi, this is Stewart Albertson with Albertson & Davidson.  The question is can a trustee be changed after the trust is irrevocable?  In other words, after mom and dad are passed on and the trustee’s accepted office, can you change out that trustee for another trustee?  And the answer is yes, you can, if the trust terms allow it.  In fact, most trust terms do allow the trustee to change from the original trustee to a successor trustee, if everyone is in agreement.  So as long as everyone is in agreement, you can change from one trustee to another.

Now, in practicality, most trustees don’t want to give up their office as trustee.  And in those cases, you’ll have to try to remove them, which is a much more difficult thing to do.

But for the purposes of this video, certainly, if a trustee, original trustee is ready to step down and it wants a successor trustee to take over, and the trust terms allow it, it’s perfectly acceptable.

The Following is a Transcript of this Video. For More Information, CLICK HERE

Hi, this is Stewart Albertson with Albertson & Davidson.  We do get the question from time to time can my brother who is the trustee of our parents’ trust, can he also be a beneficiary of the trust?  And the short answer is yes, there’s no problem with that.  In fact, most trustees are also beneficiaries of the trust.  Most parents will name one or more of their children to be the trustee and that trustee will also be a beneficiary.

This normally doesn’t cause too many problems, especially where there’s just liquid cash to distribute.  Because, let’s say there’s a trustee and two other beneficiaries, for a total of three beneficiaries including the trustee.  You would simply just take the liquid assets and distribute them, one-third each.  And that’s not a problem.

Where we see the problem happen is where the trustee, who is also a beneficiary, is the last one taking care of mom or dad before their death and they get a house, for instance, that comes out of the trust as their beneficial interest, and the other two kids get cash.

What we see in some of those cases, is the trustee taking the cash before mom and dad dies and fixing up the home, putting a lot of money and improvements in the home.  Well, that’s not fair, because they’re essentially using the other beneficiaries’ money.  The trustee is using the other beneficiaries’ money to improve the house that they’re ultimately going to receive.

So, while there’s nothing wrong with a brother or sister acting as trustee who’s also a beneficiary, we do want to make sure that they provide an accounting so we can see their actions as trustee, to make sure that they didn’t do anything to benefit themselves at the cost of the other trust beneficiaries.