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Hi, this is Keith Davidson from Albertson & Davidson.  In this video, I’m talking about can you release your trustee from liability and, in particular, can a trustee force you to sign a release in order to get your trust distribution?  And you see this happen fairly often or more often than it really should.  Which is a trustee will say, “I have your money.  I’m ready to distribute it out to you, but I won’t give you a dime until you first sign this release relieving me, the trustee, of all liability under California Probate law and Trust law.”  And the answer is no.  A trustee cannot force you to sign a release as a condition to getting a distribution of your trust share.

Now, that doesn’t mean that a trustee can’t still ask you to sign a release.  You voluntarily can choose to sign a release if you’d like to.  And there are some reasons why you might want to do that.  Because if you don’t sign a release, the trustee might choose, instead, to seek court approval of a trust accounting.  And the reason why a trustee would want to do that, is if they disclose all of their activities in a trust accounting and they file it with the court, and the court approves that accounting, then all of those acts cannot be sued on later.  So, once the trust accounting is approved, the beneficiaries can’t come back later and sue the trustee for those acts.  And for that reason, the trustee may say, “Well, I either need you to sign this release voluntarily, or I’m going to have to file an accounting with the court.  And I’m allowed to use trust funds to pay for that preparation of that accounting.”

So you’re in the unusual position where the trustee cannot withhold your money, pending you signing a release.  But the trustee can spend some of your money to get a trust accounting prepared and filed with the court and seek court approval of that accounting.

That doesn’t mean that the trustee can withhold all of your money, however, because even preparation of a trust accounting, it only costs so much.  So it might cost five, ten, fifteen thousand dollars to hire an accountant to do a trust accounting.  You might have to pay a lawyer similar amounts, but it’s not going to be your entire trust share, in most cases.  So if you’re entitled to a million dollars, the trustee can’t withhold a million dollars because they want to get court approval of an accounting.  They have to give you a distribution.  They can hold a reserve, let’s say a hundred thousand dollars out of your million, but they can’t keep the whole million dollars hostage until the court approves their accounting or until you sign a release. And, unfortunately, this happens quite often.  Trustees will threaten that they will withhold your money unless you sign a release, and unfortunately, a lot of times people feel compelled to sign those documents.

And our advice would be don’t sign the documents.  Get some advice before you take any action.  And hopefully, the trustee will do the right thing, will follow California Trust law, and will give you your trust distribution.

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Hi, this is Stewart Albertson with Albertson & Davidson and I want to talk to you about how we find assets in a trust or will contest case.  And this is a problem.  This is something that we have a hard time explaining to clients, at times, because the clients come to us and they say I know Mom and Dad had gold bars, silver bars, cash in a safe.  I know that there’s some personal property items that are out there that Mom had and my brother’s taken them and sold them to a pawn shop.  How do we prove that?  How do we get the assets back?

And there’s some good news and bad news here.  But, the good news is, if an asset has a title to it, such as a bank account, that has a title.  A car has a title.  A house generally has a title.  Retirement accounts have titles.  These are generally larger assets in a person’s estate.  We can generally find those assets out there by serving subpoenas on parties that have those documents so that we can look at them and determine what the value of those assets were on the date of death, maybe even prior to the date of death, and then, of course, what they’re worth today.  And we can ask whoever was in control of those assets after someone passed away, what have they done with those assets?  Have they spent them on themselves?  Or have they saved them for the rightful beneficiaries of the trust or the will?

So that is one way that we find assets in these cases.  Sometimes I feel like clients look at us and say, you’re the lawyer, you’re the expert.  Can’t you just go out there and find these assets?  Aren’t these assets just available for you as a specialist in this arena, to go and find.  And what I tell clients is, I wish that were the case.  I wish I had a magic wand that I could waive and I could find all of the assets that had disappeared or gone missing that once belonged to your Mom or your Dad prior to their passing.

There’s going to be some assets that you’re just not going to be able to find in these cases.  Rarely will you find someone whose stolen assets.  Rarely will you have them come to a deposition and they admit that they’ve stole assets.  Even if they get to the point where they say yes, there were some cash in a safe of $200,000.  They’re going to tell you that Mom or Dad gifted that cash to them.  And then that will be the new argument, whether it was a gift, whether it was a loan, whether they took it without permission.  That will be an issue to decide at the time of trial.  But, in most cases, if $200,000 cash is missing, changes are finding it are not going to be great in these cases.  I wish that was not the state of affairs for trust and will cases in California, but, ultimately, if we have titled assets, we can find them.  If we have untitled assets, it can be a problem and the sooner people understand that, come to grips with that, it’s much easier for us to move forward in the case.

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Hi, this is Keith Davidson from Albertson & Davidson.  In this video, we’re talking about trust accountings.  And we just finished a video where we talked about when you are entitled to a trust accounting and it depends on the type of beneficiary you are.  But there’s two instances where you may not be entitled to a trust accounting, no matter what type of beneficiary you are.  And the first instance is if the trust waives an accounting.

This is where you have to read through your trust document to find out if the trust document waives the trustee’s obligation to account.  Normally a trustee has an obligation to account during certain periods, like once a year, or any time there’s a change of trustee.  But if the trust document waives that accounting right or obligation, then you’re not going to be entitled to an accounting.

You can still get one, however.  If you go to court and you can show that there’s a high degree of likelihood that the trustee has breached their duties of trust, then the court can still order an accounting, even though the trust document waives it.  But the trustee doesn’t have to automatically give you an accounting.  So look at your trust document and see if it waives an accounting.

The other instance is if you, as a beneficiary, waived the right to an accounting.  You may voluntarily sign a document waiving your right to an accounting and, in that instance, the trustee does not have to account to you any longer.  You can revoke that waiver and you can do the revocation of the waiver of accounting at any time.  However, once you revoke a waiver of accounting, the trustee only has to account for actions after you did the revocation of the waiver.  They don’t have to go all the way back.

But you’re still entitled to information.  So even if you can’t get an accounting, at a minimum, you should be asking for information about your trust.  You should see the bank statements, the brokerage account statements.  If real property is sold, you should see the closing statement.  You have a right to be reasonably informed about the business of your trust and you should ask for that information in writing.  You don’t have to do anything fancy.  Just send off a letter, an email, or a fax, asking the trustee to give you the documents so you can double check that everything is running smoothly.

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Hi, this is Keith Davidson from Albertson & Davidson.  In this video, I want to talk about whether or not you, as a trust beneficiary, are entitled to an accounting.  And the answer is maybe – which is a typical lawyer answer.  But let’s go through who is and who is not, necessarily, entitled to a trust accounting.

For starters, all current beneficiaries, income and principal beneficiaries, are entitled to an accounting of the trust assets – unless, the trust actually waives that right.  But if you are a current income or principal beneficiary of a trust, you are entitled to an accounting.  If you’re a remainder beneficiary, meaning that your rights aren’t vested yet, but they’ll come into place a current beneficiary passes away.  Then you may be entitled to an accounting.  But you’re not entitled to an accounting as a matter of right.  It’ll be up to the discretion of the California Probate Court.

What you are entitled to as a remainder beneficiary is information.  So you should be able to get and you are entitled to receive any information about the trust assets, the trust administration, and anything else that deals with the business of the trust.  Now that’s different from an accounting.  An accounting is a formal document that sets out charges and credits in a very systematic way, as required by the Probate Code.  But, information can be just as good if not better.

So for example, if you receive a copy of all the bank statements or all the financial account statements, that might be just as good as an accounting because you can look at those and you can see what’s been happening with the finances of the trust.  So, just because you’re not entitled to an accounting doesn’t mean that you’re left out in the dark.  You might still be entitled to information.

There’s a big caveat here.  Everything I just talked about is for irrevocable trusts.  Those are trusts that can’t be amended or changed.  If the trust is revocable, then the trustee only owes a duty to the person who has the power to revoke it, which typically is the person who created it.  If Mom and Dad create a revocable trust and they named themselves as trustee, they don’t have an obligation to give you information while they’re alive.  But, once they pass, and the trust becomes irrevocable, which is usually what happens, now your rights come into existence and you have a right to either an accounting or information, depending on the type of beneficiary you are.

 

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Hi, this is Keith Davidson at Albertson & Davidson.  In this video, I want to discuss whether the successor trustee of a trust has an obligation to declare the trust settlor incompetent.

Let me explain some of those terms before we get started. The settlor is the person who creates the trust. Typically, when people create these revocable living trusts, they’re the settlor, the creator, and the are also the trustee during their lifetime, so they manage those trust assets.  Somebody is usually named the successor trustee for when the original trustee either loses capacity or dies.

The question is: if you are named as a successor trustee, and you’re seeing the trust settlor is fading and losing capacity, is there an obligation to step in and take action?  This usually happens within families. For example: your father creates a trust, he’s the trustee, and you’re one of three children and named as the successor trustee. You can see that Dad is fading, and starting to lose capacity, and that he is having a hard time managing the finances.  Do you, as a successor trustee, have an obligation to step in and take action?

The interesting thing is that from a legal perspective, you don’t have any legal obligation to step in. A successor trustee doesn’t have any duties, responsibilities, or obligations until they agree to act as trustee.

But, then there’s the moral obligation.  You know that if the trustee can’t manage finances, he going to cause harm to himself because his finances won’t be properly managed, and he’s also going to cause harm to the other trust beneficiaries receiving these assets after he passes away.  And from that perspective, maybe you do have a moral obligation to step in.

The good news: that most trusts usually have a section that tells you what you need to do to have the settlor deemed incompetent. Once you do those things, the settlor is no longer trustee and the successor can step in and start acting.

Many trust documents say you need a letter or declaration from at least one or two treating physicians.  And that’s all you need.  Once you have that letter from the doctor deeming the settlor incompetent, the successor trustee can step into place.  It’s just that simple.  You don’t have to go to court to get an incapacity declaration or a conservatorship. Just follow the steps in the trust.

If your trust doesn’t have instructions on how to have the trustee declared incapacitated, then you do have to go to court.  This is harder and can be a problem.  However, I estimate 90% of trusts have instructions on how to handle the settlor’s incapacity.

So, take a look at your trust. See what it says, and follow those steps. Then, the successor trustee can step in, control and properly manage the assets, and make sure that the trust is stable moving forward.

Will your Trustee

You may be surprised to learn that there are a number of ways that a bad Trustee can escape liability in Court. For starters, if the Trustee disclosed a questionable transaction in writing to you, you only have three years in which to file a lawsuit. But that’s just the start.

Consent, release, and exculpation come next. If you consented to a transaction before it was taken, you may have waived your right to complain about that transaction in the future. The same applies with a release, if you signed a release of liability, then you may have waived any lawsuit against the Trustee for wrongdoing. Luckily, both consents and releases require that you be given full disclosure of all material facts and circumstances surrounding a transaction; otherwise the consent or release is invalid.

And then we come to exculpation. Exculpation is a terrible Trust provision that says a Trustee does not have to take responsibility for being negligent with Trust property. That means a Trustee can violate any of his or her duties as Trustee, and there is nothing you can do about it. There is one catch, every Trustee is still liable for gross negligence, recklessness, and intentional harm. But each of those claims are harder to prove than basic negligence. In order for exculpation to work, the Trust has to specifically provide for it in the Trust document. Most people who create Trusts that contain an exculpation clauses have no idea the clause is there or what it even means.  Unfortunately, exculpation can cause more harm than good to the Trust assets.

Finally, there is good-old fashioned equity. If all else fails to let a Trustee off the hook, the Court is authorized, in its discretion, to excuse any Trustee wrongdoing. Probate Court’s are courts of equity, meaning they do not just apply to the law, they also are given wide discretion to determine what is fair and reasonable in a given situation.  If a Trustee has breached a legal duty to the Trust and caused damage, the Court still has the power to excuse the Trustee’s breach if the Court believes it fair to do so.  This can be a huge loophole that allows Trustees to escape legal liability for their mistakes.

The bottom line: it is not so easy to hold a Trustee accountable.  There are many ways in which a Trustee can escape liability even where harm is caused to the Trust assets.  That means it is up to you to build your case, and tell your story to the Court, so equity falls in your favor instead.

What's your-2

“If you got it, flaunt it baby!” That’s one of my favorite lines from the movie The Producers by Mel Brooks. The same can be said of California Trustees (although not referring to their looks of course). For Trustees, if you have a special skill you are expected to use them.

For example, if you are an expert in investing, then you have to use those skills for the advantage of the Trust. And you will be judged based on your increased skills if anything should go wrong.  If you are a CPA or lawyer and you undertake Trusteeship of a California Trust, then you will be expected to use your professional skills to administer the Trust.

For example, lawyers should have a higher degree of knowledge of the Trust laws, especially Trust lawyers. So when a Trust lawyer acts as Trustee, those skills must be used. And if anything goes wrong, the Trustee will be judged based on a higher standard of skills than an ordinary Trustee.

Having a Trustee with special skills that helps in Trust administration is a great idea. For example, a Trust that is heavily invested in commercial real estate would do well to have a Trustee who is skilled in commercial real estate. Settlors oftentimes look for this type of expertise when selecting a successor Trustee.  Or at least they should look for this special skill when selecting a Trustee.  After all, many Trust lawsuits involve Trustees who did NOT handle Trust investments properly because they simply did not know what they were doing.

But that extra level of skill comes with a catch—a higher expectation under Trust law. So if you are an expert, you must be aware that your expertise can be a benefit to the Trust, or a burden to you if things go wrong.  You are not going to be judged as your average-Joe Trustee, but as your highly skilled Trustee.

The best protection against a lawsuit for a skilled Trustee (or any Trustee for that matter) is to have a process in place that you use to mange the Trust assets and make decisions.  The exact details of the process are not as important as having a process at all.  So many individual Trustees will make decisions and invest assets without any written game plan.  When investments take a dive, the Trustee is immediately accused of making a mistake and with no written process in place, the Trustee has nothing to point to as being the basis for the decisions that were made.

Having skills is a mixed blessing.  It is great for the beneficiaries, when those skills are put to good use managing the Trust assets.  But when things go wrong, those same skills may create a higher threshold to escape legal liability than would otherwise apply.

Finding Balance...

How accurate does a Trust accounting have to be in order to be approved by the Court? I always say that every accounting balances, it is just a matter of finding the right information. Still, it can be frustrating to put together a year or two (or three or four) of information and not have the accounting balance.

A Trust accounting is a very unique thing. It is unlike any other type of accounting (and very much unlike a corporate accounting). But Trust accountings are also easy to understand—in theory.

Trust Accountings start with the charges—those are the list of things that come into the Trustee’s possession (what the Trustee is charged with possessing). The first charge includes all the assets on hand when the accounting begins. Then you add in all income received and any gains on the sale of assets. Each of these items has a separate schedule showing the detailed information. You then total all these amounts and that gives you the total charges.

Next you look at the total credits. Credits start with disbursements, amounts that are paid out by the Trustee for bills and expenses; then distributions to beneficiaries and losses on sale. The final piece is a list of the assets on hand at the end of the accounting period. Again, each of these items has a corresponding schedule that details the information. You add up the total for each of these items and that gives you the total credits.

For a Trust accounting to balance the charges must equal the credits. The summary of charges and credits typically looks like this:

Charges

Assets on Hand at Beginning of Accounting (Schedule A)……………… $1,000,000

Income Received (Schedule B)…………………………………………………………………………….. $100,000

Gains of Sale (Schedule C)…………………………………………………………………………………………. $50,000

Total Charges……………………………………………………………. $1,150,000

Credits

Disbursements (Schedule D)…………………………………………………………………………………… $75,000

Distributions (Schedule E)……………………………………………………………………………………… $500,000

Losses of Sale (Schedule F)……………………………………………………………………………………….. $25,000

Assets on Hand at End of Accounting (Schedule G)……………………………….. $550,000

Total Credits…………………………………………………………….. $1,150,000

As long as the total charges match the total credits, the accounting balances. If those two numbers are off, then there may be a problem.

But how far off does an accounting have to be in order to have a real problem? Typically small discrepancies will be allowed. For example, a $40 or $50 discrepancy is not enough of a problem to warrant any type of court order. Of course, it really depends on the size of the estate and the judge who is passing judgment on the accounting.

There is always an answer somewhere as to why any accounting is off. Accountings are just a collection of numbers. Usually the problem lies in a missing bank statement that has some bank charges or fees listed on them. Once all the information is located, it can be properly entered and the accounting should balance.

It is not a hard job to prepare an accounting, it just takes a lot of time, patience, and perseverance. Good luck!

If you are the beneficiary of a California Trust, there are a few things you ought to know to help you understand and protect your rights as a Trust beneficiary.  Here’s the Top 10 things you must know as a Trust beneficiary:

1.  Know your Trust.

Read it and then read it again.  If you don’t understand it (and who really does?) have a consult with a lawyer to go over the Trust terms.  If you don’t know what your rights are, you won’t be well armed to protect those rights.

2.  Know your rights as a beneficiary.

Not all beneficial interests are the same.  Some beneficiaries have superior rights than others.  Sometimes you are entitled to a distribution now, sometime you have to wait.  You must know what your beneficial rights are as soon as possible.

3.  Ask for information in writing, follow-up often.

All beneficiaries are entitled to information.  Ask for as much as you want, such as copies of bank statements, checks, trustee’s fees, costs, etc.  Better yet, ask for the information in writing.  It does not take much to send an email or a letter listing what you want to see.  It does NOT need to be sent by certified mail, just get it to the Trustee in writing as soon as you can.

4.  Ask for an accounting in writing, after six months or one year.

Unlike information described in number three above, not every beneficiary is entitled to an accounting.  In fact, only current income and principal beneficiaries can demand an accounting, unless the Trust specifies otherwise (and they usually don’t).  If you are a current income or principal beneficiary, then you will have to wait at least six month to get an accounting.  But once the time comes, request an accounting in writing.  Again, you need not send anything by certified mail, just get it out in writing as soon as you can.

5.   Know your income tax consequences.

The good news: most of the assets you receive by way of an inheritance are NOT subject to income tax (except for things like 401(k)’s and IRA’s which have a built in income tax when you receive them because the decedent put the money away tax free during life).  The bad news: if the Trust generates income, such as from rental property or investment accounts, you may be on the hook for a portion of the income tax generated by the Trust assets regardless of whether you receive any money from the Trust.  so it pays to learn what income tax consequences you can expect from your beneficial interests.

6.  You have the right to question and challenge your Trustee without fear of the no-contest clause.

If you start questioning the actions of your Trustee, or you need to go to Court to enforce your rights as a beneficiary, you have nothing to fear from a Trust no-contest clause.  But yet, Trustees (especially private individual Trustees) continually threaten disinheritance under a no-contest clause if their actions are challenged.  Well Trustees can say what they want, it simply is not true.

7.  Discretion is not absolute.

Many times a Trust will give the Trustee “discretion” to make distributions to a Trust beneficiary.  While Trustee’s have wide latitude in exercising discretion, it is not absolute.  That means a Trustee must act reasonably under the circumstances and make distributions when they are needed.  A Trustee cannot refuse to make a distribution just for the sake of saying no.

8.  Communicate often.

Wonder what’s going on with your Trust?  Ask about it.  Don’t get a satisfying answer?  Ask again, and then follow-up with the Trustee, and then keep asking.  A lack of communication is a bad thing for a beneficiary.  And your Trustee has a duty under California law to communicate with you.  So ask away, the earlier the better.

9.  Investments matter.

Every California Trustee has a heavy burden to invest Trust assets under the rules of the Prudent Investor Rule.  The rules requires Trustees to act reasonably and responsibly in investing.  Trustees are not allowed to make risky investments.  But not every Trustee knows or implements their duties to invest properly, so know the investment rules and ask your Trustee if he or she is following the rules.

10.  Trustees are not all powerful, they have duties, obligations, and responsibilities. 

The number one problem with private people acting as Trustees is that they think they can do whatever they like.  The common misconception is that the Trustee is “in charge now” and can act as though they are the Trust creator.  Not true.  In fact, Trustee’s have far more duties and obligations than they can even imagine.  But if no one informs them of their duties, then they may continue to act under this misconception, which can do a lot of damage to you as a beneficiary.  Trustee’s are not all powerful, and sometimes they need to be told as much.