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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.

I have heard it a million times before: “I don’t need a Trust because ____________” you fill in the blank: I don’t have enough money, I won’t care when I’m dead, California probate is easy, my wife and I own everything in joint tenancy…there’s many, many excuses and misinformation regarding Trusts in California.

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In California, a probate must be opened for anyone dying with more than $150,000 in personal property (things like bank accounts, brokerage accounts, stocks, bonds, etc); or more than $50,000 in real property (which in California is almost all real property).  That means that if you own a home, regardless of whether the home has a mortgage or not, your estate will likely have to go through probate before it can transfer to your heirs. 

Probate is no easy task. See our prior posts on probate here and here.  It can take 12 to 18 months (or more) to complete, and it costs a lot.  For even a modest estate worth $500,000, the statutory attorneys’ fees alone are $13,000.  Add in another $13,000 for the executor and anywhere from $1,500 to $2,000 in hard costs (such as court fees, probate appraiser fees, publication of notice, etc.) and the total probate fees and costs can be around $28,000 for a $500,000 estate.  That’s far more than the typical fee for a lawyer to prepare an estate plan, which can run from $2,000 to $3,000 on average. 

How about estate taxes?  Luckily, California does not have an estate tax or inheritance tax.  But the Federal Government does have an estate tax, and the current estate tax limit is $5 million (plus a little more for inflation).  That means that anyone with an estate worth less than $5 million will pay no tax. 

There was a time when a Trust was necessary to save substantial money on estate taxes, back when the estate tax limit was only $600,000.  Now that the estate tax limit is $5 million, most people don’t need a Trust to save on estate taxes.  But a Trust still saves the trouble and expense of probate if you own real property or have more than $150,000 in personal property.  It also allows for someone to manage your financial affairs if you ever lose capacity, which is reason enough to have a Trust.

Still not convinced?  That’s okay because us lawyers make far more money on estates where proper planning is not done.  We would much rather earn a big, fat probate fee or spend years litigating your estate after you’re gone.  Not planning is a great way to make a lawyer a beneficiary, and maybe even the biggest beneficiary, of your estate. 

That may sound a bit jaded, but I have learned over the years that no matter how much sense planning makes, many people just won’t do it.  If you really want to save money, time, and trips to the Courthouse, it’s time to put your Trust in Trusts.

To hear estate planning attorneys talk, you would think a revocable, living trust cures all ills.  And yet, so many trust cases find their way to Court—the one place the settlor hoped to avoid by making a Trust in the first place.

While all Trusts can potentially wind up in Court—that venue should be avoided.  And the best way to avoid Court is to properly administer the Trust in the first place.

Trust administration is the process that takes place after the settlor (or settlors if it is a jointly created Trust) dies.  Trusts don’t magically transfer assets at death, there is a process that must take place to take the assets from the Trust to the ultimate beneficiaries. 

A Trust administration is nowhere near as difficult as a probate (sometimes called a probate administration) because, in California, all probates must be done in Court—with all the necessary rules and formalities that go along with probate administration.  To administer a Trust, is a whole lot easier, but that’s not to say there is nothing to do. 

1.         Knowing the Trust Document.  A proper Trust administration starts with the Trust documents itself.  The Trust should specify what is to occur after the Settlor’s death.  This includes paying debts, paying taxes, and distributing property to the named beneficiaries.  The Trustee needs to thoroughly read and understand the Trust terms (or have them explained if the terms are difficult to understand—and most are difficult to understand since they are drafted by lawyers).

2.         Gathering AssetsThe Trustee then must “marshall” the assets of the Trust.  This means gathering the assets, finding them, and putting the Trustee’s name as the successor Trustee of the Trust assets.  A bank account, for example, held in the old Trustee’s name must be transferred into the name of the new Trustee.  Same for brokerage accounts, stocks and bonds, and even real property (where you typically use an Affidavit Death of Trustee to put the new Trustee on title).

3.         Administering the Assets.  Once the assets are “marshaled” they must be administered.  This means different things for different assets.  For example, real property may need to be appraised and then sold.  Stock and bonds may need to be liquidated, personal property may need to be sold.  The administration of assets varies greatly from case to case depending on the type of assets involved and depending on what the Trust requires. 

The Trustee is given a “reasonable” time to administer the Trust assets and get them into a condition so that a final distribution to the beneficiaries can be made.  There is no hard deadline by which a Trustee must act—the “reasonable” standard is subjective.  But typically Trust administrations can take from 6 month to 1 year, or more in complex Trust cases. 

During the Trust administration, the Trustee is allowed to make a preliminary distribution to beneficiaries.  This allows beneficiaries to receive at least some of their property before the Trust administration is complete.

4.         Final Distribution and Reserve.  Once the Assets are ready and all creditors have been paid (including all taxes), then the Trust is ready to be distributed.  The Trustee must distribute the Trust assets in a “reasonable” amount of time.  However, the Trustee is allowed to retain a “reasonable” reserve—everything seems so reasonable.  Or at least is should seem reasonable.  Where Trustees get in trouble is when they take too long or try to retain too much at the end of the Trust administration.

In fact, there are many points along the way in which a Trustee can be at odds with his or her beneficiaries.  And it can be difficult to work through because the beneficiaries are the ultimate owners of the Trust property, but they are NOT the current owners.  The Trustee alone has the only say in the what, where, how, why and when of Trust administration. 

Yet if a Trustee acts at all times in a “reasonable” way, then the problems can be minimized and the administration can be handled with minimum dispute.  The problem, of course, is when a Trustee is NOT acting reasonably…but they think they are.  Or when a Trustee is acting reasonably…but the beneficiaries think they aren’t.  Differences of opinion on what is reasonable can fan the flames of litigation. 

So just where do Trust administrations go wrong?  That’s the subject of our next post on Trust Administration.