"trust administration"

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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 at Albertson & Davidson.  And in this video, I want to discuss step-parents.  And I don’t mean to disparage step-parents, there’s a lot of very good step-parent and step-child relationships out there.  But, there’s also some bad ones.  And a lot of times we’re asked, “Can my step-mom or step-dad, can they change the estate plan after my parent dies?”  So, typically, in this scenario, maybe you have a father who married somebody new and that’s your step-mom.  And then your father passes away and you always thought you had a good relationship with your step-mom, but after your dad passes, things start to get a little strained and awkward and you start to wonder can she actually change the estate?

In some cases, it might actually get downright hostile and maybe the step-mom actually tells you, “I’m changing the estate and I’m leaving it all to my kids and I’m not going to leave your father’s share to you after all.”  And you wonder, can she do that?  And the answer is maybe.  And that’s a typical lawyer answer, right?  But it depends; it depends on what your father did when he planned out his estate.  Or, if he didn’t have any planning at all, that could be a real problem.

So the best case scenario would be if your father had created a trust prior to his death, he has the right to leave assets to step-mom and that’s fine.  But, typically, what you’d want to see is that he left money to step-mom in a trust.  So she can use that money for her care and support during her lifetime, but she can’t change the ultimate distribution of it.  Whatever’s leftover after step-mom passes, has to go to you.  But that only works if your dad created a trust and if he had a trust created that had those type of terms in it that allowed the step-mom to use the assets but not control them.  That required that the assets go to you after death.

If your father didn’t do that, then you probably are not going to be entitled to his share of the estate.  And so what happens a lot of times is, either your father leaves everything to the step-mom, in which case she can do whatever she wants after your father dies, and she can cut you out.  Or, he just doesn’t plan at all and things just pass to the step-mom because it’s in joint tenancy or she’s the beneficiary on life insurance, or whatever the case may be.

So when these things are not planned out and if the assets actually pass to step-mom after your father passes away, then you’re really in trouble, because the step-mom can do whatever she likes.  She becomes the owner of those assets and she can do whatever she wants with them as the owner.

The fact that your father may have had a family home that you grew up in and lived in and has been in the family for decades, the law doesn’t care about that – if your father didn’t plan it out property.  And so that’s really the big question.

So anytime somebody approaches us and says, “Can step-mom change the estate after my father passes away?”  The first question we’re going to have is, “Well, what did your dad have in place?  Did he have a trust?  Did he have a will?  Did he have something that we can look at to see if you, as a child, have any rights to any of those assets?” And if you were to tell us that no, he didn’t have any of those things, then chances are, you’re out of luck.  And that’s a little something about the downfalls of step-parent and step-children relationships when it comes to passing assets.

 

How much do lawyers cost?  Well that’s a loaded question that no lawyer wants to answer.  And yet, every client and potential client wants to know—“what’s this gonna cost me?”  Well as a lawyer I have no desire to discuss this on a blog post put out into the public realm.  Or if I do discuss it, I want to state it in either general terms that avoids the question, or highly specific terms that makes no sense to anyone—even me.

As a human being, however, I have a desire to just tell it like it is.  We all know legal services are not free.  So why not talk about the costs using specific examples that gives people some idea of what they are in for?

Part 1: Transactional Lawyer Work (and Fees)

Before we start throwing out numbers, we need to discuss the different type of legal services a firm, such as mine, undertakes.  There’s two broad categories: “transactional” services which are things like estate planning, uncontested trust administrations, probate (uncontested), and the like; and “litigation” which is all the contested court work like Will and Trust contests, Trustee breach of duty, abused beneficiary cases, and the like.  In this post, I will discuss the transactional attorneys fees you can expect to pay:

1.         Estate Planning–$2,500 to $5,000.  If you are going to use a lawyer to create an estate plan for you, then you should expect to pay in the range of $2,500 to $5,000.  Some attorneys will flat fee an estate plan for you, and others do not.  And I’m sure there are some lawyers who bill less than $2,500 (and I know there are lawyers who charge more than $5,000), but this is the typical range you can expect from a lawyer drafted estate plan.

I tend to charge around $4,000 to $5,000 for estate plans that I do.  Why so much?  Well I like to spend a good deal of time preparing a proper estate plan.  Throwing together a Trust and Will for someone without thinking through how that affects all of their assets and family situations is not helpful to anyone.  I think I provide more in value than I charge, but not everyone agrees and that’s okay.  The point is to find a lawyer with whom you feel comfortable.

Practice Area:
http://www.aldavlaw.com/practice-areas/transactional/estate-planning-and-advanced-estate-planning/ 

2.         Probate—Percentage of the estate Probate fees are set by statute, you can read my previous post on how they are calculated.  I have heard some people (o.k. lawyers) say that the statutorily set fee is a “mandatory” fee or a “minimum” fee—not true.  The statutory fee is a maximum fee that goes to the attorney who handles the probate.  In most modest estates, those with assets less than $1 million, the statutory fee is about right for the amount of work to be done.  For estates in excess of $1 million, the statutory fee may be more than is necessary to handle the estate, especially if it is an easily handled, liquid estate with no contestants.  In those cases, lawyers can reduce their fees from the statutorily set maximum, but few do so.

I have reduced my probate fee on estates in excess of $1 million depending on the underlying circumstances, so ask around and see what kind of deal you can get if you have a larger estate to probate.

Practice Area:
http://www.aldavlaw.com/practice-areas/litigation/estate-and-probate-litigation/ 

3.        Trust Administrations–$2,500 to $5,000 (to $10,000??).  When someone dies who has created a revocable, living Trust during his lifetime, the Trust has to be administered in order to pass the assets to whoever receives them.  Sometimes the assets are placed in Trust for a surviving spouse, sometimes in Trust for children or grandchildren, and sometimes it is just an outright distribution to children.  In each of these cases, an administration is necessary because there are notices that must be sent, appraisals that must be obtained, rules to follow, and Trust terms to carry out.

The Trustee is entitled (and encouraged) to have a lawyer help them through this process to be sure it is all done correctly.  What does that cost?  Well that depends on many factors such as the size of the Trust, the complexity of the Trust provisions, the difficulty of the beneficiaries, and the issues that arise in dealing with the beneficiaries.

In my experience that typical range for a run-of-the-mill trust administration is $2,500 to $5,000.  If, however, the estate is big enough to trigger the need to file an Estate Tax Return, then you can add $10,000 or more to that number.  Of course, your Trust estate would need to be in excess of $5.325 million as of 2014 to trigger a Estate Tax return so an extra $10,000 shouldn’t be too problematic for an estate that large.

But when the Trust administration becomes contested, due to a disagreement between a Trustee and beneficiary, that can also add anywhere from $2,500 to $5,000 or more to the cost even if the problem does not end up in court.

You also have to add to that the hard-costs of obtaining things like appraisals, recording deeds, and hiring accountants for Trust accountings (if one is required).  So all told, attorneys’ fees and hard-costs will likely cost from $4,500 to $8,000 or so.

Well that’s the deal for transactional matters.  My next post will talk about the fees for litigation matters.

Practice Area:
http://www.aldavlaw.com/practice-areas/transactional/probate-and-trust-administration/ 

Beneficiaries have all the legal rights, and none of the legal obligations, when it comes to California Trusts and Wills.  But beneficiaries, at times, have one very practical obligation—paying to enforce their rights.

For beneficiaries of California Trusts, it’s every beneficiary for him or herself.  That means there is no governmental oversight of  Trustees until the matter is brought to Court.  And every Trust has the potential to wind up in Court if not managed properly.  But just because you may have the right to challenge a Trustee in court does not mean that it comes free of charge.

Most beneficiaries don’t know this, but our judicial system follows the “American Rule” when it comes to attorneys’ fees.  That means each party to a lawsuit pays his or her own fees and generally does NOT get them reimbursed even if successful in the lawsuit.  You read that right, you can win your lawsuit, but still be out the attonreys’ fees it took to get you there.  Seems unjust, and un-American (remember “justice for all”), but that’s the American Rule for attorneys’ fees. 

Contrast that with the English Rule (used in Great Britain and many other Countries) where the losing party to a lawsuit pays the winner’s attorneys’ fees and costs. 

There are a few exceptions to the American Rule even in our own judicial system.  For example, parties in a contract can agree that the winner gets his attorneys’ fees.  There are also a few statutes that only apply to very limited cases where fees can be shifted so the winner is compensated.  Such as with Trust accountings, where the losing party can be forced to pay the winner’s fees if the losers acted in “bad faith” (which can be a tricky standard to prove in court).

The problem is that California Courts are reluctant to shift fees even where doing so is authorized by statute.  In other words, the default rule that everyone pays their own fees, actually weighs against fee shifting even where authorized.  It’s just human nature, when everyone pays their own fees, why should the Court shift the burden of paying in a particular case?  And where the Court can exercise discretion and award fees to the winner, the Court typically will not do that because it goes against the norm. 

What does that mean to you, the Trust or Will beneficiary?  It means you have rights, but it may cost you to enforce those rights.  And you may as well assume that you will not be reimbursed for your attorneys’ fees. 

Given the American Rule, is it still worth enforcing your rights as a beneficiary?  Only you can decide that question.  It obviously is worth it to some people or else there wouldn’t be a backlog of Trust and Will cases congesting our Court system.  But before you go head-long into litigation, be sure to consider your own practical burden of being a beneficiary.  

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.

We spend a good deal of time and effort discussing the mistakes Trustee’s make in administering California Trust’s.  From bad management, to problems investing assets, to misinformed or even bad Trustees.  But not all the blame for ugly Trust administrations lies with Trustees.  Beneficiaries can cause their share of problems too.

That’s what I call “Troubled Trust Administrations.”  When a Trustee who wants to do the right thing runs into problems with wayward beneficiaries some action needs to be taken.  But it may be something short of going to court and starting a Trust litigation case. 

To be clear, during a Trust administration, the Trustee is in charge.  It is the Trustee, and only the Trustee, who decides what to do and when to do it.  This can be a problem when a bad Trustee fails to follow the rules.  But it can also be a good thing when a good Trustee is in office and is properly handling the Trust affairs.

Beneficiaries need to know that they do have rights, but they don’t have legal authority over the Trust.  That’s the Trustee’s job.  And if the Trustee is following the Trust terms, and administering the assets according to California Trust law, then the Trustee should be allowed to do the work they were appointed to do.  This includes things like, selling real property, investing assets, paying taxes, paying creditors, hiring professional advisors, making preliminary distributions and creating any additional sub-trusts that are reuqired under the Trust document.

And a Trustee has a reasonable timeframe in which to take these actions.  Typically, a Trust administration can take from 3 to 18 months to complete, or sometimes even longer for complex Trust estates, depending on the amount and complexity of the Trust assets.   

When a Trustee hits a roadblock, whether it be an outside issue, issues with a Trust asset, or issues with a beneficiary, then some action may be required.  Hopefully, such action can be done outside of Court, but the Court process is available to a Trustee any time an issue cannot be resoovled through other means.

For example, under Probate Code Section 17200, Trustees have the ability to seek instructions from the Court.  This process allows a Trustee to set forth the issues and gives the beneficiaries an opportunity to either consent to, or object to, the proposed actions of a Trustee.  If the petition is granted, then the Trustee can take the action they asked to take without fear of being sued over it at a later date.

Further, communication between Trustees and beneficiaries is cirtically important to keep an administration on track.  Communication can be hard to maintain in some cases, especially where the Trustee and the beneficiary (or beneficiaries) are hostile towards one another.  But even when relations are strained, communication will go a long way towards keeping a Trust administration out of court and moving forward.

Just in time for Halloween, the creation of the two-headed Trustee.  They say two heads are better than one.  So why not have two Trustees manage your Trust estate, or better yet a two-headed Trustee.

There can be strength in numbers.  And many Trusts are administered with skill and grace with two Trustees at the helm.  But not every partnership is successful.  When a two-headed Trustee decides to argue with itself, disaster abounds.

Sometimes two people appointed to act over a Trust estate simply do not see eye-to-eye.  They may disagree on investments, or distributions, or other management of Trust assets.  They each have duties and obligations to the Trust, but every Trustee can interpret how to act out those duties and obligations differently and still be within the range of reasonableness.

Worse yet, under the default rules of California Trust law, co-trustees must act unanimously if they are to act at all.  This means that one Trustee cannot simply break a deadlock by acting on his own.  One of the Co-Trustees does not have the power and authority to act alone.  Of course, the Trust document can change this requirement and allow one or both of the Co-Trustees to act alone, but Trust provisions rarely provide for that.

If Co-Trustees cannot agree on how to act or how to administer the Trust, then the horror of the two-headed Trustee comes to life because nothing gets done.  Further, the Trust administration can turn into an ugly scene of chaos and destruction taking far more time, money, and emotional toll than is typically required to administer a Trust.

Ultimately, Co-Trustees can either resign or be removed by the Court, but that takes Court action—costing time and a good deal of money.  Plus, you never know how the Court will rule when asking it to intervene in Trust affairs—it may not go your way.

The solution, therefore, lies in choosing the right heads to put together as a two-headed Trustee in the first place.  Naming two people to act just because you think two heads are better than one may back fire if the two heads you name can’t work well together.  Do you want your Co-Trustees to be a successful working partnership or do you want to see the horrors of a bad Trust administration?  The choice is yours, put some thought into the decision and then choose wisely.

Shouldn’t Trust administration be like a game of Simon says?  That’s the old school yard game where one person gives an instruction, but you’re only supposed to follow the instruction if it is preceded by the phrase, “Simon says.”  For example, Simon says, “Touch your nose.” Simon says, “Touch your toes.” Simon says, “Make proper Trust distributions when directed to do so by the Trust terms.”

A client of mine who was in a dispute with a Trustee pointed out that he received money from life insurance without any problem at all.  A claim was made to the insurance company, a death certificate was submitted, and full payment arrived within a week or two.  Shouldn’t the process of receiving assets from a Trust be similar? 

He makes a good point.  While there is a process that must be used to administer a Trust, the Trustee’s duties are simply to do as the Trust says.  Especially with the voluminous amount of instructions left behind for the Trustee to follow.  There are the Trust terms, which can be anywhere from 20 to 60 or so pages of material.  Then there are the directives in the California Probate Code, which specifies everything from investing, allocating assets between income and principal, and a whole host of other duties and responsibilities of the Trustee.  There couldn’t be much that is not written down for the Trustee to follow.

And yet, California Trust administrations drag on.  Setting aside cases where the Trust terms are being contested (that will take a few years on average to resolve), the typical California revocable, living trust set up by any person prior to death names a successor Trustee.  That successor is supposed to, “marshal” the Trust assets (which just means to gather them together—or take possession of the assets), pay the last debts, file tax returns and pay any taxes (this could take some time if an Estate Tax return is required), sell any Trust property that needs to be sold (such as real property and stocks), and then make the required distributions to the beneficiaries—sounds simple enough. 

All too often Trustees, especially individual Trustees, wander off-course and believe that what the Trust says does not apply to them.  It’s no longer a game of, “Simon says,” but one of “Trustee says.”  Having a position of power, which the Trustee has, does not equate to having the ability to do whatever the Trustee wants.  In fact, the Trustees’ powers are very limited by the Trust terms and the voluminous mandates of the California Probate Code. 

So if you want to be a good Trustee, then play along as the Trust requires.  It will keep the Trustee out of trouble and allow the beneficiaries to receive the benefits of the Trust that they are entitled to under the Trust terms.