Wills, Trusts, and Probate
Two important areas that almost everyone has to deal with at some point are estate planning and estate administration. Estate planning is the process of arranging for the distribution of one’s estate (collective assets at death) and other final wishes. Estate administration occurs after someone dies, and it’s time to carry out those instructions (or figure out what to do if there was no estate plan).
Whether you’re thinking of estate planning, or you’re involved in the administration of another’s estate, there are many issues to consider.
Estate planning is not just for the elderly or the wealthy. Regardless of your age or level of wealth, you should think about drafting an estate plan. No one wants to think about their own mortality, but planning ahead gives you peace of mind knowing that things are taken care of if the unexpected happens.
In addition to providing for your loved ones, a comprehensive estate plan provides valuable guidance about other life decisions, such as your medical wishes and who should take care of your minor children.
Your estate plan will most likely consist of one or more of the following documents:
A will is a basic estate planning document where you can lay out many of your wishes for after you’re gone. This includes the distribution of property to your beneficiaries, naming an executor to wrap up your affairs, and naming a guardian for your minor children.
Depending on the level of your assets, a will may be all you need. However, for many people, a will is only one part of the overall estate plan. This is because a will has many limitations. For instance, an important goal for your estate plan should be keeping your estate out of probate (a cumbersome court process discussed below). But unless your assets are below a certain level, a will by itself will not do this. For this reason, it’s often preferable to set up a trust.
Revocable living trust
A trust is an arrangement where a trustee holds property “in trust” for the benefit of another person (the beneficiary). The person who establishes the trust is known as the settlor.
A revocable living trust is set up while you are still alive (“living”) and that you are free to change or revoke (“revocable”) prior to your death. For many people, this forms the foundation of a good estate plan.
Typically, you will set yourself up as the trustee, transfer your property into the trust, and manage it for your and your family’s benefit while living. You will also name a successor trustee to take over in case you die or become incapacitated. A revocable living trust has many advantages:
- Avoidance of probate: Property held in the trust at the time of death stays out of probate, saving your beneficiaries the time and cost of going to court.
- More control: A living trust allows you more options for distributing your assets, such as conditioning gifts on reaching a certain age or graduating college.
- Avoidance of conservatorship: With a successor trustee in place, if you can no longer manage your affairs, the new trustee takes over and you can avoid having a conservator appointed.
A living trust is superior to a stand-alone will in many ways. Take note, however, that even with a living trust, you still need a “pour-over will” to transfer any assets into the trust that were not transferred prior to your death. Your will is also where you would name a guardian for your minor children.
A living will, also known as an advance directive, is another important document in your estate plan. If you are no longer able to make medical decisions for yourself, it provides guidance to your loved ones regarding your wishes. For instance, if you do not want to be placed on life support, or you oppose certain medical treatments for religious reasons, you can indicate those preferences in this document.
Your family members will already be dealing with the grief of your injury or illness. This document provides welcome relief from the stress of trying to figure out the right decision for your treatment.
Power of attorney
A power of attorney (POA) grants certain powers to another person to act as your agent in case you become incapacitated or otherwise unavailable. They come in 2 varieties: Healthcare POA and POA for finances.
A healthcare POA allows someone to make medical decisions for you, while a financial POA lets someone manage your financial matters, such as paying your bills or accessing a bank account. POA’s can grant broad powers or they can grant limited powers for a specific purpose.
They are often drafted “just in case” something happens. For instance, if you need to undergo surgery or are leaving the country for a few months, a POA can be a useful tool. The Healthcare POA goes hand in hand with your advance directive.
As you can see, estate planning gives you a lot to think about. Perhaps this is why many people postpone getting it done. However, having a good estate plan is an invaluable gift to your family and friends once you’re gone. It provides them with an easy roadmap to follow, helps relieve stress, and makes sure they are provided for without having to face unnecessary hurdles along the way.
It’s never easy to lose a loved one. Unfortunately, it doesn’t help that there are many practical matters to attend to in the midst of the loss. However, the best place to start is learning as much as you can about the process, so you know what to expect.
Estate administration is the process of wrapping up the affairs of someone who has died (the “decedent”). Depending on the type of estate plan the person had set up (or if there was no estate plan), the steps involved will be different. But the goal is the same: Get everything wound up as quickly and efficiently as possible, with minimal conflict between the parties.
The people involved
There will one person (sometimes more) primarily responsible for administering the estate. In a probate case, this person is called the personal representative (also known as the executor or administrator). If a trust was set up, that person is called the trustee.
Those who stand to receive property from the estate are known as beneficiaries or heirs. A beneficiary is someone granted property in the will or trust. An heir is someone who, depending on the situation, has an automatic right to inherit created by law (the most common example would be a child or spouse).
The trustee or personal representative is responsible for managing and distributing estate assets, paying estate debts, and notifying the beneficiaries of developments.
If the decedent left only a will, and the assets are above a certain amount, the estate will have to be administered under the supervision of the probate court. Likewise, if the decedent died “intestate” (without a will), the estate will also go through probate. (In the second case, the property will be distributed according to California’s intestacy laws.)
The basic steps of probating an estate are as follows:
- Someone (such as a family member) files a petition for probate with the probate court
- The court holds a probate hearing to deal with preliminary matters
- A personal representative is appointed
- Assets are marshalled (gathered) and inventoried
- Estate taxes and debts are paid
- After petition for final distribution, the assets are distributed and the personal representative is discharged from duties
This is only the basic structure. There can be many twists and turns, depending on the nature of the estate and the relative harmony between family members. Because of court hearings to attend, deadlines to remember, and probate court rules to follow, probate is largely considered a headache for most people. The entire process takes anywhere from several months to over a year to complete. If there is a dispute among beneficiaries, it can drag the process out even longer.
If the decedent had a trust, the administration process is different than probate in some respects. After death, the revocable living trust now becomes irrevocable, and the trustee is obligated to carry out the terms and purpose of the trust. The good thing is that the trust administration is private and is conducted outside of the probate court. There may, however, be reason to go to court if there is an administration dispute.
Probate and trust administration disputes
While probate and trust administration differ in many ways, the disputes that arise are often very similar. Unfortunately, major disagreements between beneficiaries (or between beneficiaries and the trustee or personal representative) are all too common in both types of estate administration.
In a family where no one gets along (and usually stays apart), disagreements can easily arise when everyone is brought back together by the death of a loved one. Even for family members that do get along, disputes can crop up, especially if someone was “cut out” or thinks the distribution is unfair.
There are many types of disputes that can come up:
- Legitimacy of will or trust instrument: A beneficiary may challenge one or more documents as being defective for not complying with legal formalities, for being the result of undue influence or duress, or because the decedent was incompetent at the time the estate plan was drafted.
- Guardianship: Relatives may fight over who is appointed guardian of minor children (especially when no one was named in the will).
- Appointment of personal representative: There may be a dispute over who is appointed personal representative of the estate.
- Actions of the personal representative or trustee: If the trustee or personal representative is incompetent, neglecting his or her duties, or mismanaging estate assets, the beneficiaries may petition for removal or even sue for damages.
- Disputes between co-executors or co-trustees: If more than one executor or trustee is named, they might disagree on how to administer the estate.
Some disagreements are legitimate and need to be resolved. Others are not so legitimate and are often initiated by disgruntled family members. Either way, they can complicate the process. Proper administration of the estate, by someone who knows what they’re doing, can help prevent disputes and resolve them efficiently when they arise.
Helix Law Firm can help with estate planning and estate administration
Estate planning and estate administration are intricately connected. The planning you do now can be the difference between an easy process and a nightmare for your loved ones after you pass. But even with a poorly planned estate, the administration can go much more smoothly and efficiently with effective legal counsel by your side.
If you’re interested in learning more about how Helix can help guide you through either process, please call us at (619) 567-4447 to schedule a free consultation.