Choosing a Trustee

A Successor Trustee should be exactly that – someone who will take over management of your Trust should you ever need and definitely someone whom you trust. When considering who you might want to choose, there are both practical and emotional considerations.

The practical considerations are easier to think about in terms of what this person does not need to be. They don’t need to be an expert in investing – financial advisors can be hired. They need not be an accounting or real estate expert as dedicated accountants and real estate professionals often have better advice. A Successor Trustee should be smart enough to ask for help and willing to take on the responsibility of oversight and decision making.

Trustees have a “fiduciary responsibility” which means that they should demonstrate a high level of attention and care or they could be personally liable for harm caused. For instance, a Trustee who does not have a method for recording income and expenses will be presumed to “have lost” monies if unaccounted for. Beneficiaries of a trust can bring a claim for mismanagement or breach of duty.

Many trusts will have clauses that exonerate trustees from general liabilities, for instance if the market has a major decline and the portfolio value decreases. But inadvertent neglect, such as not consulting with a financial advisor or keeping track of income and expenses could lead to potential liability.

A Trustee should be of an age and energy level to take on the tasks and duties necessary to effectuate the terms of the trust. The administration of a trust after one’s death is usually a finite process (unless ongoing sub trusts will be funded and maintained long term). The administration of a trust during the trustor’s incapacity, especially if long term, can be challenging and time consuming. Often it is hard to predict in advance what role a Successor Trustee will play, and for how long they will be needed. Having more than one Successor Trustee named in the document allows for flexibility in the event that unanticipated needs arise – whether for the Trustor or the named Trustees.

Trustees may be paid from the trust assets and even though many start by saying they don’t want to take fees, we do recommend that Trustees keep track of their time and expenses. Fees earned by a Trustee are taxable income. Trustees who are also beneficiaries in the trust receive their gift inheritance income tax free but they do pay income taxes on fees earned. None the less, Trustees can choose to accept or decline fees. Each case differs and these are examples of issues which we can advise the Successor Trustees.

No matter who is hired as a Successor Trustee, they should realize they are not expected or required to do everything on their own. They can hire, delegate, consult, and/or resign should they choose. Being clear with a Successor Trustee that they can get help or delegate is often useful information and makes both the grantor and the Trustee feel better. We can provide resources to help Trustees fulfill their duties and meet their obligations, reducing their liability and helping them to be more efficient. If you would like to consult with an attorney at Johnston, Kinney & Zulaica LLP on any of these issues or estate planning in general, please call 415.693.0550 or email us for an appointment.

Caregiver Statute

California Probate Code Section 21350, also known as the Care Custodian Statute, presumptively invalidates testamentary gifts (gifts left in a will or a trust or even by beneficiary designation) made by an elder to individuals who provided health and social services to the elder. Health and Social services is very broad and can include daily assistance to an elderly person. For purposes of the Care Custodian Statute, “elder” is defined as any individual over the age of sixty-four whose physical and/or mental abilities have diminished as a result of age.

The purpose of the Care Custodian Statute is to protect elderly individuals from predatory people, who would otherwise abuse the reliant, trusting nature of the care custodian relationship to manipulate the elder into giving the care custodian a portion, if not all, of the elder’s estate.

While it is exceedingly important to protect elderly individuals from opportunistic care custodians, not all gifts made by elders to care custodians are suspect or inappropriate.  Indeed, it is common for an elderly individual to desire to provide for the individual(s) who assisted the elder as he or she aged and required additional support.  It is also common that the persons named in an elderly person’s will or trust years ago are those exact persons who later do want to care for the elderly person. In order to protect the elder, the Code requires that gifts made to these people be independently reviewed by an attorney to ensure the elder knowingly made such gift happily and voluntarily.  Persons who are exempt from such review include the elder’s spouse, registered domestic partner, or persons related to the elder by blood.

Additional exceptions are available under the California Probate Code for testamentary gifts from an elder to a care custodian; however, these exceptions are very fact specific and should be discussed with an attorney.

An independent review by separate counsel is not a lengthy or difficult process, but is quite necesssary to ensure that the gift is properly made.

If you are interested in obtaining information regarding the Care Custodian Statute or would like to discuss the process of independent review, please feel free to contact us.

Why Estate Planning Is Important

When a person dies without leaving a will, it is called intestacy. When one dies intestate, their estate enters probate, a legal process in which one’s property is identified, inventoried, and distributed to heirs. Probate is a “one-size-fits-all” system that does not account for one’s intentions for their property after death.

Probate takes an extremely long time. Heirs do not usually have the 12-18 months that the average probate takes to wait for the means to make mortgage payments or run the deceased person’s business. Additionally, probate is expensive. Probate executors and attorneys collect fees based on the gross value of the estate, which does not take into account mortgages or other debts owed.

Unfortunately, most sates’ intestacy laws discriminate against same-sex couples, considering those relationships invalid for purposes of distributing the estate of a deceased partner who dies without a will. Many same-sex partners will lose both personal property and real estate as a result of the probate system.

Further, unrelated couples lose out on many other protections afforded to married or registered couples. Anyone can become incapacitated without warning. Without properly executed legal documents, your best friend or partner may not be able to visit you in the hospital, let alone make healthcare and financial decisions on your behalf. Sometimes, the chosen or trusted decision maker is cut off from their loved one with no input in matters of medical care or funeral arrangements.

It should be a primary concern for single people and legally unrelated couples to retain these rights through estate planning, in order to protect their assets and establish security for their loved ones.

Estate Planning: Planning Ahead

Your estate is the collection of all your assets minus all of your liabilities. Whether this adds up to $100 or $100 million, your estate needs planning. Estate planning also covers what happens to you during your life, should you become unable to make your own decisions due to illness or accident. Planning ahead decreases the chances of the courts getting involved, saving your partner or friend unnecessary emotional and financial hardship. There are several ways to accomplish this.

Wills

Wills are documents where individuals – known as “testators” – identify who their property will be given to when they die. In a will, you can choose to leave your property to whomever you like, including your partner. Wills also allow you to name a guardian for your minor children upon your passing.

However, wills have disadvantages. For one, property conveyed through a will is subject to the probate process, which as stated earlier is costly and time-consuming. Secondly, wills can and are frequently contested by the family of the decedent, especially when all of decedent’s property is left to his or her partner. Finally, wills are public, which means that anyone can look up your will at the courthouse after you die and find out how you distributed your property.

Living Trust

A living trust allows for inexpensive and time-efficient transfer of assets upon death, without involvement in the probate system. Because title to your assets is owned by the living trust, there is no “estate” to probate you upon your death. Additionally, living trusts are private so no one except the beneficiaries may find out how you distributed your assets. Further, a living trust is less likely to be overturned by a court if it is challenged. This is because you put the living trust into place and lived with it during your lifetime, making it harder to challenge based on intent. Because your living trust takes effect the moment it is signed, you live with it for a while before anyone else assumes management of it. Financial institutions become accustomed to dealing with your living trust so when your partner (or whomever you appoint as your Successor Trustee) takes over for you as the Trustee of your trust, the transition is much easier. A living trust also allows you to plan for the management of your finances during incapacity.

Power of Attorney

A Power of Attorney document allows you to designate the person or persons whom you wish to control your finances in the event that you are incapacitated. This allows your designate a person to pay the bills, collect money that you are owed, access bank accounts, and communicate with companies or organizations that you may have business with. You may tailor your power of attorney to include as many or as few different transactions as you wish. The financial power of attorney can be durable, meaning that it goes into effect immediately, or springing, where it goes into effect only if you become legally incapacitated. Depending on your circumstances, you may need a power of attorney that contains provisions for dealing with retirement assets, such as IRA and 401(k) plans.

If you do not prepare a document relating to your durable power of attorney, someone will have to petition the court to be appointed as your agent. This petitioning process is time-consuming, expensive, and may be emotionally taxing for those involved, especially if there is conflict between your partner and a family member.

Advanced Health Care Directive

An advanced health care directive (AHCD) is similar to a power of attorney. In an ACHD, you appoint a person to be your agent in making health care decisions for you should you become incapacitated. Even if you are legal domestic partners, if may be beneficial to execute an AHCD to clarify your rights as some hospitals may be unfamiliar with the rights of domestic partners. Through an AHCD, you may avoid the problems associated with an estranged or unwanted blood relative taking control of your health and care decisions.

In an AHCD, you can designate the level of care that you would like in the event you become terminally ill and/or incapable of enjoying any quality of life. You can express whether you would like to be place on life support if there is no chance of recovery. An AHCD may also contain information regarding your preferences for organ donation, personal care, and living arrangements.

A good complement to an AHCD is a stand alone HIPAA Authorization Form. Because of HIPAA (Health Insurance Portability and Accountability Act), it is often difficult for loved ones to obtain information about your health and medical care. A HIPAA Authorization Form allows you to pre-designate the persons you want to give permission to speak with your doctor, other health care professionals, and insurance or Medicare providers.

Joint Tenancy

Owning assets in a joint tenancy may also ease the transition of transferring property to your partner. When a joint tenant dies, the other tenant automatically assumes ownership of the entire asset without probate. However, when the surviving joint tenant dies, the asset my be subject to probate if the surviving joint tenant dies intestate or passes their assets through only a will. This also eliminates any guarantee that the jointly owned property will go to your family or heirs. Because the property is completely owned by the surviving joint tenant, the deceased joint tenant has no control of what happens with the property after the death of the surviving joint tenant.

Additionally, property owned in joint tenancy is subject to the creditors and liabilities of each joint tenant. This means that even if you helped buy a house with your partner and are 50% owner of the house, you may lose the house altogether if your partner is the losing party in the lawsuit or has outstanding debts.

Next Steps

To get a head start on your estate planning, contact an attorney that practices trusts and estate law. If you wish to have your intentions honored at death and leave your property to someone other than how the state deems is best, having an estate plan is not just a matter of convenience, it is a matter of necessity.

To contact our office, please call (415) 693-0550 or email us at office [at] jkzllp.com.