trusts

Trusts are popular estate planning tools that are extremely useful in the transfer of property upon death. Trusts can also be useful for property management during the lifetime of the settlor ( the person creating the trust). This article will discuss what revocable trusts are (irrevocable trusts are not the subject of this article), the formalities of executing a revocable trust and the benefits of executing a trust.

What is a Revocable Trust

A trust is a property interest held by one person (trustee) at the request of another (settlor) for the benefit of a third party (beneficiary) (Black’s Law Dictionary 723 (2^nd Pocket ed. 2001). In the typical revocable trust situation, the settlor (the person who owns the trust property or corpus) manages and maintains the trust property for the rest of their lives. Upon the death of the settlor, a successor trustee is usually appointed to manage the trust property, and to then distribute the trust property to the beneficiaries under the terms of the trust.

Formalities of Executing a Revocable Trust

A revocable trust is created by a settlor or by married settlors who manifest an intent to create a trust. A trust must be funded with assets and have beneficiaries to be valid. (Cal. Probate Code §15200-15205). In most instances, the settlors’ assets are renamed, including real property and bank accounts, to reflect the name of the trust. A trust does not have to be notarized to be valid, but it is good practice to do so. It is advised that you seek the services of an attorney when executing a trust agreement.

Benefits of Executing a Trust

The primary reason most individuals execute trust agreements is to avoid probate. Persons executing simple wills to transfer their property upon death are subject to probate proceedings. This means that the executor named in the will is responsible, with the assistance of an attorney, for filing the will with the court in the county where the deceased passed, initiating probate proceedings to distribute the deceased assets ( which includes filing notice for creditors’ claims), and obtaining court approval for final distribution of the deceased estate assets to beneficiaries. Most documents filed in probate proceedings are public information.

By contrast, assets transferred to the revocable trust before the settlor’s death are not part of the settlor’s probate property and are not subject to probate proceedings (CEB, California Estate Planning, §6.3) This means that statutory and extraordinary attorneys’ fees, court costs and potential creditor claims can be avoided if a valid revocable trust is executed . Moreover, probate proceedings are public and can create tension between family members who do not take under the will. By contrast, most trust distributions are private and involve the trustee dispersing trust assets to beneficiaries.

In addition to the cost benefit of executing a revocable trust, time can also be saved by executing a trust versus a simple will upon the decedent’s death. Typically, the probate of a will can take a minimum of 7 months to several years. In the case of a trust, distribution can take 1 or two months, depending on whether the trustee and beneficiaries are in agreement with the distribution and there are no extraordinary issues relating to the management of the trust.

Another benefit of executing a revocable trust is that a revocable trust can serve as an alternative to a durable power of attorney . Most trusts include clauses that appoint a durable power of attorney for the management of trust assets if the settlor becomes incompetent. This person is usually the successor trustee.

There are numerous benefits to executing trust agreements, particularly for individuals with real property and high net worth’s. For more information regarding executing a trust agreement, please contact the Law Offices of Verleana D. Green.

Selecting a Power of Attorney, Trustee and or Executor of your estate can be one of the most important aspects of your Estate Plan. The person you select in one of these positions will have control over your assets if you become incapacitated, and or upon your passing when your estate is distributed to your heirs. As you meet with family and friends, consider who would make the best person to perform the tasks of Power of Attorney, Trustee or Executor of your estate (conservatorships will not be covered in this article).

This article will cover the responsibilities of your Power of Attorney, Trustee and or Executor of your estate, what to look for when selecting persons in these various positions and the liability for misconduct in providing services in any of these fiduciary roles.

Responsibilities of Power of Attorneys, Trustees and Executors

Power of Attorney

The person you select as a Power of Attorney will be responsible for managing your assets, paying your bills, and managing your business dealings if you should become incapacitated. Basically, this person acts in your stead when it comes to your finances. Some of the more important aspects of being a Power of Attorney are: access to your bank accounts, buying, selling or encumbering your property, and litigating cases on your behalf.

Executor and Trustee

A Trustee and Executor have very similar roles. They are the persons you appoint to manage your estate after you pass away. They also have very similar responsibilities as a Power of Attorney, since they will manage your finances upon your passing. A Trustee and or Executor will have the responsibility of, managing, and distributing your assets to your desired beneficiaries upon your passing. Similar to a Power of Attorney, a trustee has the duty to pay your bills, and properly manage all of your investments.

A Power of Attorney, Trustee, and Executor have substantial powers, and appointing a person to act in any of these capacities should be done with great thought and care.

Some things to look for when selecting a Durable Power of Attorney, Trustee and Executor

1. Person’s expertise in handling financial matters. You want to make sure you have someone who is experienced in handling financial transactions in both their business and personal lives. Particularly, if you have a larger estate, you want to choose someone who has expertise in investments and who has other experts available as resources, such as lawyers, accountants, and tax professionals.

2. Family Members. If you are selecting a family member, select someone who can get along with all family members. You can avoid litigation, costly delays in distributing assets to your beneficiaries and heirs and prevent unnecessary and costly will and trust contests. Selecting a family member or close friend that gets along with everyone prevents your beneficiaries from spending more money on unnecessary attorney’s fees and court costs.

3. Selecting a professional fiduciary. When choosing a Power of Attorney, Executor, or Trustee, a professional may be the best route. I would recommend a professional fiduciary if you have a large estate, even though you will likely need to pay a fee for the professional fiduciary’s services. An experienced professional has the skills to manage complex estate plans, and has resources readily available to resolve tax problems or other issues. A professional fiduciary has no familial connection to you, so it lessens the likelihood and number of disputes and litigation. A professional fiduciary is also required to carry a bond as insurance; if the professional fiduciary is found to have misappropriated your estate assets, it can be recouped quickly. Many professional fiduciaries have extensive financial management experience, investment experience, and experience with dealing with family problems.

Liability for Mismanagement of Estate Assets

If you appoint a family member who does not have the financial expertise required to administer your estate properly and instead mismanages your estate or account, they can be sued personally. In addition, they can be held criminally liable for fraud. I previously had a Client who chose to appoint a family member as Trustee of their estate based on the fact that the proposed Trustee was the oldest child. Although honorable, this was not the best thing for the Client. The Client passed, and the Trustee was sued for Breach of Fiduciary Duty for mismanaging their deceased parents’ assets. The Trustee was not a “bad” person, just inexperienced in handling such complex financial matters. If you know this person does not have the capacity and or willingness to handle complex financial transactions, you should not appoint them as they can be sued, and even jailed for mismanagement of your assets.

When selecting a fiduciary, look at the persons’ and or entities track record and expertise for handling financial transactions, as well as their ability to manage potential family disputes.

For further questions regarding selecting a Power of Attorney, Trustee or Executor, please contact VDG Law at (510) 479-0768.

This article is the sole property of the Law Offices of Verleana D. Green. Please do not use without our permission. Thank you!

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Benefits of Executing Trusts

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