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Trust Administration. What’s That?

CunninghamLegal – The Living Trust Lawyers

Trust Administration – What’s that?

This is a question we get on occasion from clients.  The terms trust administration or trust settlement refer to the process of following through with the trust provisions and distributions after someone has died.  This process may involve helping the trustees (often a family member) with gathering and liquidating assets such as real estate and investments.  Trust administration can also involve navigating tax aspects of the trust, or dealing with problem beneficiaries.  The trust administration process, when done correctly, aids the trustee in making sure that all provisions of the trust are accurately adhered to, that the inheritance is properly distributed to the correct individuals and that all taxes and other obligations are specifically addressed.

CunninghamLegal is a leading law firm in trust administration.  Operating fully staffed offices in both Northern and Southern California, our firm has a dedicated team of talented attorneys and staff whose primary focus is working with trustees to successfully distribute and complete trusts after a death.  Attorney Preston Marx is the trust administration team leader, and he is assisted by Attorney Stephen Wood.  Firm-wide, CunninghamLegal has five paralegals and two legal assistants actively working with clients to settle trusts.  Our team not only has the required legal experience knowledge, but is also adept in helping people through what is a very emotional and traumatic time in their lives.  This combination of know-how and empathy allows families bring this important chapter to a successful close.

If you would like to learn more about trust administration, are an attorney who needs trust administration for a client, or if you would like to visit one of our offices, please call Preston Marx, Attorney at CunninghamLegal on 530-269-1515 or visit our website at www.cunninghamlegal.com for more information.

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Bypassing the Bypass Trust

CunninghamLegal – The Living Trust Lawyers

In this article, Stephen M. Wood, Attorney in our Camarillo and Ventura County office discusses A-B Trusts and why you should consider having your trust reviewed by an Attorney now.

Bypassing the “B” Trust

Under the current estate tax regime, it is often unnecessary for a married couple to have what is commonly called an A-B Trust. The “A” portion being the “Survivor’s Trust” and the “B” portion being the “Bypass Trust.” The A-B Trust presents a number of tax, cost and other problems that can easily be avoided when both spouses are living, but even if one spouse has died, there are legal strategies that can help.

When a Bypass Trust may still be needed

I won’t cover all the reasons why a Bypass Trust may still be needed, but, simply put, if a married couple is very high net worth (think top 1%), they should probably still have a Bypass Trust. In an uncertain estate tax law environment though, even if a trust should have provisions for a Bypass Trust, it should provide some flexibility for the surviving spouse to not fund the Bypass Trust if it doesn’t make any sense tax-wise. President Trump’s current tax plan gets rid of the estate tax altogether, but other than a repeal of the estate tax, other details are murky.  What if the estate tax is repealed and portability goes away, but the estate tax is brought back years later after one spouse has already died during the repeal? What if the estate tax exemption increases even further? Or, decreases? Since no one has a crystal ball, flexibility in the trust is your best friend.

Disadvantages of a Bypass Trust

Some of the disadvantages of a Bypass Trust include (take a deep breath!) no adjusted cost basis for Bypass Trust assets on the surviving spouse’s death, the cost to allocate assets to the Bypass Trust when the first spouse dies, ongoing administration costs of administering the Bypass Trust, the Bypass Trust cannot be changed by the surviving spouse and a principal residence in a Bypass Trust does not qualify for the IRC 121 exemption. Not having an adjusted cost basis when the surviving spouse dies can cause the heirs thousands in capital gains taxes.

I recently handled a case where there had been significant appreciation of the Bypass Trust assets since the first spouse died. If the heirs were to sell the appreciated property after the surviving spouse dies, it would result in over $100,000 in capital gains taxes. Fortunately, we were able to amend the Bypass Trust in court, which amendment will result in the Bypass Trust assets receiving an adjusted cost basis upon the surviving spouse’s death.

How to get rid of the Bypass Trust

What if you don’t need a Bypass Trust, but you still have one? If both spouses are living, getting rid of an A-B Trust is as simple as amending and restating their current trust. However, when one spouse has already passed away, amending the trust is no longer an option because the Bypass Trust is irrevocable. However, an irrevocable trust can be modified in court in a way which results in an adjusted cost basis on the surviving spouse’s death, like in the above example. This strategy is not for every client with a Bypass Trust, but there are other options that may be available depending on the terms of the trust.

If you know someone with an A-B Trust and both spouses are still living, please encourage them to have their trust amended right away. And if you know someone who already has a Bypass Trust that was established when their spouse died, it would be my pleasure to help them explore their options to get rid of it.

For more information call Stephen at 805-484-2769.

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Should You Settle?

CunninghamLegal – The Living Trust Lawyers

Ever hear this, “Don’t Settle,” or better yet, “Never Settle!” ? 

These may be wise words to follow in certain aspects of your life, but what about your legal life, or specifically, your inheritance?

After a person dies and their estate is being administered, unforeseen circumstances can arise that affect distribution of the estate.  Such factors can include ambiguities or errors in the estate plan, changes in the law, problems with specific assets, and unfortunately – disagreements among heirs.  Sometimes, due to a combination of these factors, it is not possible to satisfy each person’s desire (or opinion) as to the distribution of the estate.  When there is a Trust, a settlement among the heirs/beneficiaries can be useful to resolve some of these challenges.  Although settlement can also be an option in a Court administered probate, that process has parameters which are outside of the scope of this article.

In a privately administered trust, a trustee (often a family member) is the fiduciary named in the trust who will gather the assets, pay expenses, perhaps liquidate assets and prepare the estate for distribution. Say, for example, the trust contains the long-time family residence, cash accounts, investments, and dad’s classic 1959 Chevy convertible.  The trust says to distribute all property “equally to my children who survive me.”  Let’s add to our hypothetical that the family wants to hold on to the home and one child wants the ’59 Chevy.  What options does the Trustee have?

It would be the trustee’s right to sell all of the assets and merely hand out checks in equal amounts to each beneficiary.  However, this could cause a great amount of discontent among the beneficiaries.  If the trustee is a family member, this could cause anger and resentment for years to come, if not forever.  Let’s look at a few of the options available to the trustee.

  • The trustee could ask a court how the trust should be distributed.  This is not necessarily a lawsuit.  The court sits in an administrative role and is empowered to instruct the trustee.  Instructing the trustee and determining how trust property should pass are two of the Court’s specific powers pursuant to Probate Code § 17200.   The details of a 17200 Petition will be laid out in a future blog.
  • Effective January 1, 2017, a trustee may use the Notice of Proposed Action for preliminary and final distributions.  Found in Probate Code §§ 16500 – 16504, the Notice of Proposed Action relieves the trustee of liability for taking specific actions.  The actions must be described in the Notice, and the Notice must be provided to all affected beneficiaries.  Using this process for trust distributions was specifically prohibited until January 1, 2017.  Using our example above, a Notice of Proposed Action can now be issued describing the proposed distribution and/or sale of the house and the ’59 Chevy.  The trustee might seek input from the family members prior to issuing the Notice.  If no beneficiary objects within 45 days of receipt of Notice, the trustee can be confident in taking the described action. If a timely objection is received, the trustee may then choose to file the matter for court determination.
  • Now, let’s look at the settlement option.  Similar to other litigation, a trust settlement tells the “story”, describes the issues, and sets forth the solution.  A trust settlement specifically lays out the provisions of the trust, the beneficiaries, the assets, the distributions outlined in the trust, and the distribution the beneficiaries have agreed upon.  The proposed settlement still must conform to the letter and spirit of the trust document.  Each beneficiary may retain their own attorney (at their own cost) to review the settlement and provide input and suggestions.  This is often a good idea to avoid second thoughts or confusion later.  The settlement could say that one beneficiary will receive the ’59 Chevy, and the remaining beneficiaries will own the home together and rent it out.  It may also direct to sell certain assets or a buy out of the house by one child.  It would reconcile how the estate will be equally allocated in light of the distribution.   If the beneficiaries come to this agreement, the settlement can be signed, which can include a release of liability for the trustee.  The trustee is then free to make the distributions.[1]

If there is remaining animosity, the trustee may still file the settlement with the court for approval.  The difference here between bringing a settlement to court and filing a Probate Code §17200 Petition for instructions is that as to the settlement, the court is being asked to approve and ratify the agreement.  In a 17200 Petition, the Court would make its own determination as to how the trust should be distributed.

So, settling is not always bad and shouldn’t be avoided.  CunninghamLegal handles simple and complex trust administration for clients throughout California.  Please contact us to discuss your trust drafting and administration needs.

Written by:

Preston A. Marx, III
Attorney at Law



[1] There are other statutory requirements such as a trustee accounting that must be complete prior to distribution.  The trustee must complete all required tasks prior to distribution, even if there is a settlement. Those tasks are outside the scope of this article.


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Out of the Box – What happens when property is not titled in your trust?

CunninghamLegal – The Living Trust Lawyers

I often tell clients to consider a living trust like a box with instructions written on the side.  Assets, including real estate, bank accounts and brokerage accounts are put into the box.  The writing on the side of the box instructs a person (called the “Trustee”) what to do with the items in the box after someone dies.  Assets are “put” into the box by deeding the real estate to the Trust, and by changing account holders on a financial account.  Since personal items like furniture do not have deeds or documents of title, the person’s Will, (called a “Pour-Over Will”) transfers those items to the trust.

What about Probate?

The question remains – what happens when an asset is not properly titled to the trust, or said differently, what happens when an asset is not “in the box”?  The quick and unfortunate answer is that the trustee may need to open a court administered Probate.  Probates can be protracted and expensive, and Probate avoidance is one of the primary purposes of a trust.  There is however an easier and expedited court procedure in California which will transfer the assets into the trust so that the estate can be administered without further delay.  This article outlines that process.

Funding a Trust

Transferring assets into a trust is called “funding the trust.”  How would an asset not make it into the trust?  First, it may never have been put into the trust.  This can occur  during drafting when the person or firm preparing the trust either does not provide trust funding as part of their services, or simply fails to follow through with the funding.   Also, if a person is establishing a trust without the advice of an attorney, the trust may not get property funded.  In other situations such a mortgage refinance, a bank may require that real property be removed from the trust.  However, the property is often not put back into the trust after escrow closes.  In any of these situations, the failure to title assets in the trust will cause expense and delay when someone dies.  Worse yet, during this time, the trust beneficiaries will not receive their share of the trust.

Heggstad Petition

In order to address this problem, California Courts allow what is known as a Heggstad Petition.  This Petition is named after the case, Estate of Heggstad, (1993) 16 Cal. App. 4th 943 which first discussed this concept.  Using the Heggstad case as precedent, courts allow trustees to file an administrative petition asking that assets found outside of the trust be properly transferred to the trust.  In order to do so, the person filing the petition must show that the specific asset is mentioned in the trust, and that the trust creator (called a “Trustor” or “Grantor”) intended that the property be in the trust.  Courts will look to language in the trust specifically mentioning the asset.

In some trusts, the real property is not specifically mentioned.  A recent case called Ukkestad v. RBS Asset Finance, Inc. (2015) 235 Cal. App. 156 loosened the requirement that the asset be specifically mentioned if the trust states that “all personal and real property…wherever situated” be held in the trust.  Although the Ukkestad case makes the process easier, it is still preferable to have a specific reference to the assets subject to the petition.  As Ukkestad is a relatively recent case from 2015, it can take time to see how other courts will interpret and implement this rule of law.

Contact Us for Help

Situations with unfunded trusts can be complex and difficult for a trustee to navigate.  Our firm has the experience required to assist with any number of problems or questions regarding your personal estate plan, assisting you as a trustee, and filing Heggstad Petitions.  Please contact our office to schedule an appointment with one of our attorneys.

–Preston Marx, Esq.

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How to disinherit someone

Disinheriting a person it sounds easy but in practice can be difficult to accomplish. The first step is to determine whether the disinherited person is in line to inherit anything in the first place.

Put it in Writing

Generally speaking, if a person does not create a Will or trust prior to death or incapacity (think stroke, dementia, Parkinson’s and Alzheimer’s) that person’s wealth is distributed to the surviving spouse (if any) or descendants or both. For example, Pat and Chris are married and have three children. If Pat does not make a will or trust during his lifetime, Pat’s property will likely be distributed to Chris at Pat’s death. However, some property may be distributed to the children depending on State law and the characterization of property: whether the property is Pat’s “separate” property or Pat and Chris’s “marital” or “Community Property.”

Pat generally has the ability to disinherit Chris from Pat’s separate property and Pat’s portion of the marital property. Chris is entitled to retain Chris’s portion of the marital property.

If Pat and Chris want to disinherit one of their children, they can do so provided that there is a trust or are wills created by Pat and/or Chris. The documents must identify the existence of the children and which child, specifically, is disinherited.

Identify the Disinherited Person

Many people mistakenly believe that they need not mention a child and, in not mentioning the child, that serves to disinherit the child. This is not the case. If Pat and Chris want to disinherit a child, they must make it clear that the child is receiving nothing.

Should the Disinherited Person Receive $1?

Whether Pat and Chris have to leave a disinherited child “$1” depends on your State law. In many States there is no requirement to leave a disinherited child anything.

Write Down the Reason for the Disinheritance

There is an axiom in science that nature abhors a vacuum and there is an equivalent axiom in law that says the law abhors a forfeiture. There should be a reason, preferably a valid “reasonable” reason, that Pat and Chris want to disinherit their child. If the child files a lawsuit to oppose the disinheritance, it’s better to have a valid reason that the person is disinherited then no reason for the disinheritance. Perhaps even worse is a bad reason to disinherit someone. It may be helpful to have a hand written note separate from the Wills or Trust that explains the reason for the disinheritance.

Bear in mind that a Judge always retains the power to invalidate or “interpret” the terms of a will or trust and to re-inherit the disinherited person.

Think Twice Before Disinheriting Someone

Your Will and Trust are part of a larger estate plan. Your estate plan can shape your legacy. Think carefully before you remove a child or other descendant from your estate plan. What will the other beneficiaries think? How will they react? Will this end the situation or will it merely feed the fire?

Please get a Lawyer and Don’t do it Yourself

We know what we know and we know what we don’t know. This knowledge tends to keep us out of trouble. Its not knowing what we don’t know that gets us into trouble. Abraham Lincoln said if you represent yourself you have a fool for a client.

Wills and trusts, and estate planning in general, is highly technical. It is equivalent to writing computer code. If one line of code is bad, it can crash the whole program. The same is true with estate planning and wills and trusts.

If you do hire a lawyer, choose a specialist and avoid the generalists. You should choose somebody that is completely focused on this area of the law. Stated another way, you need to hire someone who knows what they don’t know.

–Jim Cunningham, Jr.IMG_93063672222099

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The 5 Golden Rules Of Lending Money To Your Adult Children

When you think about the price of having kids, the costs that come to mind may include things like child care, camp, braces and college tuition.

What probably doesn’t spring to mind are mortgages, car payments or personal loans.

The reality, however, is that your bank account will likely continue to be tapped long past the day your kids turn 21. According to a 2015 Pew Research Center report, six in 10 Americans with at least one adult child say they’ve provided their kids with some financial support within the past year.

And the dollar amounts they doled out were probably a bit steeper than $100 here or $500 there: A TD Ameritrade survey released in August found that parents supporting adult kids gave them an average of $10,000 over the past 12 months.

When dealing with an amount of that size, it’s very possible that parents expect to be paid back at some point. But entering into parent-child lending territory can be fraught with complications that could lead to big financial burdens and broken family ties.

So we rounded up some financial pros to provide tips on how to loan your adult children money in a way that helps minimize monetary strife and keep family drama at bay.

1. Only lend money you won’t miss.

Your child is just a few thousand dollars shy of a down payment on her dream home, and you’d really like to help her get into that three-bedroom Colonial. Before you reach for your checkbook, however, make sure it’s an amount you can stand to part with, rather than money you need for your own financial stability.

“The question I ask my clients [who are faced with lending to kids] is: ‘Are you willing to lose the money?’ If you can’t answer with a resounding yes, then I suggest you don’t loan the money,” says Tom Till, owner of APPS Financial Group, a financial advisory firm located near Houston.

And that advice doesn’t apply just to funds you use to pay your monthly bills; it’s also applicable to any money you’re setting aside for your future.

“If you don’t have enough in savings or retirement or haven’t reached your personal goals, then tell them you can’t help them at this time,” suggests Debbi King, a personal finance and life coach and author of “The ABC’s of Personal Finance: 26 Essential Keys to Winning With Your Money.” “Don’t mortgage your future and put it at risk.”

If you still get the pleading looks, explain your no in a way that shows why your financial stability can actually be a good thing for them. One client of Till’s used this approach to tell her daughter why she couldn’t lend her money for a home down payment: “She told her child that I had recommended against the loan because it would greatly affect her retirement income—even to the point where she might have to move in with the child at her new home.”

2. Be clear on how your kids will use the funds.

You think you’re lending your child money to help pay off a student loan, but you suddenly notice some sweet electronics and brand-new furniture popping up in his pad.

Coincidence? Perhaps not.

Consider that if your child is asking you for money, it may be a sign that he doesn’t have the firmest grasp on his finances to begin with. So if you’re not completely sure where those dollars are going, think about placing parameters on how you fork over the funds.

For starters, consider paying the lender directly, suggests ReKeithen Miller, a Certified Financial Planner™ with Palisades Hudson Financial Group who is based in Atlanta. “That way, the child can’t divert the funds for other purposes,” he says.

You could choose to disperse the loan in smaller amounts over time to help ensure that your child isn’t tempted to splurge with such a large amount, Miller adds. This also provides the option to refuse to release further funds if your child isn’t using them for their intended purpose.

Finally, if you feel your child needs to learn a serious money lesson, you can require that they get smarter about money management before you fork over any cash. “Parents have the option of making the loan conditional,” Miller says. “For example, if a child has issues with budgeting or credit card debt, you can require them to enroll in credit counseling before you agree to lend them the money.”

3. Set terms for late payments or defaults.

Your child likely has every intention of paying you back—but you can’t deposit good intentions in your bank account. To help keep your child accountable, lay out what happens if she is unable to pay you back in a timely manner.

“Treat [the situation] as if you were the bank giving the loan,” King says. “There have to be consequences, such as interest and fees for late payments and defaults, just like with a ‘real’ loan.”

There’s another potential benefit to charging interest: The IRS may be less likely to view your loan as a gift, says Miller, which means it won’t count toward your annual gift-tax exclusionamount. He suggests choosing an interest rate in line with the Applicable Federal Rate (AFR), an interest rate calculated by the IRS each month. Remember to consult with your tax advisor to be clear on how you report the interest to the IRS.

It’s also important to consider baking in how the payment terms might be adjusted if your family member’s financial circumstances change, either because of job loss or another income hardship. Could you, for example, reduce the payment amount temporarily, but raise the interest rate? Give them quarterly rather than monthly deadlines? Reduce the amount they’ll eventually inherit by the amount of the loan?

It may seem awkward at first, but not agreeing on those types of details up front only stands to heighten the tension later. King recalls one story about a colleague whose mother-in-law loaned her a few thousand dollars to buy a new car. They settled on a monthly repayment amount, but the colleague lost her job and was unable to make the payments. Even after finding a new job, the colleague was making much less and still couldn’t afford to the payments.

“She felt as if she were being judged by every purchase she made. She got the feeling that the mother-in-law was saying, ‘If you can afford that, you can pay me what you owe,’ ” King says. “And every time [her husband] sees his mom, he’s always waiting for her to bring it up—not knowing what to say if she does.”

4. Present a unified front.

Your child probably figured out pretty quickly that when Mom said no to cookies for breakfast, he might get a more favorable response from Dad.

That good-cop, bad-cop dynamic, however, can have much bigger consequences when you’re talking money. So before saying yes to a loan, make sure you and your spouse have agreed uponall of the loan terms. This will not only help avoid an argument later, but could also help protect one spouse in the unfortunate event that the other isn’t around to enforce the agreement.

“A common scenario I’ve seen is where Dad discusses the terms of the loan with the child without involving Mom. Dad dies without communicating the loan terms, and Mom is in a situation where she has to decide if her child is telling the truth—or trying to shirk responsibilities,” Miller says. Plus, “If Mom forgives one child’s debt, she may be obligated to do the same for the other children to avoid tension within the family—and she may not be in a financial position to do so.”

One other piece of advice? Consider getting input from a financial advisor, who may be able to help you and your spouse settle disagreements on loan terms, as well as help play bad cop to the kids, if necessary. “Inserting a third party into the mix may make the children more apt to abide by the terms of the agreement, since they know someone outside of the family is monitoring the situation,” Miller says.

5. Get *everything* in writing.

As with any other bank, the Bank of Mom and Dad should have a promissory note signed by both parties that lays out all of the loan terms, including the principal amount, the interest rate, the payment structure, and any other conditions you’re expecting your child to meet in order to be “approved” for the loan.

“Even though the money transaction is between family, it is best if it is treated like a business transaction. Be as clear as possible on the expectations, and it will cut down on family disputes down the road,” Till says. “[And] it’s important to stay firm to the agreement. This can be a learning opportunity for your adult child—no matter the age.”

Read the original article on LearnVest. Copyright 2016.

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What could happen if you write your own living trust

Readers often ask me about do-it-yourself estate planning. Lawyers want to know how to discourage clients from using books or software and websites that spew out documents for free or for a fraction of what they charge. Meantime, consumers ask, “What’s wrong with that?”

The trouble with do-it-yourself planning is that even if your situation seems simple, there are many oddball things a layman wouldn’t think of that can go wrong, especially with wills and trusts. These mistakes can end up costing you or your heirs a lot more than you saved in legal fees.

Eileen Guerin Swicker, a lawyer with her own practice in Leesburg, VA, recently told me about a really doozy. It involved a client who set up his own living trust.

By way of background, both a will and a living trust can be used to transfer assets, and each has unique uses and features. For example, only a will can name guardians for children who are minors. (For how to choose a guardian, see my post, “Adam Yauch’s Will Reveals His Private Dilemma.”) And unlike a will, a living trust can take effect while you are alive, so it can be used to hold assets for your benefit if you become unable to manage them yourself.

The client who Swicker told me about set up his own trust in 1984, using a 3-page form that he bought at an office supply store. He recorded a deed to transfer his home into the trust, and absentmindedly dated that deed 1983 (in other words, one year before the trust was created).

Flash forward to 2009 when this fellow, who had paid off the mortgage on the house, wanted to borrow against it. He planned to give his adult daughter $300,000 in cash so she, in turn, could pay off the mortgage on her own house. Great strategy (see my posts, “5 Ways To Help Family Pay For Housing,” and “The Best Investment Advice I Ever Received”).

But at this point, his clerical error of 25 years earlier came back to haunt him. Why? Because the title company said he didn’t have a clear chain of title to his home, so the bank wouldn’t give him the loan. The man, who by then was 75, called Swicker’s previous law firm in tears, asking for help.

Fixing the problem was a convoluted process that took two weeks and wound up costing the client $2,000 in legal fees. That’s about twice what he would have had to pay back in 1984 if he had had the firm draw up the trust instead of doing it himself, Swicker says.

After that, Swicker hoped the client would call back and ask lawyers to help bring his estate-planning documents up to date. But by the time Swicker left the firm eight months later, he still hadn’t done that. Says she: “It was one of those classic cases of somebody who dug a hole, and kept digging it deeper.”

Source: Deborah L. Jacobs – Forbes, August, 2012