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PROBATE IS DANGEROUSLY PUBLIC

Like Bob Jr. from our earlier post, most people are shocked to learn that probate offers the family no privacy whatsoever. Literally, anyone can go to any court in America, walk up to the probate filing window, and say, “I’d like to see such and such file number.” The clerk will turn over a file that will include the probate petition and lots of other documents containing the names and addresses of executors, beneficiaries, and anyone else involved, adults and minors alike. The date of the inheritance and the amount of the inheritance is a matter of public record, along with the specific value of all assets in the estate and all of its debts.

Right there, for anyone to see.

Any scam artist who wants to troll court records and take advantage of people who have just inherited money could do no better than start at the probate filing window. Creditors of a beneficiary may subscribe to a data service and say, “Hey, I’m owed $100,000 by Bob Jr. Tell me whenever his name pops up in court records. This same creditor may show up at the probate hearing and say, “Don’t give the money to this heir, give it to me.” I have seen it happen.

Conservatorship processes for adults offer limited privacy. If you get Alzheimer’s disease, and have not made proper prior arrangements, your conservatorship hearing will become a matter of public record. The medical portion of your file can remain “sealed,” but family ties and the amounts of money spent become a matter of public record. This means that all of your personal details, from the names of your relatives to a second degree of kinship to your financial records, will be available to anyone who inquires about them. If $118.36 was spent for adult diapers at Walgreens three years ago, anyone can find out.

ENTER THE LIVING TRUST

I have left out a lot of details about the actual processes of probate courts. Why? Because solid advice for navigating probate requires a whole other book, and an attorney.

This book has a different job. This book exists to keep heirs out of probate court altogether. Consider that statement your mission, whether you are planning your own succession or helping your parents plan theirs. Regardless of your financial situation, your goal should be to make your wishes so clear that no judge has to clarify them. Then, structure your estate so it can be passed on without a hearing.

How can you avoid the terrible hassle of probates and guardian processes? The arguments? The uncertainty? The delays?

Do a good estate plan with its foundation in a living trust. For more information on how to begin, contact a licensed attorney on our team today.

Letting Your Family Go to Probate

When your kids were little, you wouldn’t let them run in the street.

When they were teens, you wouldn’t let them stay out until dawn.

When they became adults, you wouldn’t let them send money to Nigerian princes soliciting them by e-mail.

And when you die, believe me, you should not let them go to probate court, not if there’s anything you can do to prevent it.

But unless you do the right kind of estate planning—which goes well beyond signing a will—you create an extremely high probability that your heirs will go to probate court. In probate, they will have to stand up and prove to a judge that they have a right to your property. If you don’t divide up those rights clearly in advance, if the names on the title documents are confused or out of date, or if your children encounter a dozen other possible complications, they may well have to lawyer-up and fight over your estate.

Just to get to the point of standing in front of a probate judge, it will take weeks, months, or sometimes years. And the bitterness resulting from a battle among your heirs may last the rest of their lives. In the end, the legal costs may well consume their entire inheritance—it happens often.

Am I exaggerating? Unfortunately, I am not. I have dealt with many estate successions, and stood in probate court many times. I know the deal.

What is probate? It comes from the Latin word probare, which means “to try, test, examine, prove.” In modern English, we might translate it this way: “unbelievable and unpredictable hassle.”

PROBATE IS ALWAYS A HASSLE

Let’s take a “simple” case. Bob Sr. dies. He is survived by Bob Jr. and his estranged daughter, Jane. Bob Jr., is lucky enough to locate a signed, properly witnessed, last will and testament that leaves everything to him. A few weeks after the funeral, for which he has paid, Bob Jr. realizes it’s time to deal with his inheritance. For starters, the funeral has set him back $6,000, and he could use the money.

At some point during those two weeks, it dawns on Bob Jr. that if he takes no action, he will get nothing. His name does not appear on any of his father’s accounts or title documents. After a little research, he discovers that no “inheritance agents” are going to track him down to hand him his father’s money, or the deed to his house, or the keys to his safe deposit box.

Now, Bob Jr. needs to get to work.

First, he goes through his father’s desk and finds $800 in cash. He puts this in his pocket. So far, so good, he figures. But, in fact, he has just broken the law, because regardless of the will, the cash is not his, and neither he nor his siblings’ rights to that cash have been established by a judge.

He also finds a bunch of bank statements. He’s not sure if they cover all his dad’s bank accounts, but he pulls one from Friendly State Bank, and decides to go meet with them.

Bright and early one Monday morning, Bob Jr. puts on a tie and drives down to the local branch. The Friendly State Bank manager sits him down in his office, where Bob Jr. pulls out Bob Sr.’s death certificate, along with the signed will, and asks to be given access to his father’s account.

“Sorry, sir,” says the manager. “We will need letters testamentary from the probate court. We also need a probate court order, which proves that this is the last will your father left behind and that you are the official executor. I’m afraid your father never transferred his accounts here into a living trust.”

“Excuse me?” asks Bob Jr.

The bank manager smiles. He sees the look in Bob Jr.’s eyes at least once a week. Hardly anyone knows about such things until they have to know about them—and often, that look of bewilderment is the first hint that these people’s lives are about to take a whole new turn. The manager is also smiling, because he knows that Bob Sr.’s money isn’t going anywhere soon.

“I’m talking about documents signed by a judge and a clerk of the probate court. You have to petition the court to get them. And make sure they have the official stamp—the purple stamp by the way, not the black one.”

“I bet someone is going to ask for those kinds of documents when I try to take title to the house, too.”

“Yep.”

Now, if Bob Jr. has plenty of time and patience, and makes an effort to learn the ins and outs of probate proceedings, he may eventually figure out how to get his letters testamentary. But, he is about to enter into a very frustrating and archaic process.

He will encounter a series of weird laws and will wait in a lot of long lines.

He will get a pat down from security if he leaves his pocket knife in his pocket as he walks through the airport-style metal detector at the courthouse.

He will discover that the world of the court is nothing like the efficient world of business. For example, he will discover that he will have to complete the probate process in a certain sequence. If he does them in the wrong sequence, the process can come to a screeching halt.

At this point, Bob Jr. might pick up the phone and call a probate attorney to handle the rest of the process. He probably should. For one thing, an attorney might know about exceptions to probate in his state, especially if the assets have a low value. Some states might also offer an abbreviated proceeding. The time an attorney could save Bob Jr. would likely cover his legal fees.

Most likely, however, Bob Jr. won’t call an attorney yet, because he still doesn’t know what he’s getting into. He’s a babe in the woods.

Bob Jr. does a little research and finds out that he has to go down to the probate clerk’s office to kick off the process. There, a clerk hands him about eight forms and says, “You need to petition the court. You will be the petitioner. It’s very simple. Here’s a four-page form, a three-page form, and some two-page and one-page forms. Please fill everything out correctly and in the proper manner. Pay attention to the sequence of each step. Bring them back when you have everything done, and we’ll give you a hearing date.” Lawyers have a charming word for this process. We call it a “form pleading.”

Bob Jr. learns to his surprise that thanks to probate, he has to publish a notice in a local newspaper telling the world that his dad has passed away. But he’s more concerned to learn that he has to notify all of his father’s descendants, all of the people named in the will, and anyone who would inherit in the absence of a will.

All this must be completed before he can get the papers he needs to take control of his dad’s assets.

Now, a chill runs down Bob Jr.’s spine as he suddenly recalls that after his father and mother divorced when the kids were young, Bob Sr. had married a woman in Nevada on a whim. They broke up shortly thereafter. Bob Jr. has no idea even of the woman’s name, or if she is alive. After all, his father died at eighty-five, and all that happened long ago. Bob Jr. doesn’t know if his dad ever divorced this Nevada woman or not. But now, Bob Jr. has to find out whether they were still married, and whether she is still alive, and notify her.

Then there’s Bob Jr.’s own sister, Jane. She and Bob Sr. argued bitterly and haven’t spoken in roughly twenty-five years. She was largely left out of the will, save for a box of her old college paraphernalia, and Bob Jr. hasn’t had any contact with her for at least a decade. Last he heard, she had moved to Bahrain (or was it Kuwait?) to teach English. Now, he has to notify her, but he doesn’t have her address or any way to find it.

Then, Bob Jr. is stunned to discover that in the course of probate, all the details of his father’s assets will become part of the public record, including full information about his father’s possible heirs, including the estranged Nevada wife. This might open up the estate to scam artists, which rightly scares him.

Bob Jr. was named as sole beneficiary in the will. But he will have to stand in line with everyone else for a chance to make his claim before a judge.

It’s lucky that Bob Sr. was fully retired and had no partnership interest in a business. Imagine how complicated that would be to unwind. Or, imagine if Bob Sr. had left no

will at all, which is true for about 55 percent of Americans. That’s right: 55 percent of Americans die “intestate,” guaranteeing no end of hassles for their heirs. The numbers are highest among minorities.

As it happens, it takes Bob Jr. only a month to find and send out notices to all the possible heirs, publish the information in a newspaper, fill out all the forms, and get the forms back to the probate court. Like the funeral, this costs a bit of money and time—neither of which he can really afford.

Meanwhile, more bank and investment statements have arrived in his dad’s mail. Small accounts, but assets Bob Jr. didn’t know about. One’s an IRA, which he foolishly considers to be just other asset he can cash out. (For much more on this issue, see Mistake #5: Assuming Your Living Trust Covers Things Like IRAs, 401(k), 403(b)s, 457s, Annuities, and Insurance.)

Then there’s the mysterious wife from his dad’s past. It turns out that his dad never divorced the woman and she’s not dead, which causes Bob Jr. more than a little worry. He sent his sister a notice to her last known address and got no reply. Will these issues somehow mess things up?

When Bob Jr. takes his petition to the court to get a hearing date, he hands all his papers to a clerk, along with a check for the court fees (there are always court fees). The clerk checks to see that all the forms are minimally filled out, and hands Bob Jr.’s petition back with a stamp and a hearing date.

The date is just six weeks away, but Bob Jr. has a problem.

“This date doesn’t work for me,” he says. “I’m going to be out of town.”

“I’m sorry, but that is your date. You should have told me before.”

Because Bob Jr. has never done this before, he didn’t know that before he handed over the petition, he needed to tell the clerk his schedule limitations. If he had negotiated beforehand, he might have gotten a better date. But now he is stuck. Is every courtroom like that? No. But is this typical of the overall probate process he is about to experience in real time? Yes.

Of course, on Bob Jr.’s hearing date, the judge may be sick or called away to a more important matter. Or, the court transcriber might be sick, and the whole thing will be delayed. A lot can go wrong before you get your time in front of a judge, even if your case is straightforward. Even if your parents made a proper will, there’s no argument among siblings, and you have done everything just right.

(If not, well, see Mistake #7: “Letting Your Beneficiaries Muddle Through on Their Own.”)

On the date of the hearing, Bob Jr. leaves for the courthouse with plenty of time to spare. Someone told him to show up an hour-and-a-half early, because if he is not there at the moment his case is called, he will lose his date and will have to start again. But, when he gets to the courthouse, the lot has filled up, and he has to park a couple of blocks away. Then he has to stand in a very long line at security—a process that operates similarly to an airport’s, only not as efficiently. Then, he gets lost in the huge building. By the time he enters the courtroom, Bob Jr. has only ten minutes to spare before his 9:15 a.m. call time.

Judges are free to lock the doors on people who have a 9:15 a.m. appearance and show up at 9:16 a.m.

A probate court will typically post online or in a paper near the courtroom door, a list of “matters” for the day, along with what are called “probate notes” and “tentative rulings.” “Probate notes” are written by court staff to let the judge know what’s going on in the case and what may be missing from the file. “Tentative rulings” indicate the way the judge intends to rule. It makes a complex process incrementally more efficient. You can see if your matter has been recommended for approval on the first hearing or not.

If your matter is recommended for approval, you will likely get a court order for your letters testamentary and other documents to be prepared (though of course, not right away). If your matter is recommended to be continued, it’s usually because you still need to do a number of things that, in the opinion of the judge, you have so far failed to accomplish.

Bob Jr. gets depressed when he sees that his case has been recommended for continuance. But he still needs to get through this hearing.

Inside the courtroom, our hero blinks at the size of the operation. The room is large, and several dozen people are sitting and waiting for their cases to be called. At the moment, however, nothing seems to be happening, and he learns from someone that the judge was late getting in that morning, and still hasn’t appeared on the bench. The judge was supposed to start proceedings at 8:30 a.m. but, well, he’s a judge, and he does what he wants.

When the judge appears at 9:30 a.m., the court starts calling cases, or “matters” at a perplexing speed. In Los Angeles County, with its millions of residents, I’ve seen one-hundred matters called in sixty minutes. You do the math. But in a rural county, where the courts have less on their plates, they might call only six matters in a whole day. There’s just no way to know.

Bob Jr. watches petitioner after petitioner stand before the bench. The probate judge glances at the papers, looks at the staff recommendation, asks a question or two, and then either approves and signs an order, denies it, or continues the matter. He often makes these decisions in seconds.

At last, around 11:45 a.m., just when Bob Jr. begins to despair that the court will close before his matter is called, he hears his name. He rushes forward.

The judge glances at the stack of papers, eyeballs Bob Jr., and asks, “Where’s your sister, Jane?”

“I don’t know, your honor. I did send a letter to her last address. My father—”

“Case continued four weeks for service. Next case.”

“I’m sorry, your honor, what does that mean and what do I do next?”

“You must file a Proof of Service that states under penalty of perjury that you have mailed a Notice of Petition to Administer Estate to your sister. Next.”

“But I don’t know where she is.”

“Find her. Your case has been continued. I am calling the next matter, and if you do not leave the courtroom, I will have the bailiff escort you out of the building.”

With that, Bob Jr.’s shoulders sag, and he leaves the courtroom in a hurry.

If Bob Jr. has all the answers for the court on the next hearing, he may get his approval. If not, his case will likely be continued once again. Once he has too many continuances, Bob Jr.’s case will be dismissed, and he will have to start all over again with a new petition.

But let’s say Bob Jr.’s matter was not continued, and let’s say it was not dismissed. Let’s say the judge smiled and said, “All right, Bob Jr., you have done everything you need to do. This is a miracle of miracles. I can’t believe it. You are so smart. You were so well prepared. I’m going to sign your order.” And the judge signs a court order approving his petition for letters testamentary.

After this positive hearing, a smiling Bob Jr. heads down to the clerk of the court, who he now knows works on the third floor. He stands in line, and says with good cheer, “The judge just signed my order. Please issue me letters testamentary and other documents the Friendly Bank is asking for.”

The clerk smiles back and says, “The order is still with the judge. We have to wait for the file to get down here.”

“When does that happen?”

“Sometimes it takes a week or two. Sometimes three or four.”

Bob Jr. is thinking, “You’ve got to be kidding, right?” But of course, he’s too smart to say this out loud.

Why does it take so long? You see, even in this digital day and age, courts still shuffle a lot of physical paper. Judges have to return physical files to clerks. Clerks put these on a stack, and then someone in the back office has to review all the paperwork it contains. Your court order is just one of these pieces of paper, which the judge has signed. Your letters testamentary are separate pieces of paper that the clerk signs after he or she makes sure all the language matches up, and the seal can be applied. This takes time.

In the end, a clerk may put the relevant letters in the mail to Bob Jr. or Bob Jr. may have to go back through the metal detectors in the court to pick it all up. It depends on the individual court’s process. Assuming all has run quite smoothly, a few months after his father’s death, Bob Jr. will get the authority to act. Friendly State Bank will finally get friendly.

But that’s not the end of the story. Bob Jr. will have to bring a petition to conclude the probate proceeding once all the work is done. Only after the petition for final distribution is final can Bob Jr. actually distribute his inheritance to himself.

What if the process doesn’t run smoothly? As of this writing, the average probate in California requires sixteen months. That includes the problem cases that run years, but none runs as short as two months.

Bottom line: it’s easy to start probate. It’s a lot harder to finish.

For more information or for answers to your questions about probate contact us today!

 

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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
www.cunninghamlegal.com

530-269-1515

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[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.