How to Protect Your Legacy with Estate Planning

We have the privilege of hearing from Brianna Giliberto-Hermann, a California lawyer with a wealth of experience in end-of-life planning and asset protection. In this article, she shares vital information on the necessity of trusts in ensuring one’s wishes are adhered to and on the best method of selecting successor trustees, drawing upon her own experience of navigating inheritance disputes.

Estate planning for individuals who have assets (referred to as a person’s ‘estate’) that are collectively worth more than $184,200 in the state of California typically involves a ‘revocable trust’. A revocable trust is also commonly known as a living trust or family trust. The beauty of this document is that it can be changed throughout the lifetime of the individual(s) who created it (referred to as the ‘settlor’ or ‘trustor’) so long as they have the mental capacity.

There is a common misperception that a revocable trust will protect you from legal liability if you are sued. This is not the case with a revocable trust, because this type of trust is not considered to be a separate entity from the individual who creates it, as it is able to be changed at any time and does not have a fixed amount of assets in it. However, the similarly named ‘irrevocable trust’ can potentially protect you from certain legal liabilities because it is considered a separate entity, with the downside that the creator of this type of trust loses most if not all their ability to change the trust document itself or the assets held within it.

On the other hand, a revocable trust allows for an individual to create a probate law-based instruction manual containing their wishes for those who are left behind regarding what is to happen to the estate after their death. It is similar to a ‘last will’ in the regard that it contains one’s after-life wishes. However, unlike a last will, no matter the size or value of the estate contained in a trust, it avoids a lengthy and costly court process called probate. A simple probate case typically lasts for around 12-18 months and involves the court overseeing the entire process from appointing the estate representative to approving the final distribution of the decedent’s estate.

The only true means of avoiding probate and making sure your wishes are followed – and not whatever the law dictates – is with a revocable trust. This is true for anyone who has assets that are valued at $184,200 and homeowners in the state of California.

People generally want to avoid spending the money that it takes to create a trust, but it is a long-term investment that can potentially save your family time and thousands on attorney and court fees. In fact, attorney fees for a probate are set out in California Probate Code Section 10810, which states that the attorney is to receive a percentage of the gross value of the estate by using the following breakdown: 4% of the first $100,000; 3% of the next $100,000; 2% of the next $800,000; 1% of the next $9,000,000; and 0.5% of the next $15,000,000. This means that, for an estate valued at $550,000, regardless of any mortgages or outstanding debts, the attorney will be paid $14,000.

The only true means of avoiding probate and making sure your wishes are followed – and not whatever the law dictates – is with a revocable trust.

There are other methods of avoiding probate other than a trust, but they are potentially not as successful in achieving their goals as they have their own pitfalls.  These methods may include holding an account as a joint tenant or having beneficiaries named directly on ‘payable upon death’ accounts or on a ‘transfer on death’ deed, but each of these have their own pitfalls that a trust would avoid altogether.

A ‘joint tenancy’ refers to when the individuals’ names on the title both have equal ownership and there is a right of survivorship where the property automatically passes to the survivor. The trouble with a right of survivorship comes when both of the individuals pass away at the same time or the survivor passes away with no one else on the title to whom it could automatically transfer. If there is no one left on the title who has a right of survivorship, then the asset (more than likely a house) will have to go through probate.

Another method is to list beneficiaries directly on money accounts such as bank accounts, annuities, life insurance, stock, etc. These are called ‘payable upon death’ accounts, because as soon as the original owner passes away, the assets in the account belong to the beneficiaries named directly to that account as described in California Probate Code Section 5142.

With payable upon death accounts, there is a high likelihood that the person you would want the asset to go to is blocked because it is limited only to those specifically named on the account. For instance, you may have both of your children listed as equal beneficiaries on your 401K, but one of your children predeceases you and leaves behind your grandchild. If you do not specifically add your grandchild as a beneficiary to the 401K, then your only surviving child will get 100% of the aforementioned 401K and your grandchild will receive nothing. If this asset were in a trust, then you can have it follow an entire bloodline of beneficiaries, so that your grandchild is not left out in the cold.

As for residential property, under California law a ‘Transfer on Death’ (TOD) deed is an alternative to putting the property into a revocable trust. A TOD deed allows you to designate the specific beneficiaries that are to receive the property upon death of the original owner if the deed is properly recorded within 60 days.

There are other methods of avoiding probate other than a trust, but they are potentially not as successful in achieving their goals as they have their own pitfalls.

Unfortunately, while a TOD deed is revocable, it has many limitations, especially for those doomsday scenarios one might avoid with a trust. If the deed is not recorded with the county by the statutory deadline or the named beneficiary dies before the original owner, then the TOD is legally ineffective and the property may pass according to who is determined by the probate court to be the rightful heir under California Probate Code Section 240. Also, if the property owner becomes incapacitated through dementia, stroke, coma or another medical event, there may be no way to revoke the deed even due to changes in the circumstances or a need to qualify the owner for governmental assistance.

TOD deeds are also not good solutions for individuals who have minor children because while minors may own real property, they may not convey or make contracts relating to real property under California Family Code Section 6701 and California Civil Code Section 1556. By creating a trust and putting the property into it, instead of making a TOD deed, none of this need be a concern.

Therefore, in order to avoid any doomsday situations that result in your assets going through probate, it is wise to plan for every scenario and place anything that is a large money asset into a revocable trust. This is especially true for the average homeowner in California, even if just starting out. By placing your money accounts (any savings accounts, larger checking accounts, IRAs, 401Ks, life insurance policies, annuities, etc.), business interest, and houses or real estate into a revocable trust, you are able to create a one-stop-shop for any changes you may want to make regarding the beneficiary of any given asset. You are also able to maintain complete control over your assets throughout your lifetime, while creating an easy-to-manage treasure map for who you leave in charge of making distributions from your estate.

As the creator of the trust, one of the most important decisions that you will make – aside from deciding who is to receive what assets from the estate – is deciding who will be the successor trustee(s). The successor trustee will be the individual or individuals in charge of the trust when you are no longer able to manage the trust due to capacity reasons or death. The purpose of naming a successor trustee is to ensure that the instruction manual that is your revocable trust has someone capable of making sure your wishes are followed down to the to the very last period of the trust document itself and the laws surrounding trusts. It is the trustee’s responsibility to hold, manage and protect the trust property for the benefit of those who are to receive from it (known as the ‘beneficiaries’). As a result, it is imperative that the individual named by you as successor trustee be a person you can trust.

In order to avoid any doomsday situations that result in your assets going through probate, it is wise to plan for every scenario and place anything that is a large money asset into a revocable trust.

Within most revocable trusts, there is reference to the general powers or duties of the trustee which are to be followed to carry out the purposes of the trust created under the trust documents in addition those conferred on trustees by law. Pursuant to the California Probate Code Sections 16000 thru 16015, trustees owe to the trust and beneficiaries the following duties:

• Duty of loyalty;
• Duty to avoid conflicts of interest;
• Duty of impartiality;
• Duty of disclosure;
• Duty not to delegate;
• Duty to keep trust assets separate; and
• Duty to enforce or defend trust claims.

Trustees are accountable to the beneficiaries for their actions. Any failure to comply with their responsibilities, also known as a breach of their fiduciary duties, opens the successor trustee up to liability from the beneficiaries and even potential litigation, which can stall the estate distribution process. Some common breaches include self-dealing by the trustee using trust assets for their own benefit, the trustee causing damage to the trust property, or the trustee failing to be impartial toward the beneficiaries by favouring one over another. Many breaches made by a successor trustee are due to their own financial circumstances, neglect of their responsibilities, or sibling rivalry or bad blood between family members.

I can speak first-hand as to the frustrations a beneficiary faces when a trustee who is not up to the task of managing a trust is put in charge. When I was 10 years old, my father passed away and left my half-sister in charge of his trust as the successor trustee. To put it simply, she never appreciated that our dad was with my mom or that she and I are sisters. The feelings she harboured towards me manifested in her actions as trustee. While she made the appropriate distributions from the trust for herself and my other two half-siblings, she refused to do anything in regard to the assets left to me in the trust.

As a minor, there was not a lot that I could do and I wrote off what should have been my inheritance until nearly a decade later when I was contacted by a third party who had information about my inheritance. Of course, I contacted the successor trustee, my half-sister, to let her know that I had information about my inheritance and that I would appreciate her following up on the matter. She refused. She refused over and over again. I was merely a beneficiary and had no legal standing to pursue my inheritance, since the only person with that power was the successor trustee.

I can speak first-hand as to the frustrations a beneficiary faces when a trustee who is not up to the task of managing a trust is put in charge.

It was not until I brought a case against my half-sister for breach of her fiduciary duties 14 years after my dad’s death that she was moved to make sure I received my inheritance. Although the case did not get very far and only involved a handful of hearings, I wholeheartedly believe that if it had been left up to my half-sister, I would not have received anything my dad intended to be mine.

This experience is the reason I became an estate planning and probate attorney. It is my passion to help educate individuals, whether they are potential clients who need a trust, a successor trustee who is trying to navigate the waters of their fiduciary duties, a beneficiary who wants to make sure their interests in an estate are protected, or even someone who has been left to handle a probate of the estate of a loved one.

With all of that being said, when it comes to selecting successor trustees and beneficiaries it is a matter of considering the personalities of the individuals involved as you are establishing your trust. You may already have someone in mind to be your successor trustee. Many individuals feel most comfortable with choosing a child or family member or even a friend, and many parents who do not want to have their children feel like they are choosing a ‘favourite’ to be in charge after they are gone will name all of their children as co-trustees.

The problem with naming more than one person as your successor is that it can lead to disagreements and discord depending on their relationships with each other. It is like the saying: “Too many chefs in the kitchen spoil the soup” – the same applies here. Too many successor trustees can prevent the trust from being properly administered, which can potentially result in another type of court process where the judge will have to instruct the trustees how to proceed.

Therefore, it is important to consider whether the individual(s) you have in mind for your successor trustee(s) are:

• Trustworthy
• Highly responsible
• Able and willing to follow the instructions set out in your trust without trying to take any shortcuts
• Able to handle high-stress situations
• Good with money management
• Collaborative, communicative and accessible

After the loss of a loved one, grief and even greed have a way of putting all those involved in the administration of a trust on edge. By choosing the right successor trustee, you are ensuring that your wishes are followed and probate is avoided with your trust. This is crucial in taking care of your estate and loved ones after you are gone.

Additionally, another way to avoid future conflict, potential litigious situation, or disappointed expectations is by talking to your successor trustees and beneficiaries about your plans and intentions. It is important to inform them on how you intend to divide your estate and who will administer your trust. I may be an uncomfortable conversation, but in many cases, it will be a conversation worth having.

Creating a trust is an investment worth making. You have everything to gain by protecting your legacy and assets from probate with a revocable trust.

 

Brianna Giliberto-Hermann, Founder

Law Office of Brianna J. Giliberto-Hermann

1730 West Cameron Avenue, Suite 200 West Covina, CA 91790, USA

Tel: +1 626-391-8277

E: brianna@gilibertolegacylaw.com

 

About Brianna Giliberto-Hermann

My name is Brianna J. Giliberto-Hermann, Esq. Before I embarked on my legal career, I graduated as a dual major in art and art history on a performance scholarship at the University of La Verne while acting as a caregiver for my grandmother. I received my Juris Doctor degree from Western State College of Law along with a Certificate in Criminal Law Studies thanks to my innate skill in trial advocacy and passion for justice. I was selected as the recipient of the Wallace R. Davis Public Service Award in 2020. On 15 March 2021, I opened my own firm, the Law Office of Brianna J. Giliberto-Hermann, and I have successfully assisted hundreds of clients. The primary areas of the practice include estate planning, probate and trust administration.