What Happens to My “Stuff” When I Die? Revocable Trust
Think about all the “stuff” you have accumulated in your life: money, cars, real estate, personal items, stocks, and more. Have you thought about who should receive your possessions when you die? In California, if an estate has assets valued over $166,250, probate is necessary regardless if you have a will. In terms of distributing your assets, the only difference between having a will and not having a will is that your assets will be distributed in accordance with the terms of the will as opposed to being distributed according to state statute. Do not worry a revocable trust can help you.
Revocable Trusts to the Rescue
The most common way to avoid probate is to have a properly funded revocable living trust. A trust is essentially a contract between the creator of the trust (the “settlor”) and the manager of the trust (the “trustee”) for the benefit of the trust’s beneficiary(ies). Within the trust instrument, you will designate individuals or trust companies to serve as your successor trustee in the event of your incapacity or upon your death, whichever comes first. Since everyone is different, your personal situation as well as the size and complexity of your estate will often determine which choice is best for you. While you are alive and well, you can do anything with your assets just as if you did not have a trust, however, upon your incapacity or death, your successor trustees must follow the terms of the trust and California law when serving in such capacity. If your successor trustee takes over during your lifetime, the trustee has a fiduciary duty to administer the trust in accordance with its terms[1] and solely in the interests of the beneficiaries, i.e., you.[2] In addition to designating your successor trustees, you set forth the terms upon which your estate will be distributed upon your death.
What are the Duties of a Trustee?
In addition to those duties mentioned above, a trustee has a fiduciary duty to prudently invest and manage the assets of the trust. Again, while the settlor is alive, the trustee must act solely in the settlor’s interest. Put simply, a trustee cannot use trust funds to invest in unreasonably risky endeavors or endeavors that are not beneficial to the trust and its beneficiaries.
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Upon the settlor’s death, the revocable trust becomes irrevocable. Whenever a trust becomes irrevocable, or when there are changes in office of trustee of an irrevocable trust, the trustee must serve a notification on all trust beneficiaries and heirs informing them that they are entitled to receive a copy of the trust instrument and all amendments thereto and include the following statement:
“You may not bring an action to contest the trust more than 120 days from the date this notification by the trustee is served upon you or 60 days from the date on which a copy of the terms of the trust is delivered to you during that 120-day period, whichever is later [3].”
Throughout the administration of the trust, the trustee has an affirmative duty to keep the beneficiaries of a trust reasonably informed of the trust and its administration[4]. This includes the duty to account to the beneficiaries at least annually [5], unless expressly waived in the trust instrument [6]. The accounting must include the following information:
(1) A statement of receipts and disbursements of principal and income that have occurred during the last complete fiscal year of the trust or since the last account.
(2) A statement of the assets and liabilities of the trust as of the end of the last complete fiscal year of the trust or as of the end of the period covered by the account.
(3) The trustee’s compensation for the last complete fiscal year of the trust or since the last account.
(4) The agents hired by the trustee, their relationship to the trustee, if any, and their compensation, for the last complete fiscal year of the trust or since the last account.
(5) A statement that the recipient of the account may petition the court pursuant to Section 17200 to obtain a court review of the account and of the acts of the trustee.
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[3] Probate Code §16061.7
[4] Probate Code §16060
[5] Probate Code §16062(a)
[6] Probate Code §16064(a)
(6) A statement that claims against the trustee for breach of trust may not be made after the expiration of three years from the date the beneficiary receives an account or report disclosing facts giving rise to the claim [7].
The purpose of providing the beneficiaries with an annual accounting is so that the beneficiaries can see if the trustee is managing the trust assets prudently and in the interest of the beneficiaries. The trustee’s duties continue until either the trustee resigns or is replaced, or until the trust assets are distributed and the trust is terminated.
Estate Planning
The general purpose of having a revocable living trust is to avoid costly and timely probate, to have named individuals to act on your behalf upon your incapacity and upon your death, and to clearly state to whom and how your assets will be distributed upon your death. Our experienced estate planning attorneys can help you navigate through these issues and provide you with what is most important, peace of mind.
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[7] Probate Code §16063(a)(1-6)
Published by Gwendolyn Davis
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