Sara at Work
Cautionary Tales
I've found that the best way to help people understand the importance of having an estate plan is to provide a real-life example of what happens when they don't. I call these cautionary tales.
For reasons of confidentiality, I always change the names, but I cannot change the unfortunate circumstances. Creating an estate plan and reviewing it with every life event saves considerable money and anguish.
Story #1: If your family or financial situation changes, revisit your estate plan
Tom died in his sleep with a Will he'd created three decades ago, dividing everything equally among his four children, who are now adults. When he made the Will, he was recently divorced from the children's mother and had some rural land that wasn't worth enough to worry about probate. But the times changed and life experiences intervened.
Wills and registered domestic partner status
After his divorce, Tom made a lifestyle change, came out as a gay man and met the man with whom he lived for the remainder of his life. Tom had taken advantage of domestic partner legislation to protect his partner but had not created an estate planning to reflect this. Tom failed to change his Will to reflect this relationship or leave his partner any of his property.
Probate Code's default rule recognizes a registered partner as a spouse
When Tom died, his children and partner learned that because Tom hadn't mentioned him in his old Will, he is eligible for a large portion of his estate. Under the California Probate Code, which governs how estates are administered, an "omitted" spouse or registered domestic partner is entitled to all of Tom's community property, everything he acquired from the date of registration forward, as well as, in this case, one-third of all his separate property, which is everything he owned before the date of registration.
The lesson is that if Tom had made an estate plan including his partner, he would have treated him like any other spouse and given him most everything--the Probate Code's default rule.
Second-guessing the intentions of the deceased
If Tom had made a Trust providing for his partner, he might very well have elected to leave everything to him, not his kids. Or not. He could have chosen to leave him only a small portion of his estate and the lion's share to his kids. We'll never know what Tom's true intentions were because he waited too long to revise his estate plan.
Property appreciation means that a Will needs to be updated
Thirty years after he made that original Will, Tom's recently paid-off house and the land and his other assets had appreciated to a value of hundreds of thousands of dollars. His Will alone does nothing to prevent probate in California, which is required if a decedent owned $100,000 worth of property.
A proper estate plan is necessary to avoid probate
Given the size of Tom's estate, his children and his partner will receive their respective shares only after a lengthy and expensive court proceeding, all of which could have been avoided if Tom had made a trust to hold title to his property.
The moral of this story? A big chunk of Tom's inheritance will be spent on probate costs.
Story #2: Laurie and Rhonda: Waiting too long to change inherited property title
The names are fictitious, but the story is, unfortunately, very real. This is an example of the way in which a simple legal procedure would have saved prolonged anguish and still-uncalculated expense. In my experience, I find many of these kinds of situations where people wait too long for a wide range of legal services.
Proper estate planning
Laurie and Rhonda inherited a condo from their father Phil, who had a good estate plan with a revocable living trust in which he held title to his property. The trust appointed Rhonda as successor trustee and gave the condo equally to the two siblings.
After Phil's death, it was the responsibility of Rhonda as trustee to make sure that the property was re-titled in the names of the two siblings, filing the correct paperwork with the County Assessor's office to allow them to enjoy an exemption from property tax reassessment because this was a parent-to-child transfer.
Paperwork must be filed to ensure title transfer for legal owner
But nine years after Phil's death, Rhonda still had not filed the correct paperwork with the county, despite several warnings. By then, sister Laurie had been living in the condo for about seven years, enjoying all the amenities of the gated community in which their father had lived the last 20 years of his life.
The corporation that owns the gated community has a policy that only legitimate owners can occupy the residential units. Because Rhonda never completed the paperwork necessary to transfer title of the condo to herself and Laurie, eventually the county assessor's office reported the discrepancy to the corporation. After several more warnings, they began a process to revoke the right of Laurie to continue living in the property. Rhonda and Laurie then had to scurry around to assemble the proper documents and finally transfer title to themselves. For a number of months, Laurie was in danger of being evicted from the home her father had left to her.
All of this could have been avoided if successor trustee Rhonda had carried out her duties as trustee. Because trust administration is generally done outside of court supervision by nonprofessional relatives of a decedent, a named successor trustee often does not understand her or his duty to carry out the wishes of the decedent under the terms of the trust.
Holding property in a trust to avoid probate
The point of holding property in a trust is to provide for a smooth and cost-effective transfer of property and to avoid probate. This does not mean that one can ignore the terms of the trust instrument or the laws of the State of California regarding transfers of title to property, let alone the local rules of a condo association or residential community.
Following Phil's death, Rhonda should have sought legal advice about how to administer the trust. Attorney's fees in trust administration are usually a fraction of the cost of going through probate, and the costs can be further reduced if the trustee is well organized and does most of the work her or himself.
The moral of this story? Simple and proper trust administration can save a lot of money and prevent disruption for everyone concerned.