Blended Family

Do you know what’s the most common objection to not having a living trust? “My situation is different.” Many California homeowners genuinely believe that while a living trust may be a valuable estate planning tool for somebody else, their personal situation is somehow unique. How unique? “Simpler.” Oh, it’s just me and my wife. Or: I only have one child; we’re leaving everything to our son anyway.

An experienced estate planning attorney who has dealt with hundreds, possibly, thousands of trust and probate cases can easily poke holes in all these arguments. Admittedly, some families may benefit from a living trust more than others, and in some cases, having a trust is an absolute must.

One of such situations is a blended family. This is what we are going to explore in this blog post.

What is a blended family? It’s a family where at least one parent has children that are not biologically related to the other spouse or partner. Either parent, or both, may have children from previous relationships. The latter is what we usually mean when we are talking about a blended family: both spouses have children from previous relationships. If there’s one type of family who absolutely needs a living trust, it’s this one.

It all comes down to vesting, aka holding title to your property. Let’s say two individuals with children from prior relationships get married and buy a house in California. The wife has a daughter, and the husband has a son. At the time of the purchase, they had to choose how they were going to hold title. Unless advised by an estate planning attorney, most Californians are still choosing Joint Tenancy, so our hypothetical couple does that.

The couple lives a long, happy life. Since they have married later in life, they did not have any children together, only the ones they already had from prior relationships.

Years later, the wife passes away. Soon after, the husband dies as well. The only heirs are two adult children from previous relationships – the late wife’s daughter and the husband’s son. The couple did not have a trust and chose to hold title as Joint Tenants. With both homeowners gone, who gets the house? Both children equally? One child (which one)? Somebody else?

Let’s unpack this. When the wife died, under Joint Tenancy, the husband automatically became the owner of the estate. When he died, the house goes into probate. Once the probate process is over, his son gets it all.

But what about the daughter? Too bad, so sad. Under Joint Tenancy, last one standing gets it all. The last tenant was the husband, who happened to have one son. Absent living trust, the son gets it all, while the daughter does not get a penny, since she was not his daughter, but the daughter of his no deceased wife.

This is just one of many possible inheritance scenarios common in blended families. There are various ways to tweak the outcomes, but only one estate planning vehicle – a living trust – can ensure that the assets are distributed in accordance with the wishes of the spouses.

A living trust set up by an experienced estate planning attorney is like a blank canvas that can be turned into a beautiful painting… Had the couple consulted with an attorney, they would have ended up with a comprehensive trust which would specify who gets what, and when.

For example, the couple could have opted to go half and half: half of the estate goes to the son, another half goes to the daughter after both spouses pass away. Another option is to say in the trust that certain assets acquired by the spouse prior to the marriage go to their respective children, while the house should be sold and split in half. The beauty of a living trust is that it allows being very precise in how you want your assets to be distributed upon your death.

Unfortunately, having no trust means probate, and probate follows general rules set in place by the State of California, which may not always align with your wishes, especially in complex situations like having a blended family.

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All Information is deemed reliable but not guaranteed. Information is for educational purposes only.

March 23, 2022February 7, 2025

Rogue Successor

What happens if a successor trustee named in a living trust goes rogue and refuses to carry out their duties? What if the same successor trustee takes action but does not follow the wishes of the original trustee? In this blog post, we are going to examine a hypothetical scenario of a rogue successor trustee and what can be done to make them perform.

The Basics of a California Living Trust

California laws allow individuals and families to create trusts that will spare their heirs the expensive and time-consuming probate process. When set up by an experienced attorney, a trust avoids probate completely saving tens of thousands of dollars to the estate.

California living trust is a private document. It means that it doesn’t get recorded at the local county recorder’s office. It doesn’t get filed with any other government agency. Parties involved in the trust get a copy of it, including a digital copy, and they are responsible for safeguarding the document. If a trust is lost, game over: welcome to probate.

Privacy is one of the living trust’s best features. If a trust was recorded, any member of the public would know how much assets you have, and how much money you are giving to your children, other family members, and charities. Your entire finances would be accessible to the public.

At the same time, we get asked the following question: If a trust is not recorded, who is going to ensure that the successor trustee will do their job? What if they refuse to follow the original trustee’s wishes?

Let’s look into this.

Incentives to do the right thing

The good news is that in most cases, successor trustees discharge their duties without as expected. After many years of practicing in estate planning, we found that the common fear of litigation or disagreement between the parties of a trust is rather unfounded. Yes, lawsuits do happen, but they are not as common as many Californians think.

After all, a person doesn’t just sign up to be a successor trustee. They are picked by the maker of the trust. Naturally, they would choose someone they find to be honest, someone they probably know for many years. In the most typical situation, a successor trustee is one of the children.

In addition to having a moral and legal obligation to do right by their parents and siblings, California Probate Code section 15680 says that a trustee is entitled to be compensated as set forth in the trust. This is in addition to the successor trustee usually being one of the beneficiaries in the estate. It is in their best interests to follow the trustor’s wishes so they can get their piece of cake as well.

Successor Trustee As a Nightmare Tenant

Unfortunately, occasionally, we do run into a rogue successor trustee. There are many reasons why someone may decide to ignore the settlor’s wishes and break a contract (trust is, after all, a contract). Let’s examine one of the most common situations in which a successor trustee may decide to go rogue.

In this hypothetical scenario, a married California couple had 5 children. The couple’s estate included their house. One of the sons lived with the parents until both parents passed away. The parents had a living trust and the same son who was living with them had been named a successor trustee.

The trust says that the house must be sold upon the parent’s death, and the proceeds must be divided into five equal parts. However, the son, who is also the successor trustee, continues living in the house rent-free and refuses to initiate the sale of the house. He avoids other siblings’ calls and, when cornered, tells them he will hire a real estate agent to help with the home sale “son.” He just needs a few more months to save up some money and find another place to live.

A year goes by and nothing changes. The successor trustee becomes a nightmare tenant: he won’t move, and he won’t agree to sell the house. Since he is the only one who can sign the listing agreement, the other siblings feel powerless. What should they do?

While the process may not be what most families want, it is rather straightforward. It also happens to be the only solution that will eventually result in the sale of the property. The rest of the siblings must hire an attorney and sue the successor trustee. The attorney representing the siblings will present the evidence to the judge. As long as the living trust was prepared by an experienced attorney, the judge will rule to remove the non-performing successor trustee, which will allow what’s called “marshaling of the trust asset.” It’s legalese for locating and taking charge of all the estate assets.

As a result, the property can be sold and proceeds divided as intended by the trustor. However, before this can happen, there is one not-so-minor detail: if the ex-successor trustee is still refusing to vacate the property, they will have to be evicted just like any other tenant illegally occupying the home.

Certified Probate & Trust Specialist

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All Information is deemed reliable but not guaranteed. Information is for educational purposes only.

March 23, 2022February 7, 2025

Irrevocable Living Trust

In California, there are two types of a living trust: revocable trust and irrevocable trust. Many homeowners do not fully understand the difference between the two. Furthermore, a myth rooted in decades-old taxation and estate planning realities has homeowners convinced that irrevocable trust is something that could save them money by reducing their tax burden.

In this blog post, we will discuss the best use of irrevocable trust and why this is not the most beneficial estate planning tool for most California homeowners.

What is a living trust?

A living trust is nothing more than a contract. It’s a contract between the settlor (the maker of trust–who is usually mom and dad) and the trustee to hold the assets (the home) for the beneficiaries (the children). The trustees manage the trust property for the beneficiaries.

If the trust is revocable, the settlor can change it or dissolve it at any time. An irrevocable trust is just what it sounds like: it’s a contract that cannot be revoked by the settlor because the assets inside the trust no longer belong to them.

Let’s say that husband and wife decide to give their house to their son Johnny in an irrevocable trust. Ten years later, the husband gets very ill, and the wife needs money to take care of him. She decides to sell the large house, move into a small condo and use the proceeds from the house sale to cover her husband’s medical bills.

Since the house was put in an irrevocable trust, neither husband nor wife are the owners of the property—their son Johnny, who is the beneficiary, is. The couple needs full Johnny’s cooperation and a signature on the escrow paperwork to sell the house. In this theoretical example, Johnny says ‘no.’ He has the power to do it! So, the elderly couple is at his mercy, and he may have none…

What is the current estate tax exemption?

An irrevocable trust is primarily an estate planning tool for the super-rich. Unfortunately, many homeowners, especially older ones, still think that irrevocable trust is a great way to avoid paying estate tax, also known as a death tax. However, most California residents will not have to pay any estate tax.

First of all, contrary to popular belief, California has no estate tax. Secondly, the personal federal estate tax exemption amount for 2021 is $11.7 million. It was $11.58 million in 2020. This means that when you pass away, the value of your estate is calculated and any amount more than $11.7 million is subject to the federal estate tax unless otherwise excluded. Keep in mind that the exception amount of $11.7 million is per person. So, a married couple has a combined exemption for 2021 of a whopping $23.4 million!

When does irrevocable trust make sense?

Years ago, the estate tax exemption was only $600,000. If you died worth $1 million back then, you would have to pay the estate tax on $400,000 (1,000,000 – 600,000 = 400,000). To avoid paying the “death tax”, estate planning specialists have devised a popular mechanism: use an irrevocable trust to put enough assets in it so that your total doesn’t exceed $600,000. If you owned multiple houses, you could slowly put some of them into irrevocable trust; by the time you pass away, your assets do not exceed the taxable amount.

Fast forward to 2021, when the exception amount is $11.7 per person… Clearly, the irrevocable trust method to beat estate tax is no longer needed for most Californians.

Sure, if you are a multimillionaire or billionaire, it is still a great tool for estate planning. Say, you own a piece of a company that goes public. Initially, the stock may be cheap. You put a large chunk of it into an irrevocable trust. When the same stock is worth millions (or billions), you won’t have to pay estate tax on it because it’s no longer yours (due to irrevocable trust).

This, of course, is somewhat of an oversimplification since the super-rich use irrevocable trust in conjunction with other high-level estate planning tools.

Once again, for most of us, we will never have to resort to these advanced estate planning techniques because we are never going to be worth tens of millions of dollars.

To sum up, an irrevocable trust may be a great estate planning tool for the wealthiest Californians. For the rest of us, creating an irrevocable trust may result in more problems and heartache than benefits.

Certified Probate & Trust Specialist

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All Information is deemed reliable but not guaranteed. Information is for educational purposes only.

February 11, 2022August 8, 2024

Seller Advice

Home Selling Tips

Your home is more than an architectural structure. Often, it’s an extension of who you are – your personality, style and values. That’s why selling it can be an emotional experience. But it can also be exciting and rewarding. This section provides some simple home selling tips that can help lead you to a successful, timely sale.

Once you’ve made up your mind to sell your home, you need to do your “homework” – and RudyRodriguez.us is a great place to start! Getting a signed contract is a great accomplishment, but that’s only half the journey. The typical home sale today involves more than 20 steps after the initial contract is accepted to complete the transaction.¹

A real estate professional can provide the experience and local knowledge to guide you through the entire process, and selling your home within the ideal time frame and at the most effective price point. As the representative of your best interests, your Rudy Sells Realty Agent has state-of-the-art marketing resources to showcase your home’s best assets, and help you determine what improvements will make the biggest difference.

Much of what needs to be done before the closing is the responsibility of appraisers, loan processors, attorneys, and inspectors. Your Rudy Sells Realty Agent’s role also includes coordinating those responsibilities, helping to ensure that others do their jobs promptly and correctly.

Many steps between contract ratification and closing involve the cooperation of both buyer and seller, and attentive real estate professionals on both sides of the transaction will troubleshoot and keep everyone on track.

¹ Source: National Association of REALTORS®

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