Heggstad Petition - How to Avoid Probate
If you don't transfer your assets to your living trust, but you have a writing expressing your intent to do so, then your successor trustee can file...
If you have a living trust, your trustee must begin the trust administration when you pass away.
A living trust is a contract you make with yourself, and if you are married, with your spouse.
The contract contains a set of instructions on how you want your trustee to manage your trust assets if you become incapacitated (you’re in a coma from a car crash, you get alzheimer's or dementia, or you just no longer can or want to manages your finances and assets - this could be a temporary incapacity or permanent) or when you die.
We’ve written many articles about living trusts, including:
You, or you and your spouse are the trustee of your living trust while you are alive and able. You, or you and your spouse, are also the beneficiaries of your living trust while you both are alive. While you are alive and able, you serve as trustee, and will use the assets for the benefit of you as trust beneficiary.
If you become incapacitated, your spouse or your successor trustee will take over management of your trust. Your successor trustee has the job of using the trust assets to take care of you as spelled out in the terms of the trust.
When you pass away, your successor trustee will begin the trust administration. Trust administration is the process of doing all the legal work, tax filing, liquidating assets, accounting, communicating with your trust beneficiaries and finally, distributing your trust assets to your beneficiaries according to your wishes as described in your living trust.
Click here for our California Trust Administration Checklist.
One of the main reasons people create a living trust estate plan is so that when they die, their family will not have to go through the hassles and expenses of the probate process. California probate is complicated, time consuming and a very expensive court process. If you know anything about the probate process, you will want to avoid it.
Trust administration is not probate. It is much more informal, and unless there is a nasty fight among beneficiaries or an heir or beneficiary wants to contest the trust, you won’t need to involve the probate court. The whole trust administration can be done without court involvement if everyone gets along. As a result, trust administrations are typically less complicated, take less time and are much less expensive than probate.
As in life, if the family members get along, things can go smoothly. But if the family members are fighting or don’t trust each other, then the trustee may need to take the trust administration to the probate court so a judge can supervise the trust administration.
Several years ago, a trustee hired our law firm to help him administer his mother’s trust. His mother had just died. She had a living trust, and she owned a few rental properties, her home and a small bank account. It looked like it could be a simple trust administration. However, the trustee had four siblings who hated him.
Even though he was the only one to take care of their mother in her last years, and he was the only one to help their mother manage the rental properties, including contributing time and effort and money to make needed repairs to the properties, they despised him. It was like Cinderella and the evil step-sisters.
They fought him and questioned him over every detail of the trust administration, even though he was doing a good and honest job of carrying out his duties as successor trustee. But there was too much bad blood for him to be able to do his job.
After sitting through a meeting in my conference room with all his siblings yelling at him, I stopped the meeting, and I told them that because they were so obnoxious and unreasonable, the trustee’s only solution was to file a petition with probate court to give a judge authority to administer the trust. I explained to them that referring the case to a probate judge would be very expensive and probate costs would have to be paid out of their respective inheritance. They didn’t care, and so it went to the probate court.
Even if your family gets along, the successor trustee may still need to involve the probate court if the living trust was not funded. This is why funding your trust, i.e. transferring your assets to your trust, is so important.
When you do your living trust estate planning, you need to transfer the title of your probatable assets to your living trust. The main assets that require probate in California are real estate and large bank accounts and investment accounts. If, at the time you die, some of these assets are not titled in your trust, then the trustee may need to involve the court.
If you die with assets valued over the California probate threshold, currently $184,500, those assets may have to go through probate, even though you have a living trust. Your living trust will only help you avoid probate if you have transferred your assets to it.
However, even if you forgot to transfer your probatable assets to your trust, your trustee may still be able to avoid probate. If you left behind a written document stating your intent to transfer your assets to your living trust, such as a schedule of trust assets, which should be included in your living trust, then your trustee can hire a trust administration attorney to file a Heggstad petition with the probate court. If the petition is unopposed and the writing clearly shows your intent to transfer the assets to your trust, then the judge will issue an order that the assets are to be included in your trust. Needing to file a Heggstad petition is not ideal, but it’s an order of magnitude easier and less expensive than probate.
As a successor trustee you will become the manager of the trust. You will have to administer the trust, and it’s a big job.
You will need to follow the instructions in the trust, fulfill the legal requirements to the beneficiaries, including sending them a California Probate Code section 16061.7 Notice, preparing an accounting, communicating with them on the status of the trust administration, gathering your assets, deciding if and when to sell the home and liquidate investment accounts, notify government agencies, pay bills and expenses, file the trust tax return and distribute the trust assets to the beneficiaries.
While trust administration is less formal than probate and can usually be done without court supervision, most trustees hire a trust administration attorney to help them. Estate planning attorneys usually serve as the trust administration lawyer.
If you are the trustee, it is not required to hire an attorney to help with the trust administration, but most do. Gaining legal advice is not required, but it is recommended. As one of my recent trust administration clients told me, “we want to hire you to help us with what we think we need to do and to help us with what we don’t know that we have to do.”
I have a friend who has served as trustee and completed three separate trust administrations for several family members over the years. Even she, who has become somewhat of an expert on trust administration, says she needed an attorney to help her.
If you are administering a modest estate and you and all the trust beneficiaries get along, then maybe you can do a DIY trust administration. But keep in mind, as the trustee, you have a fiduciary duty to the beneficiaries. Often the primary role of the trust administration attorney is to make sure the trustee fulfills his or her duties so the beneficiaries have no grounds to sue the trustee. Trust administration, like probate, can bring out the worst in people.
Most people call the person who administers the estate the “executor” - just like in the movies and shows. But estate planning attorneys have specific terminology. The person in charge of a trust is the trustee. The person in charge of a will, is the executor. The person in charge of a durable power of attorney and health care directive and HIPAA is the agent. And often it’s the same person. A husband and wife usually name each other as trustee, executor and agent, and they usually name the same person, who could be an adult child, parent, sibling or friend, as the back-up trustee, executor and agent. It’s always good to have a backup or two named in your estate planning documents.
If all the assets are titled in the trust, there won’t be a job for the executor. A living trust estate plan includes a will, but it is a “pour-over will.” The pour over will has two functions. First, if you have minor children, it names the guardians for your children. Second, it acts as a safety net to get all your assets to your trust. The main provision of a pour-over will states that any assets subject to probate or not titled in your living trust are to be handed over to the executor to allocate the assets to the living trust.
There is rarely a conflict between the executor and trustee, and in most cases the same person holds both roles.
The tax identification number for your living trust is your social security number. When you pass away, your social security number is frozen. One of your successor trustee’s tasks, which is usually done by the trust administration attorney, is to get a new tax identification number, also called an “employer id number” (EIN), for the trust from the IRS. Any bank and financial institution where you had accounts will need the new tax identification number.
During the trust administration, the trustee may discover that one or more bank accounts were not transferred to the trust. In these situations, the bank or financial institution will require letters testamentary or a California Probate Code section 13100 Small Estates Declaration or Affidavit.
If the accounts are less than the California probate threshold of $184,500, then a small estates declaration or affidavit will suffice. If the accounts are more than the probate threshold, the trustee may either have to file a Heggstad petition or file a petition for probate.
Once you die and your trust becomes irrevocable, it can’t be changed. The trustee you named in your living trust will be the trustee. Your trustee could decide he or she does not want to serve as trustee, in which case the next in line alternate trustee becomes the trustee.
What if the trustee is not doing a good job? Could the beneficiaries remove and replace the trustee? The answer is yes, but they would have to file a petition with the probate court to get a judge to remove and replace the trustee. The beneficiaries will have to show cause (objective reasons) why the trustee should be replaced, which may not be easy.
Some living trusts include a provision for the beneficiaries to remove and replace the trustee. If the trust includes such a provision, the beneficiaries could agree to remove the trustee.
Some living trusts include a provision for a Trust Protector. A Trust Protector is a third party, often the estate planning attorney, who is given the authority to remove and replace the trustee. This is an important provision if you name a non-family member or a professional fiduciary as your trustee. It gives someone you trust, such as your estate planning attorney, the ability to change out a poor performing trustee. And it can be done without court involvement.
A living trust is a revocable trust, which means you can amend or change it. When you pass away, your revocable trust becomes an irrevocable trust, which means it can’t be amended or changed. But, there may be workarounds.
If your living trust includes Trust Protector provisions, the Trust Protector may have authority to make some small changes.
If your trust does not have a Trust Protector, the irrevocable trust could be amended using a technique called “decanting.” This has nothing to do with wine. It’s a legal procedure authorized by California law to replace the terms of one irrevocable trust with another irrevocable trust so long as the beneficiaries and the trustee agree.
When the first spouse dies, if the estate is worth more than several million dollars, the surviving spouse may want to file an estate tax return (Form 706) for the deceased spouse. Unless it is a very large estate, no estate tax will be owed. But filing an estate tax return will allow the surviving spouse to elect “portability” of the deceased spouse’s estate tax exemption.. Portability is a tax term that means porting over or, more to the point, taking the deceased spouse’s exemption amount to reserve it for later.
If the deceased spouse died this year, and the surviving spouse files a 706, she can port-over her husband’s $12,060,000 estate tax exemption and bank it. Over time, Congress and the President could change the tax law and change the estate tax exemption (it happens all the time). But when the surviving spouse dies, the $12,060,000 exemption is locked in for her family. As long as her estate value is less than $12,060,000 plus the then estate tax exemption at the time she dies, there will be no estate tax.
In addition to the 706, the trustee will need to file a trust tax return, form 1041, aka fiduciary tax return. Income generated from the trust assets from the decedent’s death until the time the assets are distributed to the beneficiaries must be reported on form 1041.
Our firm has handled hundreds of trust administrations, and we have learned that estate planning and trust administration is a metaphor for real life. If you have good relations with your family members, are open and transparent in your actions, are a good communicator, put in the effort and listen to your attorney’s guidance, then the trust administration should go smoothly.
There will always be a stray asset or two that requires additional work to resolve, such as US Savings Bonds, a bank account not tiled in the trust or mineral rights on land in another state originally owned by your great grandfather. But we advise our trustee clients to focus on the big assets first and deal with the small stuff later.
The trust beneficiaries will be happy if you are a good communicator and transparent in your actions, but they will really be happy when they get a check. The California Probate Code gives every beneficiary and heir 120 days to contest the trust. Generally this means the trustee should not make distributions to the beneficiaries until the 120 day period has passed. But if the trust assets are ready to be distributed, the trustee can make distributions earlier if the beneficiaries sign a waiver of their right to contest. If everything is on the up and up, and the beneficiaries have confidence in the trustee’s handling of the trust administration, then in most cases, they will gladly sign the waiver to get their distribution check faster.
Finally, our trustee clients often ask us if they should be paid from the trust for their time and effort. We believe the trustee should take a fee. Most living trusts include a provision authorizing the trustee to take a reasonable fee. If you are the trustee, you will have to do a lot of work and you will be scrutinized by the beneficiaries. It is often a thankless job. You deserve a fee. Your mother or father, sibling or friend named you as trustee because he or she trusted you and knew you would do a good job. A worker is worth his wages.
If you don't transfer your assets to your living trust, but you have a writing expressing your intent to do so, then your successor trustee can file...
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