Navigating Probate and Trusts

The following audio is taken from an interview by local La Cognata realtor , karen Hoffman . She interviewed me on Trusts and probate issues . I really like this interview because Karen interacts with some really good and frequently asked questions . You could reach her at happyhomesbycoroncom . She is at Compass and La Cognata .

I will list her information in the show notes . Grab a pen and paper and let's get to it .

I help their loved ones to administer their trust or their probate estate . if they didn't have a trust which we'll talk about that in a minute You'll walk out of this hopefully pretty educated on how this all works . Okay , we're going to share screen .

You're protecting your loved ones really by organizing your stuff . I tell everyone who has any kind of trepidation about going through an estate plan not to think about the end result , like the end game , just to think about just organizing your things . You're putting things all in the right bucket So if the time ever comes , your family can step in and help .

Okay , so one of the main goals typically is to avoid probate court . We also want to prevent loved ones from experiencing any undue emotional and financial distress if you pass away without an estate plan .

For those of us with young kids and I'm one , i have a five-year-old you can nominate guardians for your children to step in at the event that you and your partner aren't able to take care of your child , and then you can also put a trusted loved one in charge in the event that you become incapacitated .

The example I always use is like when the president has surgery , the vice president steps in while the president is out , like you just need someone to take over the roles and leave out that , even if it's a temporary incapacity situation .

So today we're going to talk about the goals of the estate plan , which are probate avoidance Nobody ever really knows what a probate administration looks like or a trust administration what it looks like , unless he's been through it . So we're going to go through that very briefly so you can at least , see , beginning to end , what it looks like .

We'll talk a little bit about trust administration in road mumps and why it can be really good to hire an attorney to help with their trust administration . Along those same lines , we'll talk about what I call trusty haunts or things that can come back to a trusty if maybe they don't have representation during the administration . That can kind of calm them later .

And then oops okay , this is a little typo , but it should be number two , it should be to you know , one of the other goals is to protect your family and then , nominating guardians for your kids , go through the elements of a very good estate plan , and then we'll talk briefly about my process .

Okay , okay , so this is what most of the courts look like in the state of California . Those benches are very uncomfortable . Often there's a very grumpy judge up there . Sometimes you get a good one . It's not grumpy , but it's not the most pleasant place to be .

And probate court is the arm of the civil court that is responsible for administering the assets of someone after they've passed away . It is not necessary when probate court is not necessary when there is what I call like very good landing place for your assets . If you pass in , the very best landing place for your assets is a vocal trust .

A probate court petition will need to be opened . If you pass away with just $166,250 in assets , which is really if you own a home , you're going to hit that many times over . Because you know , Karen , what are houses going for these days in Locke and Yacht and Locke or something for minimum .

It's incredibly easy to hit and it's pretty expensive , in time consuming And I will say this a couple years ago my sister who works in title insurance We did a report on the number of homes That are held properly by a trust in Los Angeles County and it was only 15% .

Wow , 85% of homes in LA County are gonna go through probate because , i mean , no one's buying homes or less than $66,000 Right , it's almost unheard of , unless it's like undeveloped Land in Lancaster or something . Probably you can get it for less than 200,000 . I don't know , i'm guessing .

Yeah , so probate is pretty expensive and time-consuming .

Let's talk about cost . This is The cost of probate , meaning the attorneys fees and executor fees is set forth by statute , and so I ran the numbers on like a million dollar home , right ?

Or let's say , someone passed away had a home worth a million dollars , and And when I say a million dollars , the probate core doesn't look at any mortgages that's set aside , so it's really just the fair market value of the home at the time of death , right ?

Um , so We're looking at a million dollar home that's not held in a trust , the owner passes away , the this is the statutory like formula setting forth What the stat , what the fees are going to be for the attorney and the executor and the executor is , by the way , the Personal representative of the estate Okay , the person who is in charge .

The attorney helps the executor . So you're looking at 46,000 dollars in Attorneys and executor fees . Now It's possible the executor is gonna wave , right , because they might be a family member , they might be the main beneficiary , but the attorney isn't gonna wave because it's a lot of work coming through probate . It takes a long time . It's a lot of work .

So you're looking at at least 23 grand for a million dollar home . It's a lot . It's a lot of money , mm-hmm and it just goes up .

Okay , so yes , why don't you ask me How long it takes ? There's a lot of steps to working through probate administration . You're looking at about assuming that there is no conflict amongst the beneficiaries or , sorry , pardon me , the heirs .

You're looking at about 12 to 18 months to get a thorough probate case , which is a lot , and that's just kind of like standard stuff . Right , it just takes . I think my clients are always kind of like baffled at how long even a trust administration takes . It's just You're often dealing with third parties like banks , trying to get information from them .

It's just , it's , it's a process , and so it starts with filing a copy of the will record That's required with a trust administration to then you file the petition to open up the probate case and then you have to publish the notice of the petition in a local newspaper to let the creditors know that this person has passed away .

About six weeks later you go in for a hearing , you or your attorney . And , oh sorry , one thing I wanted to mention . I thought of one the way over here that That attorneys fee doesn't get paid until the very , very end . So it's not like you're handing over 23 grand to an attorney to start off this case . They get paid at the end with the court approval .

So that's one piece . I wanted to remember this to tell you .

It's basically it's kind of like the gate opener , because before you get those letters , the executor has very little power to do much of anything . So in order to move forward with administering the rest of the estate , those letters are really important .

Okay , because that gives you the ability to talk to banks and Other custodians to get information because your next step is kind of information gathering and gathering all the information about the The estate . So you have to all the information as to all the accounts .

If there's IRAs that don't have beneficiaries , anything that's going to be administered through this probate process You have to write down and show the court And that's due within 120 days of the probate letters being issued .

The other , the next step is if you know specifically of any creditors , you have to let them know that this person has passed away and give them an opportunity to Bring a claim against the estate . Let's say , grandma passed away and she had a $2,000 credit Card Bill .

Most of the time the credit cards are going to walk with her agency is we're going to walk away because they don't Bother with this , but that's not going to be the same . That's going to be the case for every creditor .

Okay , the court needs to know that you're paying everyone who needs to get paid , and then the beneficiaries get paid last . So you have to go through this process first .

The accounting is basically a document that sets forth everything financial that's happened to the estate after the executor took office And then you close the case and do distributions .

You gather all the assets here , you pay any valid debts that need to get paid , you'll praise the property , you do this fiduciary accounting thing , which is you show the benefits . Your beneficiaries are kind of the boss . If you're the trustee , you owe them a lot of duties .

So part of that is disclosing at the end of a year all of the things you've done with the trust administration so they can approve it . They're not , they can go to court if they don't approve it .

And then you make , hopefully , a little distribution here , reserve some money just in case a creditor pops up later And then ultimately the idea is to distribute all the money to the beneficiaries .

You can contest on the basis of like fraud , or I mean there's a lot of reasons .

You could have beneficiaries and heirs that are difficult to work with , who are going to contest the trust or who are going to take issue with you know , actions that you take as trustee . Even if you're allowed to when the trust instrument , they can still complain about it and make things difficult . County Assessors Office they have very specific rules about .

I mean , as you know , when there's a change of ownership , you have to submit specific documents . Yeah , and it's very procedural , intense , right , like they're very specific things you have to do . We want to make sure we pay all of our creditors and the IRS . And then what happens ? This happens a lot where it's an unfunded trust And this is often happens .

If you know , in the 90s a lot of trusts were written that like split upon the death of the first spouse to die And there's a post to meet an administration when that split happens . Most of the time it doesn't happen .

So then when that second spouse passes away and the kids are reading through the trust instrument , they kind of go huh , was something supposed to happen in 1998 , you know , 1995 when dad passed away , and so this is a really big issue for a lot of people , and figuring out how to rewrite history really is complicated and definitely needs the help of counsel .

Yeah , people wrote things differently . So I see this happens a lot . I get calls about this pretty often . Okay , and when I say unfunded , so when you set up a trust , think of it as like creating a briefcase or suitcase .

So that suitcase is actually pretty worthless unless you start putting things into it , and that is in order to put things into it , you have to change the title of the assets , which is sometimes when people forget to do . It's like a kicker . So it's why you get an attorney to help with the trust administration .

I wouldn't advise that . But the idea is that you and your partner , if you're married , you guys are in the driver's seat in terms of , like , driving it . Right , it's all of your stuff . It's just titled a little differently . There's really no change , okay , Okay . Well , i'm just reading my through my notes here to make sure . Oh , things that can help .

But you know what trustees have what's called fiduciary duties to the beneficiaries , which is a very high standard of care , and they basically have a ton of responsibility to the beneficiaries . I can help to make sure that the trustee meets that and avoids trouble later with the beneficiaries .

And another thing I can help with is just keeping the beneficiaries informed , drafting up accountings and recording all distributions . Also , getting beneficiary consent so that the beneficiaries agree to an action before the trustee takes it prevents them from suing later .

And then also , you know , following the formalities of the trust as well , essentially avoiding liability , because I think what a lot of people don't understand is when you are administering the trust of someone who has passed away , you are subject to liability , potentially Okay , so yeah . So again , we want to avoid any kind of like haunts that could happen .

If there are creditor issues , the creditor , especially the IRS , can come after not just the trust itself but the beneficiaries and the trustee , which would be a very unhappy surprise years later if the beneficiary has told you know the trust owes $20,000 to the IRS And the beneficiary has spent all the money from the trust , right , like this could get really sticky

. And then you know you just essentially it's just things that can happen later on the beneficiaries kind of ledge later that you didn't get market value for a home , let's say , and the sale , and they can bring a lawsuit . So there are things that an attorney can do to prevent that from happening .

you know , and that's what like a lot of my clients are asking me , because I'm like you have a house now you need to get crack and , you know , get in a state plan , yeah , so , like the first thing we talked about is like , obviously , the cost of administering probate is so much more expensive than going to a trust .

I had a client who's relative , out of nowhere , had like a massive stroke and had a home and other assets and didn't have an estate plan set up . He went into a coma and luckily came out of it in time to put together his estate plan before he died . Otherwise they would still be in court now , like a year later .

So essentially , even if , like , what I have to say is this is about organizing , if you don't organize your stuff now , someone's going to have to do it later and it's just going to be more expensive and difficult for them to do .

So now I just have a list of documents I like to look at and then I create a spreadsheet and then and then I look , do the analysis before we meet for the first time . So it's really it's a list of documents I ask clients to provide to me .

One of the biggest pain points for a lot of clients with young kids is figuring out who they can interest to be the guardians , and that's a big deal Right . So in your , in your state plan , you can nominate guardians to step in in the event you and your partner pass away or becoming capacitated and unable to help with those children .

The good news is the court is very involved with guardianship , but it's great to have someone nominated . The court has to appoint them and confirm them , but it's great to have someone nominated because that person's probably already prepared and , just like you've had the conversation with them .

So it's really important to nominate guardians .

Like I talked about a second ago , people sometimes forget to put the assets into their briefcase or their suitcase , which makes the trust not worth very much . I like to make sure that the clients have done all the work needed to fund the trust and put the assets into the suitcase , the documents , really quickly .

So the will really is your way of kind of like gathering all your assets and saying I'm going to assign all of these to my trust . I mean the layman's terms . That's pretty much what it is for most of my clients . The trust contains all the instructions . It's usually a pretty long document . Well , let me get a little water .

Mm , hmm , yeah , i think you know I was telling you like the whole reason I called you and met you is because when my dad passed away , we had to quickly find a trust attorney And I made myself power of attorney , but my experience was so quick and it was just not a great experience , and that's why I found you And but that's why I'm like , yes , everyone

needs to do a trust , because I did it at the last minute and it was so stressful .

It's really like your way of appointing someone to speak for you And the event that you're so sick you can't speak for yourself , yeah , usually someone will nominate their spouse or their children or family member that they trust to make decisions for them , and these are like end of life decisions too .

Yeah , so you can also set forth your wishes as to how you feel about life support , treatment , that sort of thing . You can set forth how you feel about those issues . Some clients are like , incredibly thoughtful about this , and which I appreciate , and have very , very specific wishes .

Others are more general and allow their agent to kind of make a decision for them needed . But in any event , it's like when else are we talking about end of life care ? I mean , yeah , i do , because I'm a weirdo and I talk to my parents about that kind of thing .

But because how else would you like , how else would your spouse know , or your family members know they would have no idea that was what your wish was right ? It's not something we talk about very often .

I would use my father-in-law as a really good example of this , because he is so responsible And when his mother was in her 90s and it was time for her to move into , like a retirement home , he really helped by , you know , filing her taxes , helping list the property per home when it was time for her to move , that sort of thing .

So that documents pretty long and it empowers someone to act on your behalf . I personally think grandma was just like done , and she knew that my father-in-law could just handle it , yeah , so she just felt really comfortable handing over the reins . Yeah , that's nice , okay , oh yeah . And then my process .

I like to use this meeting process instead of giving you a questionnaire and a handout , and I also just like to get to know the clients I work with . It's kind of fun for me And it helps , i think , to really like pull out what their wishes are and helps to like use communication , and so I really like this format . So we have a .

If you decide to hire me , we would have a discovery call where we would talk about what you know your wishes are that I would go to work and draft all the documents . Then we would go over the documents together . You can ask questions , you can suggest change or make changes if you want to .

Then hopefully you , you know bless the documents And you sign them in front of a notary that I work with who's fabulous . Then I get all the documents back , process everything , i return them to you , i record if you have a home , i would record the deed on your home And then the last step is a filing call .

Okay , which , again , is that like the process by which you put the assets into your suitcase , because I want to make sure that nothing is missed later on . So that's kind of how that works .

The client was super motivated to get this time , but then it typically takes closer to like eight to 12 weeks .

Do I need to put it in a trust ? The answer is yes , if you want to keep out a probate , like you talked about before .

My relative does not have a trust and she lives outside of California , so she your relative would need to find an attorney in her jurisdiction to draft up her trust . Every state's different . Okay , my dad just passed away house is going to probate . When is this in tail ? So we already went through those seven steps . I think that's it . So that's it .

Wow , i'm gonna stop sharing .