What Beneficiaries & Heirs Need to Know | Inheritance

The grief and sadness beneficiaries and heirs experience following the loss of a loved one can overshadow the news that they may receive an inheritance from a trust or probate estate.

It is often wise to avoid making major financial decisions immediately after losing someone we love. Grief can affect our emotions, judgment, and ability to concentrate.

If you receive an inheritance from a trust or probate estate, consider consulting a Certified Public Accountant (CPA) about potential tax consequences before making significant financial decisions.

An independent financial advisor or other qualified professional may also help you evaluate your options. Understanding how an advisor is compensated can help you identify potential conflicts of interest.

Seeking guidance from someone who is not personally involved in the loss can provide a valuable outside perspective.

Grief can affect family relationships. Processing the death of a parent, sibling, or close friend is challenging, and disagreements sometimes arise among family members who previously enjoyed close relationships.

Ideally, the Executor, Administrator, or Trustee responsible for administering the estate or trust will keep beneficiaries and other interested parties appropriately informed about the administration process.

It is also important to remember that the person administering the estate or trust may be grieving and managing considerable responsibilities.

Although grief deserves compassion and understanding, Executors, Administrators, and Trustees must still fulfill their applicable fiduciary duties and legal obligations to the estate or trust and its beneficiaries.

Beneficiaries and Heirs

The terms beneficiaries and heirs are often used interchangeably, but there is an important distinction.

Beneficiaries are individuals or organizations designated to receive property through a will, trust, or beneficiary designation.

Heirs are individuals entitled to inherit under California’s laws of intestate succession.

When someone dies without a valid will, California intestate succession laws determine who inherits property that is subject to those laws. These rules may also apply to property not effectively disposed of by a will or other estate-planning arrangement.

California law generally allows eligible relatives to inherit regardless of whether they are United States citizens or lawful permanent residents.

Not all property must pass through probate when someone dies without a will. Certain assets may transfer directly to surviving owners or designated beneficiaries, while others may qualify for simplified estate administration procedures.

Title to real estate may pass directly to a surviving property owner:

• Joint tenancy: When one joint tenant dies, that person’s ownership interest generally passes to the surviving joint tenant or tenants by right of survivorship.
• Community property with right of survivorship: When title is held in this form, the deceased spouse’s interest generally passes to the surviving spouse.

Retirement accounts, investment accounts, and brokerage accounts may also pass directly to properly designated beneficiaries, depending on how the accounts are held and the applicable beneficiary arrangements.

California does not impose a state inheritance tax. However, inherited retirement accounts may have federal and state income tax consequences. For example, distributions from traditional retirement accounts are generally taxable, while qualified Roth account distributions may be tax-free.

Watch our video on California Inheritance Tax for additional information.

Checking accounts, savings accounts, and money market accounts with valid payable-on-death (POD) beneficiary designations generally transfer to the named beneficiaries when the account owner dies.

One advantage of joint tenancy with right of survivorship and accounts with valid beneficiary designations is that these assets can generally transfer without probate.

For assets that do not pass automatically to a surviving owner or designated beneficiary, a will or trust can provide instructions for distribution. Without an effective estate plan, California intestate succession laws may determine who inherits, and probate or another legally authorized transfer procedure may be necessary.

Beneficiaries of Trusts

The creator of a revocable living trust, known as the settlor, generally retains the authority to amend or revoke the trust during their lifetime, subject to the trust’s terms and applicable California law. Changes may include adding or removing beneficiaries or modifying how trust assets will be distributed.

When the settlor dies, a revocable trust generally becomes irrevocable, although special provisions may apply to trusts created by married couples or multiple settlors.

• A successor trustee generally assumes responsibility for administering the trust when authorized under its terms.
• Trustees must exercise their powers according to the trust document and applicable California law, including their fiduciary duties to beneficiaries.
• Under certain circumstances, an irrevocable trust may be modified or terminated. California Probate Code Section 15404 provides one procedure involving the consent of the settlor and beneficiaries, subject to statutory requirements. Learn more about modifying an irrevocable trust under California Probate Code Section 15404.

Beneficiaries should review the trust document to understand their interests and the trustee’s responsibilities. Because trust provisions and California trust administration laws can be complicated, consulting a qualified estate planning or trust administration attorney may be helpful.

The rights of trust beneficiaries depend on the trust terms and the nature of their beneficial interests.

• Current beneficiaries may be entitled to receive income, principal, or other benefits from the trust according to its terms.
• Contingent or remainder beneficiaries may become entitled to distributions when a specified event occurs, such as the death of a current beneficiary or the satisfaction of another condition.

Disagreements sometimes arise when a beneficiary occupies inherited real property and refuses to vacate.

Our video case study, Sister Living in an Inherited House, discusses a situation involving a sibling who remained in an inherited home.

The follow-up video, Is a Trial Necessary for an Eviction?, explores the legal process involved in resolving the occupancy dispute.

If you are a successor trustee responsible for selling trust real estate in Santa Clara County, we can help. Contact us to discuss the property and your responsibilities as trustee.

Disinheritance

Sometimes a parent intends to leave property to a child, but incomplete estate planning or outdated documents can result in an unintended inheritance outcome.

California intestate succession laws generally provide inheritance rights to qualifying children when a parent dies without a valid will. However, the way property is titled, beneficiary designations, and other estate planning arrangements can affect what a child ultimately receives.

Ways to help prevent accidental disinheritance include:

• Consult with a qualified estate planning attorney.
• Create a comprehensive estate plan that reflects your wishes.
• Review how assets are titled and whether they are properly coordinated with the estate plan.
• Prepare a will or living trust when appropriate.
• Name primary and contingent beneficiaries where applicable.
• Update estate planning documents after significant life changes.
• Review beneficiary designations on retirement accounts, life insurance policies, and other applicable assets.

Although books and online resources can provide helpful background information about wills and trusts, estate planning mistakes can be costly and may produce unintended consequences.

Working with a qualified California estate planning attorney can help ensure that your documents and beneficiary designations reflect your intentions.

Rights of Adopted Children

Under California intestate succession laws, legally adopted children generally have the same inheritance rights as biological children of their adoptive parents, including inheritance through their adoptive families.

Adoption may also affect inheritance rights involving biological parents and relatives, subject to exceptions under California law.

California Wills and Trusts No Contest Clause

If you believe someone signed a will or trust under undue influence, lacked the capacity to understand the document, or that an inheritance was improperly changed, consult an experienced California probate litigation attorney.

Contesting a will or trust can be expensive, time-consuming, and emotionally difficult.

What is a no-contest clause?

A no-contest clause is a provision in a will or trust intended to discourage certain legal challenges by potentially penalizing a beneficiary who contests the document.

However, California law limits when these clauses can be enforced.

Under California Probate Code Section 21311, a no-contest clause may be enforced in three circumstances:

1. A direct contest brought without probable cause.
2. A challenge to a property transfer on the grounds that the property did not belong to the person making the transfer, but only if the no-contest clause expressly covers that challenge.
3. Filing a creditor’s claim or pursuing an action based on that claim, but only if the clause expressly provides for enforcement in those circumstances.

California Probate Code Section 21310 identifies the grounds for a direct contest, including:

• Forgery.
• Lack of proper execution.
• Lack of legal capacity.
• Menace, duress, fraud, or undue influence.
• Revocation of a will, trust, or other instrument under applicable law.
• Disqualification of a beneficiary under specified California Probate Code provisions.

A no-contest clause does not necessarily apply to every amendment or related document. Whether another instrument is protected depends on the statutory requirements and the language of the clause.

Contesting a Will or Trust

A will contest can delay probate administration and distribution of estate assets while the dispute is resolved. Some disputes settle through negotiation or mediation, while others require court proceedings.

A properly funded living trust generally allows trust assets to pass outside probate. However, a trust may still be challenged on grounds such as undue influence, fraud, or lack of capacity.

Unlike probate proceedings, trust administration is generally conducted outside the public court process unless litigation or another court proceeding becomes necessary.

California Probate Code Section 16061.7 generally requires trustees to notify specified beneficiaries and heirs when a revocable trust becomes irrevocable because of the settlor’s death. The notice is generally due within 60 days of the triggering event, subject to statutory provisions.

That notice also informs recipients of important deadlines for contesting the trust. Generally, a trust contest must be brought within 120 days after the required notification is served, or within 60 days after a copy of the trust terms is delivered during that 120-day period, whichever is later.

Consult an Experienced Probate Litigation Attorney

Before contesting a will or trust, consult a California attorney experienced in probate and trust litigation. Ask about the legal grounds for a challenge, applicable deadlines, anticipated attorney’s fees and litigation costs, and the potential consequences of an unsuccessful contest.

Losing a contest does not automatically mean paying the estate’s or trust’s attorney’s fees. However, fee awards or other financial consequences may arise when authorized by law or supported by the circumstances.

Estate planning documents should also be reviewed periodically, particularly after major family or financial changes. Parents who wish to update their plans should work with a qualified estate planning attorney while they have the legal capacity to make those decisions.

Thoughtful estate planning can help reduce confusion, disputes, and unintended inheritance outcomes.