The grief and sadness beneficiaries and heirs feel over the loss of a loved one can override the joy of learning they will receive an inheritance from a trust or a probate estate.
It’s best not to make major financial decisions too soon after the death of someone we love. Emotions run high and we do not think clearly.
If you are a person who receives a family inheritance from a trust’s assets or an estate, talk to your accountant before making financial decisions with the funds you receive.
Get a third-party opinion from someone not attached to the grief of loss.
A financial advisor may not be the best person to consult with because, unlike an accountant, they have an interest in any investment you make.
Grief can change our perspective and personality. Processing the loss of a parent, sibling, or close friend is challenging for many people.
A family that once got along might be at odds after the death of a family member.
In a perfect world, the person in charge of the estate will keep all interested parties informed of the status of the probate estate or trust administration.
We want to be mindful that the person in charge to administer the trust or estate may also face grief and feelings of overwhelming emotions.
Grief does not relieve the person administering an estate from their fiduciary duties and responsibilities.
Beneficiaries and Heirs
The terms beneficiaries and heirs get confused to mean the same thing. There is a difference.
Beneficiaries meaning people named in a will or trust to inherit property.
Heirs get entitled to receive property through inheritance rules or inheritance laws of intestate succession.
When someone dies intestate, without a will or a Trust, intestacy laws determine who receives the deceased person’s property.
The same probate code also provides rules for who is eligible to receive the property if a Will or a Trust does not specify who should benefit.
California intestacy laws provide that relatives with a green card, or who are not United States citizens can inherit the deceased person’s property.
If a person died without a Will property can only pass to heirs through probate.
Exceptions are if the estate is small or if assets get titled to pass to a named beneficiary.
Title to real estate may pass to a surviving property owner:
- If the title is held in joint tenancy, upon the death of one joint tenant, the title passes to the surviving joint tenant and not to the heirs of the deceased joint tenant.
- In California, a title is held as community property with the right of survivorship, the surviving spouse receives the property.
People get entitled to receive the proceeds of an investment account, retirement accounts, and brokerage accounts if they are the named beneficiary.
California does not have an inheritance tax, however, retirement accounts have a built-in income tax when received. This is because the money was tax-free during the deceased person’s life.
Watch our video on California Inheritance Tax for more information on taxes.
Funds in checking, saving, and a money market account set up to pay on death, or beneficiary accounts will go to those named to receive the benefits upon the death of the owner of the account.
The advantage of holding title in joint tenancy and accounts with named beneficiaries is that they avoid probate.
We need a Will or a Trust for personal property and other assets that do not pass to a named beneficiary.
Beneficiaries of Trusts
The creator of revocable trusts can cancel or change their document any time they desire during their lifetime. The changes made to a revocable trust may include changing those entitled to receive property after a person died.
- Once the creator of a revocable trust dies, it becomes irrevocable.
- Successor trustees manage the trust administration.
- The trustee holds the power granted in the trust and fiduciary duties and responsibilities owed to the beneficiaries.
- An irrevocable trust can get changed under certain circumstances based on the rules of California probate code section 15404.
Beneficiaries are wise to read the trust. Most people don’t understand legal documents.
Consult with an attorney to understand the legal information and legal process of trust administration.
The rights of irrevocable trust beneficiaries depend on the type of beneficiary.
- Current Beneficiaries are currently eligible to receive income from the trust.
- Contingent or remainder beneficiaries become eligible to receive assets in the trust after the current beneficiaries. The remainder of the deceased person’s property will go to the contingent beneficiaries after the current beneficiary dies.
We’ve illustrated a case study with a video titled sister living in inherited house that discusses the steps that must be taken if a sibling lives in an inherited home and refuses to move out.
The follow-up to the case study of the sister living in an inherited home is discussed in the video titled, Is a Trial Necessary for an Eviction.
Sometimes a parent’s intention is to leave their child an inheritance. Without creating an estate plan a child may get disinherited.
Ways to prevent an accidental inheritance are:
- Consult with an estate plan attorney.
- Create a well-thought-through estate plan
- Execute the plan keeping heirs in mind in how assets get titled
- Make a Will or a Living Trust
- Name contingent beneficiaries in estate plan documents
- Update estate plan documents with life changes or events
- Keep beneficiary designations updated
While there are many books available on how to make a trust, including wills and trusts for dummies, making a mistake could be very costly and leave unintended consequences behind.
Rights of Adopted Children
Adopted children inherit from the adoptive parents and their relatives under the laws of intestate succession the same as a biological child.
California Wills and Trusts No Contest Clause
If you believe a person signed a Will under undue influence or you do not inherit what you expected, consult with a probate attorney for a legal opinion.
Contesting a Will or Trust is an expensive endeavor.
- Does the Will have a no-contest provision? This clause states that anyone who challenges the Will gets nothing and gets disinherited.
- The purpose of the no-contest clause is to discourage bringing legal action to get the Will declared invalid.
- California courts trust the effect of the no-contest clause if the court considered there was good cause for contesting.
California Probate Code limits the no-contest clause to three situations.
- A direct contest without probable cause
- Challenging the transfer of property because at the time the property was transferred the person did not own it. This gets enforced only if the no-contest clause provides for it.
- Filing a creditor’s claim or action based upon it.
The probate code defines a direct contest. It means the allegations regarding the invalidity of a protected instrument get based upon one or more grounds:
- Lack of execution
- Lack of capacity
- Menace, duress, fraud, or undue influence
- Revocation of a Will or Trust or other instruments pursuant to the revocation procedure in the document or by statute
- Disqualification of a beneficiary
A protected instrument gets defined in the probate code as:
- The instrument that contains the no-contest clause
- An instrument that identifies the no-contest clause being governed by the clause
If amendments to a Will or Trust do not include the no-contest clause, then the amendments are not subject to the clause in the Will or Trust.
Property transferred by a Will goes through probate. If the Will gets contested, it ties up the assets during the litigation process.
Often a settlement gets reached because it prevents the estate administrator from distributing the assets.
A living trust avoids probate. The trustee can transfer property to beneficiaries upon the death of the creator of the trust.
A trust is not available to the public. A trustee does not have to give notice of the trust to the deceased person’s heirs. This differs from the probate process where notice if required.
The title to property gets transferred to the living trust by the creator of the trust while they are still alive. It would be difficult to make a claim the creator acted under undue influence, or lacked capacity.
Only consult with an attorney with experience and a proven track record of litigating living trusts when thinking about contesting a trust.
Before hiring an attorney get details on what it will cost to litigate and the chances of winning.
Attorney’s fees and the cost to litigate a Will or Trust contest are more than most people can afford.
Depending on the outcome of the case, the court may require the person who contested and lost, to pay the estate’s attorney’s fees and costs.
Contact a financial advisor for retirement planning. The way investment accounts get set up should work with your overall estate and tax planning, including social security benefits and the cost of healthcare insurance.
Elder law attorneys can help with creating a trust, a power of attorney, and an advance directive.
Always consult with a law firm that specializes in probate and estate planning to discuss wills & trusts. Our life circumstances and needs change at various life stages. The legal documents we create today will need updating to keep them current.
As our parents age, it is a good idea to remind them to keep their trust and other estate planning documents updated, as necessary. If they do not have documents created it is advisable to help them with that process. This must be done while they have the capacity to make informed decisions about their assets. This will ensure the heirs and beneficiaries will receive their inheritance from the trust as intended.