ROBERT P. BERGMAN, ATTORNEY AT LAW
3535 ROSS AVENUE, STE. 308
SAN JOSE, CA 95124
408-247-0444 / firstname.lastname@example.org
Hello. I’m California estate planning attorney Robert P. Bergman, Board Certified Specialist in Estate Planning, Trust and Probate Law (State Bar of California Board of Legal Specialization). I’ve been practicing in Santa Clara County since 1980, and my law practice is devoted exclusively to estate planning. My main website is at www.lawbob.com.
Both living trusts and irrevocable trusts are often unfunded during a decedent’s lifetime, or trust property is removed from the trust (e.g. for a refinance) and not moved back into trust ownership. Newly acquired properties and accounts are often taken in the decedent’s individual name instead of the trust name. The decedent may have intended the property to be in the trust, but for whatever reason it’s not in trust ownership when the decedent dies.
All of the above situations (and it’s not an exclusive list) will trigger the need for some kind of Probate Court action in order to get the decedent’s property into the trust for ultimate distribution according to its terms. In the past, this was accomplished by using a Pour-over Will that directed such property to be turned over to a decedent’s trust, using a full Probate procedure.
I created “Heggstad Help” as a service to assist with the following:
Successor trustees of trusts who discover that assets of a living or deceased Settlor or Trustor (i.e. creators of the trust) are not properly titled in the trust ownership even though intended by the Settlor;
Estate planning attorneys and their clients who make the same discovery when clients want to redo their estate plans;
Local real estate brokers who make the same discovery for property just listed when a preliminary title report discloses that a new listing is not properly titled in the ownership of a trust; and
Local title companies that make the same discovery when a preliminary title report discloses the defect in the title, but nobody knows how to correct the defect.
- In all of the above cases, interested parties may wish to pursue ex parte Heggstad petitions under Probate Code Section 850 through an eligible Probate Court. An ex parte petition is one that is done without a formal hearing date, and without waiting months for a Court date. In some cases, only noticed hearings are available for these petitions.
THE IRREVOCABLE TRUST DOCTOR
I created the “IRREVOCABLE TRUST DOCTOR” as a service to assist surviving spouses and families with modification of irrevocable trusts under California Probate Code Section 15403 or California Probate Code Section 15409. Some of the reasons for modification may include the following:
THE OUTDATED TRUST CREATED BEFORE MAJOR CHANGES IN ESTATE TAX LAWS
The typical revocable living trust prepared historically in California for a married couple is often called an “AB Marital Trust” or “ABC Marital Trust.” This trust often names the spouses as the Trustors who established the Trust, the Trustees put in charge of trust property, and the Beneficiaries who received the benefit of the Trust. Typically, the Trust provides that upon the death of the first spouse (i.e. the “Deceased Spouse”), the Trust either will be or may be divided into two or more trusts to be administered separately from that day on. One or more of the trusts will for be the benefit of the children of the marriage or other heirs of the Deceased Spouse, while one or more of the trusts will benefit the remaining spouse, or the “Surviving Spouse.”
Whether or not the AB(C) Marital Trust requires a division of the couples’ property into two or more trusts or permits a division depends on how the trust is drafted. Most revocable living trusts drafted in the 1980s and 1990s required the division of the property into two or more trusts after the death of the Deceased Spouse. This was normal at the time, because the federal estate tax exclusion amount for estates was less than $1,000,000 back then, and estate planning was considered appropriate.
What is the “A Trust” in an ABC Marital Trust?
The “A Trust,” or the “Survivor’s Trust,” is established for the Surviving Spouse. It typically contains the one-half of the Community Property owned by the Surviving Spouse of the marriage, plus any separate property owned by the Surviving Spouse. It may also contain property directly received from the Deceased Spouse’s estate. The Survivor’s Trust is “revocable,” so the Surviving Spouse may amend, cancel or modify the terms of the Survivor’s Trust if desired.
What is the “B Trust” in an ABC Marital Trust?The “B Trust” or the “Bypass Trust,” will likely contain the Deceased Spouse’s one-half of the Community Property, plus any separate property owned by the Deceased Spouse. However, the total value of property that can be placed into the Bypass Trust without a federal estate tax is limited to the applicable exclusion amount (“AEA”) of the Deceased Spouse, as determined in the year of the Deceased Spouse’s death. The current AEA is over $11,000,000, and will be indexed for inflation in future years unless Congress changes the law again. The property in the Bypass Trust and future appreciation will “bypass” estate taxation in the estate of the Surviving Spouse when the Surviving Spouse dies. However, this will also mean that the “cost basis” of the Bypass Trust property will be fixed at the time of the Deceased Spouse’s death, causing future appreciation to be subject to capital gains taxation when the property is later sold by heirs.
With the higher AEA in effect today, the federal estate tax planning purpose for a Bypass Trust has been largely eliminated for the vast majority of families. At the same time, the loss of an increase in the cost basis of the property in a Bypass Trust can cause income taxation that could be completely avoided if there were no Bypass Trust.
What is the “C Trust” in an ABC Marital Trust?
The “C Trust” or the “Marital QTIP Trust” may contain any property of the Deceased Spouse that is greater than the AEA. The Marital QTIP Trust qualifies for the Unlimited Marital Deduction, which permits the deferral of federal estate taxation until the death of the Surviving Spouse. The Marital QTIP trust may also receive property directly from a Deceased Spouse’s estate to be held of the benefit of the Surviving Spouse, even if there is no “B Trust” ever created. The “C Trust” property is included in the taxable estate of the Surviving Spouse at his or her death.
Because the vast majority of estate plans for married couples are no longer needed for federal estate tax planning purposes, a petition under Probate Code Section 15403 or 15409 can remove the requirement that a Bypass Trust be created. This can then provide the income benefit of an increased in cost basis at the death of the Surviving Spouse, whether property is in an “A Trust” or a “C Trust.”
LACK OF POWERS OF APPOINTMENT IN A TRUST
A typical Bypass Trust and/or Marital QTIP Trust created after the death of a spouse (i.e. the “Deceased Spouse”) often requires the trust be automatically distributed to remainder beneficiaries after the death of the Surviving Spouse. There is typically no power granted to the Surviving Spouse to “appoint” trust property in different amounts, percentages, or to different beneficiaries than those already written into the trust.
A similar issues arises when a trust is established for any beneficiary where the beneficiary has no control over the ultimate distribution of the trust property at the beneficiary’s death.
An irrevocable trust can be modified to grant the beneficiary of a trust a “limited” or “general” power of appointment. A power of appointment gives a trust beneficiary to “appoint” the property of the trust to one or more ultimate beneficiaries, following the guidelines set forth in the power.
If properly drafted, such a power can be used to reward “good” beneficiaries, punish “bad” beneficiaries, create new beneficiaries, divide trust property in different amounts or percentages, and provide for beneficiaries that are or have become “special needs” beneficiaries.
LACK OF ASSET PROTECTION FOR INHERITANCE FOR A SPOUSE OR HEIR
A typical older trust would provide for the outright distribution of trust property to the remainder beneficiaries of the Trust. For example, a trust for a married couple might provide for all trust property to go to the Surviving Spouse, and then be passed on outright to the couple’s issue or their descendants per stirpes or by right of representation. An estate plan prepared by an individual may have similar distributions outright to that person’s heirs. This planning approach had has the advantage of being simple to understand and simple to implement after death. However, it also completely ignores the very real potential problems of heirs losing their inheritances as a result of:
- Being too young or financially immature
- Having a drug, alcohol, gambling or addiction or abuse problem
- Being in a bad marriage that is financially, emotionally, or physically abusive
- Having pending lawsuits, money judgments, or in bankruptcy
- Being a special needs person, relying on government assistance for shelter, income, custodial medical care, or medical insurance
- Dying later having done little or no estate planning for the inheritance
- Going through a dissolution of marriage without planning for the inheritance
- Working in a high risk profession or occupation such as law, medicine, accountancy, etc. where lawsuits for malpractice claims could lead to the loss of property, including inherited property
More modern trust planning would likely involve Legacy or Dynasty trust planning, what I call “Castle Trust” planning, using multi-generation skipping trusts to pass inheritances into asset-protected trusts for heirs. These trusts can provide for asset protection for an inheritance, trust oversight through the use of trust protectors or trust advisors, and can grant limited or general powers-of-appointment to permit heirs to direct trust property to future beneficiaries.
LACK OF SPECIAL NEEDS TRUST FOR A DISABLED HEIR
Many estate plans have left an inheritance outright to a disabled or financially incompetent heir. This can easily cause the loss of government benefits for the disabled heir, or the lost of the inheritance by a financially incompetent heir. In both cases, it may be possible to petition the Court to modify the distribution so that it goes into an asset-protected trust that can protect from loss of government benefits, or loss due to financial incompetence.
Please take your time reading the various sections of this site, and then contact me if you believe that my services could help you and your family deal with an outdated or incorrectly drafted irrevocable trust.
Please take your time reading the various sections of this site, and then contact me if you believe that my services could help you, a client, or a customer with their Heggstad needs or to modify an outdated or incorrectly drafted irrevocable trust.
Heggstad and trust modification petition services are available to the general public, attorneys and their clients, title companies, realtors, etc. throughout the State of California, including the following counties:
CONTRA COSTA COUNTY (Ex Parte and noticed hearings)
SANTA CLARA COUNTY (Ex Parte and noticed hearings)
SAN MATEO COUNTY (Ex Parte and noticed hearings)
ALAMEDA COUNTY (Noticed hearings only- Currently 9-10 months out)