Messy estate/inheritance question

[Texas Proud]

I will say a few things that might not be popular...


First, some of the answers are meaningless without numbers... IOW, if you give up the trust is it $10K, $100K or millions? Same with the IRA...


As others have said, she can change the beneficiaries at any time... there is nothing you can do about it... your side agreement cannot prevent her from doing so... it can only direct the trustee what to do in case it was changed...


Unless we are talking a minimal amount of money I would follow what my dad intended... why do you think what he put down was NOT what he wanted... IOW, he left enough assets to take care of his DW and also was passing on the separate property he inherited to his side of the family...


If the time comes and step mom is running out of money you and your brothers can chip in to pay her expenses... nothing is preventing that...


Now, it is a one sided statement to the facts, but I would say step mom is the one being the jerk... she is getting more than enough and your dad made a change to even give her 30% of his separate property... why should she insist on getting 100%?




BTW, there is also nothing preventing step mom from taking money out of the IRA until it is zero so the beneficiaries will get nothing anyhow...

[RunningBum]

From post #1

Quote:

Originally Posted by Slow But Steady In my email to the attorney telling her what we could agree to, I mentioned that my dad's rollover IRA (now inherited by his wife) should list my step-sister as beneficiary for 50% and my brothers and me as beneficiaries for the other 50%. The attorney's response, which was otherwise agreeable, said that beneficiaries are now set up that way, but that the IRA is not part of the trust, and Dad's wife can change them any way she wants at her sole discretion. (Note that the IRA was their community property, and I believe it should be divided like the other community property.)

Does that mean they agreed to drain the survivor trust first? I can't tell where the contention is at this point. Is it only with the IRA?

[48Fire]

Wow, this has some serious challenges. Seems to me that your Dad and Step Mom put some thought into this at some point and it is what it is. I can only guess that your Step Mom is grieving at this point, and is probably not in the mood to reinvent the Trust wheels. I think you are on a slippery slope, and should proceed with some caution.

You may want to get an attorney just to get an understanding of how this will all go down. But, getting an attorney to change some of the trust details is likely to spawn more resistance. Just my opinion.

By the way, who is Durable Power of Attorney and Medical Guardian for Step Mom? This is going to be a bigger hurdle in the near term. You might be better to focus your energy on future challenges and learn lessons from this one that is already cast in stone. Just basing that on previous experiences.

Good luck Big challenges ahead.

[jj]

A complicated situation to be sure and emotions are running high.

As far as I see it the situation is as follows: (maybe I'm misinterpreting...)

Community property to be split 50/50. Step-mom's 50% totally for her use and can be passed to whomever she nominates. Father's 50% in trust for his sons as the remaindermen, with all income going to your step-mom during her lifetime.

Father's separate property, inherited from your grandfather, was 70% distributed to you and your brothers on your father's passing (has this happened yet?), with the remaining 30% in trust with income going to your step-mom and the remainder being distributed to you and your brothers on her death. The corpus of this 30% only to be used by step-mom after the community property assets have been exhausted.

Father's IRA has passed to your step-mom. You and your brothers have no claim on this, as although you were contingent beneficiaries, your step-mom survived your father and this is now hers to use up and set the beneficiary at her whim. I would expect her to nominate her daughter as beneficiary.

It is not clear to me the order in which assets must be depleted, but the step-mom could retain as much in her IRA as she can, by just taking the RMDs and then deplete the trust assets, first her community property, then Father's community property and then the 'separate property' assets that are in trust for her.

In which case you and your brothers' will only receive your initial 70% of his separate property assets and no more. Depending on the amount of money in each of these 'pots' you could receive far less than you have originally anticipated. I second the advice to get a lawyer to advise you.

[OldShooter]

OP, you are going to bring an attorney into your picture. With that, you can pretty much ignore what SGOTI has to say here.

One point, though. "Intent" has been mentioned. Even if "intent" is in writing, the trustee is not permitted to act on it except within the constraints of the trust's terms. The trust document governs. A court is also not likely to consider "intent" unless all the interested parties are unanimous on it.

Good luck. Remember, this too shall pass.

[spncity]

So, you want to give your step-mom some of your inheritance. Very generous.

However, what's wrong with getting your full inheritance and giving her or the daughter with MS money later if they need it?

Giving money now runs the risk of being lost if she re-marries badly (to someone less than scrupulous), or if she has imperceptible cognitive decline and gets scammed out of the money.

You can just retreat to the position of "Upon reflection, I realize we need to be doing things as dad specified" and "following his wishes".

[gauss]

All of these trusts may be a red herring.

You are speaking of the trusts as if they were a will. (ie the trust directs that this should happen etc.)

So all these trusts were written, but never funded? ie the assets were never titled into the trusts?

If the trusts did not hold any property, then the question becomes did your father have a will?

I am not sure that if a trust does not hold any assets that it legally holds any weight. I suppose this varies on a state-by-state basis so either research the law in your state, or even better, hire an attorney to review all of this for you.

-gauss

[Slow But Steady]

Thanks for the comments and insights.

Substantially all of their assets are in the original trust, except for two IRA accounts. The issue of funding the trust applies to the decedent's trust.

I'm really not giving my step-mom some of my inheritance. Whatever we decide to do, the property will be in trust for her benefit until she passes away. What we're trying to do is change the order in which the principal from the trust(s) are consumed, so that in the unlikely event my 83-year-old step-mom required years and years of assisted living, the assets that will eventually go to my step-sister won't be severely depleted.

The reason to do it now instead of later is to give my step-mom (and her daughter) some peace of mind that things will work out as expected. Her nature is quite suspicious, so I have no worries that she will get scammed. (Her lawyer also proposed language that requires her to notify us if she spends more than $5,000. Also, I'm a co-trustee on most of her investment accounts, so I can see what's going on.)

Substantially all of their assets are in the original trust, except for two IRA accounts. The issue of funding the trust applies to the decedent's trust.

One (less important) reason to make the change now is that it will reduce my step-mom's administrative burden. She won't have to keep tax records and file a tax return for the decedent's trust. I don't think the burden would be terribly oppressive, but she worries about things.

The seventy percent of my dad's separate property has already been distributed to my brothers and me. Step-mom's half of the community property goes to her daughter, and Dad's half goes to his three sons. At this point, step-mom has designated her daughter and my brothers and me as beneficiaries in the IRA in the same proportions as we were contingent beneficiaries. (My original post asked the question whether she was free to designate the beneficiaries at her sole discretion, and everyone has agreed that she does.)

We won't do any of this stuff unless there is unanimous agreement, and unless my lawyer approves.

[Bestwifeever]

I don’t see why it has to be complicated. The estate documents say what should be done. Let it happen (not sure why you should get to influence that). Help your stepmother and her daughter out later if and as you wish. Sorry about your dad and whatever drama caused a falling out with his wife and you.

[OldShooter]

Quote:

Originally Posted by gauss All of these trusts may be a red herring. You are speaking of the trusts as if they were a will. (ie the trust directs that this should happen etc.) So all these trusts were written, but never funded? ie the assets were never titled into the trusts? If the trusts did not hold any property, then the question becomes did your father have a will? I am not sure that if a trust does not hold any assets that it legally holds any weight. I suppose this varies on a state-by-state basis so either research the law in your state, or even better, hire an attorney to review all of this for you. -gauss

FWIW, what the OP is talking about is almost certainly a testamentary trust. That is what we have in our estate plan too. The trust is created by the will of the grantor and specified assets are transferred into it automatically by the will. Effectively as a legal entity it is a beneficiary just like a person might be. And the trust does "direct." That is the whole point; to control the way assets of the estate are managed and disbursed after the grantor's death.

You may be thinking of the wildly-oversold revocable trusts, aka "living trusts." A rev trust is a different animal and contains only assets that a living grantor has transferred to it. IIRC we have a couple of rev trusts too, something to do with handling assets if we do not die simultaneously. DW is the expert in this field so I don't pay attention to details.

This is why the OP needs an attorney. To sort this stuff out. SGOTI is often quite confusing and sometimes misleading as a source of legal advice.

[Slow But Steady]

From what my lawyer told me when I first mentioned this situation, it's not at all unusual to undo these decedent/survivor trust deals. Many of them were written when the estate tax exemption was a million dollars, and they're just not needed since the limit went to $4 million and now $11 million.

[Fedup]

It’s around $11 Million per person. Double that per couple.

[gauss]

^ I thought also that this language sounded like that of an AB-trust.

[gauss]

Quote:

Originally Posted by OldShooter FWIW, what the OP is talking about is almost certainly a testamentary trust. That is what we have in our estate plan too. The trust is created by the will of the grantor and specified assets are transferred into it automatically by the will. Effectively as a legal entity it is a beneficiary just like a person might be. And the trust does "direct." That is the whole point; to control the way assets of the estate are managed and disbursed after the grantor's death.

All true. And that is why included in my question is Was there a will?

If no will then no testamentary trust exists.

If there was a will/testamentary trust, then I suspect there would also be probate/oversight where the executor would need to follow the terms of the will and create the trust(s) as defined -- assuming the executor truthfully executes his/her duties and does not mislead the court (ie saying the will assets have been distributed as directed if this is not indeed the case).

[Slow But Steady]

The trust was a revocable trust. From what I understand, in California, they make sense to avoid probate costs. As I mentioned earlier, substantially all of their assets (except IRAs) were transferred to the trust years ago. There's a pour-over will.

[Helena]

.

My understanding is... a beneficiary designation [POD] on insurance, retirement fund, CD, etc overrides both a will and trust.

.

[Souschef]

Quote:

Originally Posted by Slow But Steady From what my lawyer told me when I first mentioned this situation, it's not at all unusual to undo these decedent/survivor trust deals. Many of them were written when the estate tax exemption was a million dollars, and they're just not needed since the limit went to $4 million and now $11 million.

I understand OP's problem. I had an AB trust set up for my late wife and myself. I unfortunately was lazy (I admit it) and when the Estate tax was changed, I did not go back to the attorney to changes the trust..
When my wife died, her half was put into a QTIP trust that I had to administer. It took me 9 years to deplete the trust and dissolve it. I had to file 1041 and 541 (CA) every year for the trust. It was a PITA.

[RobbieB]

When your Father died the revocable trust turned irrevocable. The trustee is legally bound to distribute the trust as set forth in the trust document which usually has a will attached.

The trust only covers assets owned by the trust.

[akidagain2018]

Quote:

Originally Posted by OldShooter Yes, you really do need an attorney. Dad's trust cannot be changed by the beneficiaries simply agreeing to do so. If you all do agree (or if you do not), your attorney should petition the court to bless the agreement or settle the dispute. DW was in the trusts and estates business at a major bank and it was not uncommon for them to go to court to resolve issues. Usually those were due to bad drafting/inconsistencies but the principle is the same. if you violate the terms of the trust without legal blessing, you are open to personal liability if someone successfully argues that they were injured by your action. Even if they agreed at the time. I agree that if the IRA is now hers, it's game over for anyone else's opinion on beneficiaries. She gets to decide. But I am just SGOTI; ask your lawyer. Finally, tactics: You absolutely should not be negotiating directly with her lawyer. Get your guy on board and that becomes his responsibility. In fact, once you have representation the other side's lawyer is not permitted to contact you. There are many reasons for things to be handled this way. One important one is that it prevents situations where you are in direct contact with her attorney and make a response of some kind that, if you had counsel and/or if you had taken time to think, you would not have made it. The winners in negotiations are those who take their time; her attorney's interest is to rush you into decisions.

I agree with this response. You need a good, expertly qualified, estate and trust attorney. Trusts are legal entities separate from grantor (your dad), trustee?? Not sure who this is, and the beneficiaries. With a child with MS and a surviving spouse, there would be ways to provide for them, as well as other children, that may only be knowable or understandable by an expert attorney. I doubt the trusts provide for changes at the direction of beneficiaries, as that's the whole point of the trust, someone besides the beneficiaries make the decisions. Goods luck.

[pb4uski]

You and your brothers are in the driver's seat because your default position is that you go back to the documents as they currently exist.... if what you fear happens and your dad's wife's long-term care costs drain stepsister's pile, you could always make gifts to the stepsister to make her whole.

Since you are in the driver's seat, you can dictate what happens... don't let your step-mom or her lawyer push you around or make you rush things... and get your own representation to ensure that the end result is what you and your brothers want.