Dear Len & Rosie,
We have a living trust that we created twenty years ago. I believe the trust is called an “A/B Living Trust.” Over the last ten years we have kept all assets in the trust. The company that created the trust has called and said that it is a good idea to restate the trust especially because it is an A/B trust. Of course, they want us to pay for it. Is it really necessary to restate the trust given that we haven’t changed our beneficiaries, or our assets?
Christine Dear Christine,
The way your A/B trust works is that upon the death of the first of you to die, the trust is divided into two or sometimes three subtrusts. The B trust, frequently called the “Bypass” or “Exemption” or “Decedent’s” trust is an irrevocable trust funded with the portion of the deceased spouse’s assets that pass free of federal estate tax. The surviving spouse usually gets all of the income of the B trust, and may dip into the principal of the B trust if the A trust assets and assets outside the trust are insufficient to pay for the surviving spouse’s needs.
Think of it this way: The A trust is for the Above Ground Spouse and the B trust is for the Below Ground Spouse. It sounds dumb but you won’t forget it.
The gift and estate tax exemption amount for 2022 is $12,060,000 and is indexed to inflation. Furthermore, when a married spouse dies, the survivor can add whatever is left of the dead spouse’s exemption to his or her own. Even though this amount will be cut in half under present law, it’s very unlikely you’ll need an A/B trust to avoid having to pay any Federal Estate Tax.
To change your trust, it’s easier to amend your trust by “restating” the entire trust document with an ordinary trust document that does not require an A/B split upon the first death. Doing a restatement also has the added benefit of bringing the entire document up to date with other changes in the law. It’s better than creating a new trust as you won’t have to transfer your home and other assets from the old trust to the new one.
You may want to keep the A/B trust the way it is if you and your husband want to restrict the ability of the surviving spouse to change things. This can be very important in blended families with children from prior marriages, because while most spouses want to leave everything to one another, they still want their children to inherit it all in the end. In any event, if your trust is twenty-five years old, it’s about time you review and update it with a trusts and estates attorney.
Len & Rosie Dear Len & Rosie,
My sister has power of attorney over our mother and is now also the trustee of our mother’s trust. My mother has dementia.
Does my sister have an obligation to her brothers in regards to what she is doing with our mother’s monies and how it is being handled in regards to our mother’s care? We are all named in the trust and have received money from our mother’s trust as our sister decides. Our concern is whether or not this money should be left in the estate for our mother’s future care? Is she required by any law to report to the rest of us on how she is handling all of this. She is very difficult to deal with and she’s a know-it-all.
Dennis Dear Dennis,
If your sister is smart, she would bury you in information – when a trustee shares information, account statements and the like with family members, trust develops and everyone gets along better. Trustees should be honest, organized, and diplomatic. A trustee who hides information creates a situation in which family members think the trustee is up to no good. They may come to think “where there’s smoke, there’s fire.”
This is a case where we would have to review your mother’s trust to see what rights you have to distributions from the trust and what duties your sister has, if any, to account to you for her actions. But we can tell you what most trusts say about this.
Most trusts keep everything for the benefit of the parents, passing assets on to the children only after the parent or parents have died. It is very unlikely that your mother’s trust says anything about your sister the trustee making gifts to anyone without your mother’s direction. Sometimes gifting language is included in trusts to allow for gifting to reduce or avoid estate taxes or to qualify for Medi-Cal benefits, but that’s not very common. There is a very good chance that your sister has been making gifts in violation of the terms of your mother’s trust. In any event, your sister shouldn’t be making any gifts of anything your mother may need for her own care unless the trust document requires that she do so.
On the other hand, unless the trust document gives you a right to present distributions from the trust, you probably have no right to any information concerning the trust, let alone a trust accounting. Only beneficiaries presently entitled to distributions of trust income or principal have the right to an accounting, and, chances are, your mother is the sole beneficiary of the trust until her death.
You should review your mother’s trust with an attorney. Maybe you are entitled to an accounting, but probably not. If you are not entitled to an accounting now, the only way you can get one is if you are your mother’s agent under her Durable Power of Attorney or you are appointed by the court as her conservator.
Len & Rosie
Continued on page 19 Len & Rosie
Dear Len & Rosie, When my mother-in-law passed away we were absolutely shocked to find out that she did not have a will, or any sort of estate planning done. My husband is her oldest child, and at one time had a power-of-attorney for her, but it was so long ago that he can’t find the paperwork and he doesn’t even know if it was durable or just temporary. His mother had a domestic partnership with the man she’d been living with for the last twelve years, but he seems to want my husband to take care of the details of the estate and assumes that other than the house they owned together, she would have wanted everything split between her two children.
We can’t seem to find any information on how to take the elementary step of asking the court for my husband to be appointed the personal representative of his mother’s estate. Can you possibly tell us what to do?
April Dear April,
Your husband should obtain copies of his mother’s account information, including life insurance policies, the deed to her home, and the title and registration papers to her car, if she owned one. The basic idea is that to complete the administration of his mother’s estate, he has to start by determining exactly what his mother owned, and how she owned it.
Anything your mother held in joint tenancy with her partner belongs to him. If the home is in joint tenancy, he’ll need to sign and record an affidavit of death of joint tenant to remove your mother-in-law from the title to the home. The home should also be appraised to determine its new cost basis for capital gains tax purposes.
If your mother-in-law and her partner were registered as domestic partners with the California Secretary of State, then they will be treated as spouses for all probate purposes in California. However, if they registered as domestic partners with a city or county, as some localities provide for, or if they were just living together, then the survivor won’t get any benefit from California’s domestic partnership law.
After any joint tenancy and pay-on-death assets are distributed, all that’s left is your mother-in-law’s probate estate, consisting of assets titled solely in her name. If the estate is worth more than $166,250, it will be necessary to file for probate in the Superior Court. If the estate is under $166,250, the beneficiaries can collect the assets using small estate declarations under California Probate Code section 13101. Automobiles may be transferred 40 days or more after the date of death using DMV Form REG-5.
The surviving domestic partner (if registered with the Secretary of State) inherits all of the community property, if any, and either one-third of the separate property (if she had two or more children) or one-half of the separate property (if your husband is her only child). The rest of the estate passes equally among your mother-in-law’s children.