Probate, Estate Planning and Trust Law
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San Fernando Valley Probate & Estate Administration Law Blog

Understanding the difference between principal and income

When researching the topics of trusts and trust administration, Woodland Hills residents may likely hear the terms “principal” and “income” thrown around quite a bit. Understanding what each of these words mean in relation to a trust as well as the differences between them may be vital to the success of a trust as being a source of revenue for its beneficiaries. Knowing such information may also greatly help a trustee as he or she works to allocate a trust’s assets correctly.

As defined by the American Bar Association, principal is the property placed into a trust to benefit beneficiaries (either by producing income or through other means). This may include:

  •          Money
  •          Real property
  •          Stock options

When is the right time for estate planning?

Estate planning isn't something that most people think about very often. In fact, most people don't even realize they have an estate. They tend to think of an estate as a fortune substantial enough to qualify for a federal inheritance tax.

As of 2016, that amount is $5.45 million dollars, an amount that relatively few people are able to amass within their lifetimes. However, in legal terms, most people actually do have an estate, and it's often worth far more than they realize. For example, estates include pensions and life insurance policies, among other things. 

Filling a vacated trustee’s office

The success a trust achieves in managing the assets therein may depend largely on the capabilities of the trustee. Many often come to us here at the Law Offices of Alice A. Salvo concerned over the office of a trustee having been vacated. If you are an interested party to a trust, then it may prove to be beneficial for you to understand the process followed to replace a trustee if you happen to encounter such as scenario.

There are any number of reasons why a trustee’s role may be vacated. The person designated as such by the trust instrument may die, or he or she may simply refuse to assume those responsibilities. In any event, section 15660 of the California Probate Code lists the proper way to fill a vacated trustee’s office as follows:

  •          First, any instructions in the trust instrument naming the replacement trustee or outlining a process to replace the trustee will be honored.
  •          If no such instructions are given, then the role of trustee may be assumed by a trust company. In order for this to happen, you (if you are a beneficiary) and all of the other adult beneficiaries of the trust must agree on this action.
  •          If you and the other beneficiaries cannot come to an agreement, you or another interested party may petition the court to select a replacement.

Tax dispute over Tom Clancy’s estate settled by court

For those in Woodland Hills who have considerable assets to pass on to beneficiaries, one concern that they may want to address is estate taxes. In many cases, tax considerations are often overlooked in estate planning because one’s estate must reach several millions of dollars in value in order to meet the federal estate tax requirements. If one’s estate does warrant taxes being levied, then the issue of how they are paid could potentially cause tension amongst beneficiaries.

Such has been the case in an ongoing to dispute between the widow of the late author Tom Clancy and his children from a previous marriage. In his will, Clancy left a trust estimated to be worth one-third the total value of his estate, as well as properties valued at close to $7 million to his late wife. The remainder was split into another series of trusts, one which was meant for his widow and her family. The others were left to the children Clancy had with his first wife, all of whom are now adults.

How much does probate cost?

If you have begun to look into estate planning in Woodland Hills, then you have likely heard the recommendation that you do what you can to avoid having your estate go into probate. The primary reason why so many may tell you to avoid probate is the financial cost that it can exact on your estate. This may inevitably prompt you to question exactly how much the probate process can cost.

Probate costs can be found in Section 10810 of the California Probate Code. They are based upon the total value of your estate as determined by your personal representative. This determined by taking the total appraisal value of all your estate’s property, plus any gains added to it through receipts, and then either adding or subtracting from the it the net difference between the appraisal value of the property and it’s actual sale price.

The importance of estate planning

Nowadays, most people associate estate planning with only the rich and wealthy. However, estate planning can benefit many families, no matter their income level. Furthermore, the earlier you have made these important plans the better, because it will allow you the peace of mind of knowing that your affairs are in order.

The sad fact of the matter is that many people die without a will, which can lead to many problems. If you die intestate (without a will), it will result in your estate going into probate, which can be a very time-consuming and costly process. If you happen to have children, the courts will also decide who gets to care for them. 

Proving that you are an heir

For those in Woodland Hills who are not able to work with us here at the Law Offices of Alice A. Salvo to officially designate beneficiaries to their estates, the issue of who is given ownership of their assets upon their deaths is dictated by state law. If you, for example, had a parent who died without a will, then you may be considered an heir to his or her estate. However, unless you are directly identified as so, you may have to go through the process of proving yourself to be one.

This exact process is detailed in Section 248 of the California Probate Code. There, it states that you (or your personal representative) must file a petition claiming your right to any ownership of or interest in any of the real property included in the estate. That petition must be filed in the county where the property is situated or being held. In it, you must include the following information:

  •          Your own personal identifying information
  •          A description of the property you claim to have a right to
  •          The names, addresses and ages of any other potential heirs

An overview of trust companies

When Woodland Hills residents first begin to consider the idea of setting up a trust, their first thoughts may be to appoint friends or family members as their trustees. While this may be understandable given the established relationships that they may already have with such parties, oftentimes the duties of a trustee can be complex and difficult for a laymen to completely comprehend. The California Probate Code offers a potential solution to those searching for a qualified trustee. It states that a trust company may be appointed to such a role in the same manner as any individual.

Trust companies are corporate entities that assume fiduciary responsibilities for both personal and business trusts. Often, their services are included in those offered by banks and other financial institutions, or they may simply be private firms whose sole function is trust management. Their staffs often consist of:

  •          Attorneys
  •          Financial planners
  •          CPAs
  •          Portfolio managers
  •          Tax experts

What powers do you have as a trustee?

To take upon the role of trustee over a trust containing the real property and assets of a family member or friend in Woodland Hills can be quite a daunting task. Before agreeing to assume such a role, it may be helpful to understand exactly what powers you have as a trustee. These may seem to be spelled out in the general definition of a trust: a collection of assets transferred to you to be managed accordingly. Yet once you have been entrusted with these assets, what then are you allowed to do to ensure that the trust is managed properly?

Your powers as a trustee are clearly spelt out in Chapter 2 of Part 4 of the California Probate Code. There, it clearly states that as a trustee you are allowed to do the following without needing to have first obtained permission from the court:

  •          Perform any duties outlined in the trust instrument.
  •          Perform any actions aimed at accomplishing the purposes of the trust that are done with prudence as well as with reasonable care and caution given to the current circumstances.
  •          Exercise any powers conferred to you by the law except those explicitly limited by the trust instrument.

When is a trustee in breach of trust?

If you are the beneficiary of a trust being administered in Woodland Hills, you may at times feel as though you are at the mercy of the trustee. After all, that person or party has been given authority to oversee the trusts’ assets. However, his or her role should not be mistaken for control over those assets. In fact, the trust instrument typically outlines a specific duty that the trustee owes to you as a beneficiary. A violation of that duty is considered to be a breach of trust, and could be grounds to have the trustee’s powers revoked.

The California Probate code lists the following scenarios as the only circumstances where a trustee would not be liable to you for acts and omissions in violation of his or her duty:

  •          The violations were committed by an agent of the trustee.
  •          The violations were committed by a co-trustee.
  •          The violations were committed by a predecessor trustee.