Tales from the Trenches of Trust Administration

Over the past few years I’ve worked with many people who have lost a loved one to help them understand how big their job is as trustee of a trust and how their new role is not to be undertaken without proper legal & professional guidance. I have come to the conclusion that the very person chosen as trustee is just as important as those chosen as beneficiaries.  A trustee has the responsibility of properly administering their loved one’s final wishes as spelled out in the trust documents they left behind and is not a task to be taken lightly. The trustee is responsible for collecting, managing and distributing the property (“assets”) held by the trust to the people named in the trust (“beneficiaries”) according to the terms of the trust.  This process, trust administration, calls for the utmost in detail and organization that most trustees don’t have enough time in a day for, or the training, to do the job properly.  Unfortunately, most people are also unaware of the many California requirements of a trustee (which can be overwhelming during a time of grief) unless and until they learn what is required of them.

When the wrong trustee is appointed, that trustee often disregards the serious trouble they can get into if they do not follow set standards and specific instructions because they often carry deep seated emotions with them that clouds their judgment and poses potential harm to the beneficiaries which, in turn, can lead to the very courtroom their loved ones tried to avoid by creating their trust in the first place – the Probate Court.

Having a trust is not just for the elderly or wealthy.  In order to avoid probate, we are seeing younger clients every day simply because they own a home, have a business or want to protect their children.  Many times clients will name an adult child as their trustee, but that is not always the best choice for a variety of reasons. In those families where everyone gets along and enjoy each other generally do well if the most responsible adult child is appointed as the trustee.  On the other hand, in blended families or when siblings have a history of contention, it may be better for a professional fiduciary to serve as the trustee.  Too often, I have seen the ugly face of sibling rivalry appear after both parents pass away.  In such families, it is not uncommon for adult children to fight over costume jewelry, family photos, or question the actions of their sibling trustee, only to destroy their relationship forever.

A case in my rearview mirror recently drove this point home.  A client with cancer came into our office concerned about how her children would get along when she was no longer around.  Unfortunately, she went against the attorney’s advice to name a neutral third party as trustee and instead named her adult children as co-trustees.  After the mother passed away, the bones of contention snapped loud and clear when the siblings ended up in court battling over the mere few thousand dollars left in their mother’s account.  Needless to say, the kids ended up losing more than money.  They lost the opportunity to share fond memories of their mother with each other. In addition, their own children lost the chance for a future relationship with their cousins, bringing the possibility of family reunions to a screeching halt.

Just as important as naming the right trustee is making sure you have your trust documents reviewed on a regular basis.  Assets not properly transferred to the trust (“funding the trust”) are not protected from the probate court. Likewise, a trustee who has become incompetent or is otherwise unavailable needs to be replaced.  Getting a trust is not a once in a lifetime event, rather it requires attention throughout your life to make sure it is current with your situation, your wishes and any changes in the law.  If you have a trust that is over two years old or have no trust at all, it is imperative that you consult with a licensed attorney whose main practice focuses on estate and business planning.  Better yet, if you hire an attorney who handles both pre-death documents and post-death administration, it will let your loved ones know who you trusted with your trust and where to go to in their time of need.

Elaine works in Orange at the Law Office of Donald A. Hunsberger as Manager of Trust Administration. For more information call (714) 663-8000.

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Physical elder abuse is defined by the Welfare and Institutions Code (“WIC”) Section 15610.63 and includes the more commonly known assault and battery, as well as overmedicating seniors or restraining them without a legitimate reason. These are the more nightmarish cases that become part of the news cycle: the dishonest caretaker and the careless nursing home. Financial elder abuse is more subtle and sometimes harder to identify and address. WIC Section 15610.30 defines financial abuse as an incident when a person “takes, secretes, appropriates, obtains or retains” any type of personal property of an elder for a wrongful use, with undue influence or intent to defraud the elder. This definition can include everything from direct fraud by a single person to financial institutions who try to sell investments without regard for whether they make sense for the elder.

There are ways for the children of older adults to protect their parents from these horrible events. The first and easiest way is just to be observant and involved. Stay in contact and be aware of the people who are most involved in a parent’s day to day life. Being perceptive can be the best way to prevent people from insinuating themselves into a parent’s life and causing damage. If a parent is facing the choice of a nursing home, make sure to check that facility’s background and be observant of the conditions in the care home. A bad smell, noticeable spills, dirty linens and non-responsive staff members are a good indicator that this is not the place for anyone’s parent.

Also, consider discussing Powers of Attorney with your parent. Powers of attorney are contracts between the person granting the power (“principal”) and the person they are designating to act on their behalf (“agent”) and cover two areas: asset management and health care. The Power of Attorney for asset management will allow a child to help manage a parent’s finances and day to day care as if the child stands in the parent’s shoes. This document not only eases the burden of paperwork and bills on an aging parent, it also provides a child access to financial statements. Thieves are less likely to try and steal when they know someone is watching them.

The Power of Attorney for health care, or Advanced Health Care Directive, memorializes a parent’s wishes concerning health care and end of life choices and allows a child to be able to help care for his or her parent. Both documents provide protection and convenience for the care of an elderly or aging parent.

Finally, another potential protection against predators will often be the use of trust documents. Anyone with real estate and bank accounts should be utilizing a trust document in order to protect his or her assets from a number of potential problems, not just the probate process. With an elderly parent, a trust document can shield those assets from an unscrupulous care giver or family member who would try to have title on those assets transferred. A trust document appoints a trustee who oversees all actions taken involving the assets placed in the trust and can ensure that no fraudulent or pressured transfers occur without notice. A trust document will also smooth the way for either a surviving spouse or adult children when that aging parent passes; the trust may avoid court interference and leaves step by step instructions for wrapping up the parent’s estate.

Stay alert and stay aware of what is going on in your parent’s life. Our parents spend years caring for us and protecting us, it’s time that we do the same for them.

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Sometimes the calls come from  a panicked parent begging for a  way to coax a caregiver into giving a  child treatment without the necessary  documents to proceed with the  student’s care. Fortunately, these calls  are avoidable with minimum planning  before disaster strikes.

Besides vitamins and a first aid  kit, young scholars over the age of  18 should also have a simple packet  of papers for their healthcare before  they leave for school. This applies  to graduate students and professional  schools as much as it applies to  college.

Healthcare Directives, HIPAA forms  and CMIA forms allow parents to  make decisions for their kids over the  age of 18 (21 in some states) if the  kids are not able to communicate with the treating physician. While there are means for doctors to proceed without  executed forms, the process and the  time required are often a dangerous  waste of time when a child is waiting  for treatment. When a family member  is ill or injured, having a Health Care Directive and a HIPAA form on  hand can create a faster path to a  diagnosis and treatment.

Relatives or friends who live near  the college are good candidates  to have the forms executed in their  names until mom and dad can get  to campus; of course parents of  children going out of state should  ask their family counsel to check  whether that state has requirements  for healthcare documents which differ  from California.

Finally, it’s a good idea to  coordinate your family health forms  with the university’s infirmary forms, especially those which cover your  child’s special health concerns. The  best healthcare forms are always  the ones which the medical center  receives in advance.

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What questions should a parent address concerning paperwork that will accompany a child on a trip with a group or a non parent? The following represent some good starting points for grandparents or aunts and uncles taking a grandchild for the week, the group leader of any outing, or even for the parents of any traveling child:

1. What States Will the Trip Be Traveling Through?
   Requirements for paperwork can vary from state to state, and any permission slips, medical consent forms, or any other instruments should meet the requirements of every state your child will be traveling in. Parents need to get directly involved in reviewing the forms which family members, coaches, teachers, or expedition leaders plan to use before giving up control of their children. This is true for weekend trips to grandma’s for one child at age four, as well as for class trips to Washington, D.C. with a hundred children at age fourteen.
2. Will the Trip Involve Any Travel Outside the United States?
   Even the traveling child’s parent needs special documentation for their own child if both parents are not traveling with the child. Grandparents, aunts, uncles, or family friends cannot expect to be allowed to get on airplanes, buses or trains which will be passing over international borders without proper documentation for the child signed by both of the parents (not just one) and, in most cases, notarized. The U.S. State Department website lists each country’s standards and requirements, which will certainly include a passport, and in some cases, visas and immunization records that may take several months to complete. For even more information, parents can contact each nation’s foreign consulate or U.S. Embassy.
3. What About Medical Care for My Child?
   Medical permission slips are essential for any minor of any age who is traveling with a non parent. In addition, when a child has a special medical condition his or her medical forms should specify what specific level of treatment will be within the powers of the accompanying adult. Furthermore, access to medical information is a larger issue since the passing of the Health Insurance Portability and Accountability Act of 1996 (HIPAA); parents should make certain that adults who have custody of their children for a trip have satisfied all requirements from the doctors who may be providing care during the trip. In other words, just having a permission slip to seek medical care is not enough– custodians need to carry medical information releases for each child attending an outing.
4. How Many Adults Are on the Trip?
   A permission slip which specifies grandparents or aunts and uncles individually will usually be adequate for most uses. Slips should be individually written for each child, rather than attempting to use a family group form for more than one child at a time.

Many of the permission slips used by adults on group trips for the children taking the trip make a general statement about the group’s leaders having clearance to make choices for the child. The problem with this approach is that a careful medical care giver, camp director, or customs officer may ask for proof that all of the adult members of the group are present. It is far more prudent to obtain the names of all adults on a given trip with any group, and to list those adults’ names individually on the form to substantiate their authority under the form.

The overriding principle for any parent whose child is under the care of another adult is to assure that no medical care giver or other provider of essential services has any concern about honoring the permission forms offered by the adult who is caring for the child away from its parents.

This is important enough that a parent should be prepared to provide forms which have been approved by an attorney for the supervising adult. If a parent’s attorney has reviewed a form and found it inadequate for the trip in question, that parent should consider providing a second form to the leader which does satisfy counsel’s concerns.

Finally, I have advised more than one parent over the years to go on the trip with the child who has a medical condition that the adults supervising the trip are not familiar with. I always accompanied my own children with medical conditions when they traveled or attended summer camp, simply because an adult who is not familiar with the symptoms of asthma, diabetes or other conditions cannot be expected to react appropriately to symptoms of those conditions. But even though I was on the excursion, I still provided the other leaders with documents for my children, as well as consent forms and a HIPAA form for myself.

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Teachers and firefighters are not the only public employees to fall beneath the steamroller of nationwide budget cuts: March’s issue of the ABA Journal outlines a litany of problems in cashstrapped courts of twenty-nine states that range from suspending civil jury trials in New Hampshire to judges soliciting free office supplies for their courts in Georgia. The article, titled “Beggaring Justice,” quotes witnesses at a hearing in California who state that budget crunches in courts have led to a reduction in civil rights for poor people in criminal cases and increases of unresolved disputes between businesses in civil litigation.

Are probate courts as troubled by financial woes as the rest of the court system?

Pity the Poor: the article points out that poverty’s people are more frequently going to jail as a result of the condition of “cash-hungry courts.” But what do business owners and wealthy people seeking divorces do to navigate around the problems of underfinanced courts? They hire “Private Judges” to hear their cases, according to Trial, a trade journal which presents studies on law and judicial systems. Anyone who Googles the topic “private judges” will find resumes for retired judicial officers peddling their services for all manner of business and divorce cases, but nothing for families whose loved ones have died: probate cases are confined to the courts. Any family who has a death of a family member who either died with a will or who died without any planning at all will be confined to the Probate Court. Are probate courts as troubled by financial woes as the rest of the court system? Orange County is fortunate to have an excellent force of judiciary officers—our probate judges, commissioners, and court associates are hard working and dedicated servants of our legal system. Our probate courts are especially well managed under our current presiding probate judge, who is recognized as both knowledgeable and efficient in her supervision and administration of the probate functions of the county.

However, the current financial woes of our state are out of her control. The website OCPROBATECOURT.COM advises readers that recent cutbacks have caused long waiting times just trying to open probate cases. The probate process itself can take years to complete, isolating family members from assets their parents intended them to receive as their legacy from Mom and Dad.

What is the cure for the problems these budget cuts cause for consumers planning their families’ estates? The family trust is the only course for families wanting to avoid the probate process. The trust avoids the need to go to court, immunizes the family estate from the probate process, and cures the court cuts before they occur.

How does the family trust avoid probate? A family trust allows parents to name a trustee to manage the passing of their assets to their children or other recipients. The family simply transfers title to their assets into a trust, which is owned, by the named trustee or trustees. During the lifetime of the parents, they may serve as their own trustee and retain complete control over their assets. Upon their death, the named successor trustee then distributes the assets to the intended recipients. This means that the assets in the trust do not have to be processed in probate because they pass to family members under the terms of the trust. By choosing a trusted family friend, member, or professional, the family member can pass by court proceedings completely. This means cutting the cost of passing the assets, reducing the time it takes to get the assets to the children, and keeping the process private rather than exposing the assets to public scrutiny in probate.

Brad Pitt and Jennifer Aniston had a private judge for their divorce, the late Michael Jackson hired a private judge for a child custody battle, and corporations hire expensive private judges every day to expedite their legal disputes. The rest of us can avoid overburdened courts and expensive private judges for our estates when family members die by placing our assets into a living trust—the only cure for court cuts in probate cases.

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Too bad that one good idea carries so many bad consequences in the same case. Consider the downside of this survivorship concept:

• Joint Tenancy causes married couples to likely lose favorable stepped up basis tax treatment at the first death. This often means higher taxes to pay for the surviving spouse later on when it’s time to sell the house.
• Couples who own their property in joint tenancy forfeit the control that a trust provides when one or the other spouse becomes incapacitated. In other words, it is harder to manage the property when either of the spouses gets sick.
• When one spouse dies and the other spouse receives the house by right of survivorship due to the joint tenancy, the wishes of the deceased spouse have no control over how that property is managed after their death. The survivor can then favor one child over other children, or one set of beneficiaries over the ones their deceased spouse may have wanted.
• If the surviving spouse remarries and causes the house to be held in joint tenancy, children of the first marriage may be unintentionally disinherited when the new spouse outlives the surviving spouse and takes the home by survivorship.
• When surviving spouses receive the home by survivorship right, they sometimes name a family member as joint tenant on a property. They do this to make it easy for the grandchild or the child or niece or nephew to receive the property after the grandparent dies. Sadly, they are exposing their property to any claims against their children or grandchildren. This has caused many elderly people to lose their homes when creditors foreclose on their property for debts which were never theirs.
• One client recently had a father who named his roommate as a joint tenant so that if the father died, the roommate would have a place to live. Unfortunately, the roommate died first, but not before having moved into a long term care facility. Because her stay at the facility involved Medical payments, the state filed a claim against the client’s dad based on the roommate’s joint tenancy interest in the property. California has a specific statute allowing this to happen: joint tenancy is truly a trap for the unprepared!

No other term hits the homeowners’ headlines with such regularity. Go ahead and take a moment to check your own deed. Look at it now. Odds are that it says “joint tenants” on it, and probably “rights of survival” too. Now ask yourself a question: did you tell anyone to put that phrase on the deed?

Most likely you didn’t. Putting that term on the deed is just a bad habit that paper handlers in real estate and lending transactions have gotten into over the years. Joint tenancy terminology has been like smoking: for years it was just an irritating habit, but the more we learned about it, the more insistent we became that people stop using it. Unfortunately, today the term “joint tenants” still prevails in many real property transactions.

There is no good reason for using “joint tenant” on your deeds, and there is in fact a much easier method to accomplish the survivorship goal that people are after. That easier method is by owning the property in a trust, which gives the property owners a much easier method for accomplishing the same ease of survivorship, along with a number of other desirable results:

• The use of a trust between married people does not forfeit the tax benefits of a stepped up basis the way a survivorship aspect of a joint tenancy does. The extra taxes from survivorships do not haunt the couples who put their real property in a trust instead of in joint tenancy.
• Husbands and wives who own their homes in trust have an easier time managing the property when either of the spouses gets sick, or otherwise incapacitated, because they do not need to seek a conservatorship in order to manage the family home without their spouse’s input.
• With a trust, the death of one spouse need not allow the surviving spouse the ability to change how that property is distributed when the second spouse dies. Husbands and wives can easily arrange in advance to keep their equal distribution in place following their deaths.
• Homes owned in trust can avoid unintentional disinheritances by providing for their assets to be tied to the trust distribution which will completely avoid any interference by a surviving spouse’s new partner. The surviving spouse would not have the power to make the new husband or wife a joint tenant, because the ownership of the house would be determined in advance by the trust instrument.
• When property owners hold their homes in trust, there is no need to name a family member as a joint tenant: the house will pass outside of probate under the terms of the trust.
• The desire to name a friend or family member as a joint tenant to assure that person a place to live disappears when a trust owns the home. This is because the trust can easily include instructions for the trustee to allow that person the right to live in the property for their lifetime, after which the home would then go to the children of the original spouses, clearly what everyone originally intended.

Most people have no idea of the negative consequences of joint tenancy ownership of their homes. Furthermore, most of them never selected the joint tenancy option: a clerk in a loan processing office put the term on their deed without asking how they wanted the property titled. The wisest approach to how one’s home should be owned is not by casting the issue to the discretion of people in the back room of the mortgage company; the wisest approach is to share your information with an attorney who can provide you with the information you need to make the best choices possible for your family and your future.

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