(Scroll down for more information.)
Why Collaborative Trusts & Estates?
Divorcing and remarried couples have unique concerns that need to be addressed thoughtfully and deliberately by their Trusts & Estates (T & E) Attorneys. While Collaborative T & E Attorneys guide your estate planning (helping you to create a will and establish a trust), they are also trained to be aware of broader financial issues and relationship challenges that may be critical to avoiding legal battles between heirs when you’re gone.
A Collaboratively Trained T & E Attorney is uniquely able to assess when additional non-legal help is needed, and has a reservoir of collaboratively-trained professionals to ensure outcomes suit your needs. Additional professionals are normally less expensive than attorneys and are only included if needed. When challenging financial and relationship issues are at least assessed and considered, your estate plan is more likely to stand, and avoid being challenged after you're gone.
Unlike most trusts and estates attorneys, our Collaborative Trusts & Estates Attorneys are trained to work hand-in-hand with collaboratively-trained financial specialists and licensed mental health professionals to avoid the long-term adverse impacts of unaddressed financial and family/beneficiary relationships.
For example, a financial specialist may gather and analyze information about: the costs of levels of care needed, related comparative costs, whether and how a beneficiary who cares for parents may be compensated, and some of the tax consequences of various distributions to individual beneficiaries.
When sensitive family dynamics are at play, a neutral, licensed mental health professional (MHP) may, for example: interview beneficiaries individually, hear their concerns and work to ensure all viewpoints are at least understood and considered. The neutral mental health professional is equipped to facilitate informative conversations that enhance understanding and decrease the likelihood of future legal disputes between beneficiaries. At the same time, the MHP makes clear that trust-makers (usually parents) are the final decision makers – not the beneficiaries.
Sensitive family/beneficiary dynamics do not evaporate when you’re gone! A licensed mental health professional facilitates trust-makers having difficult yet necessary conversations with beneficiaries regarding their intentions and desires. Beneficiaries are given a voice, not a choice about trust-makers’ decisions. With greater understanding, beneficiaries are less likely to be hurt or to legally dispute your T & E decisions after you’ve passed. Without help, trust-makers may often avoid challenging topics or avoid gathering clear financial data before making their decisions. With professional help in cases when it’s needed, trust-makers are better equipped to create a legacy of love, respect, cohesion and financial clarity.
Unless challenging issues are carefully considered and addressed in respectful, effective ways, tensions between beneficiaries are likely to persist long after you're gone. Issues needn't be “resolved” or “agreed to” while you establish your estate plan. To avoid later court battles between beneficiaries, their concerns may need to be acknowledged and considered by the trust-makers, who make all final decisions.
When misunderstandings, old resentments and unclear financial data are left unaddressed in the planning phase of your trust and estate, adversarial court battles between your heirs are far more likely later. You are far better equipped to avoid your trust being drained by adversarial legal costs after you’re gone, when beneficiaries’ concerns are understood, and your intentions and thinking are made clear.
Wills & Probate: Why You Need A Trust
Trusts are not only for the wealthy. A trust is needed to spare your beneficiaries from the extensive taxes and legal fees involved when your property goes into probate (definition below) because you do not have a trust. For example, a home may need to be sold to just pay for the probate taxes and fees – something that can be avoided with a trust.
To die without a will is called dying “intestate,” and the distribution of your estate (all your property) is determined in Probate Court by California law (for example, it may go to your spouse). “Probate” is a court-supervised process for distributing your property that creates significant legal and administrative costs. Court delays can hold up when your property can be sold or distributed, a serious burden when beneficiaries must continue to pay fees, taxes and legal costs related to your estate, before they can access your estate to cover those costs. Probate can also create noteworthy financial, tax and other burdens you never intended for your heirs. When left to probate for distribution, too often much of your estate must be sold to cover these costs. So instead of your beneficiaries being able to rent your home for income, for example, it may need to be sold and a significant portion of the value will go to paying costs related to probate.
“Probate” means fees and delays that no one wants. The public policy reason is that a probate judge is intended to be a good watchdog to ensure the estate (your property) is distributed according to the deceased's wishes with no foul play, and according to California law. So there’s a good reason for probate. But the costs can significantly deplete the amount of the estate that goes to heirs and also typically makes them wait a long time for distributions.
A Will, by itself, is not sufficient to avoid your estate falling into probate to be administered by the Probate Court. If you have a Will, but you have no trust and the value of your total estate is over a given limit, your estate must still go through probate, requiring a judge to rule on the distribution of your property. If beneficiaries then have any dispute with the judge’s rulings, they must be prepared financially to legally take on the state’s attorneys.
In contrast, when you establish a short Will alongside a trust, for example, that Will can be designed to “pour over” all your estate assets, into your trust.
“Irrevocable trusts” cannot be changed during your lifetime. Many of us may need a “revocable trust,” that goes with a short, “pour-over Will,” in order to avoid the costs, taxes and hassle of probate.
As the trust-maker, a “revocable living trust” can be changed by you at any time in your lifetime. This kind of trust is an entity that is legally the same as you, and uses your social security number. Because it is not a separate legal entity, the contents of your trust do not go through probate when you pass. Instead, the trust lives on as an extension of you. The person you designate as “Trustee” distributes your trust to your beneficiaries, who are spared the stress and significant costs of probate. As of this writing, a California resident with a revocable living trust can die with up to $12 million + a fraction of the total estate value, without beneficiaries paying estate tax, and, for a married couple, it's $25 million + a fraction, until 2025.
Important Note: An effective estate plan with a trust prevents your beneficiaries from depleting your estate with the unintended court and legal costs, taxes and delays incurred in Probate Court. A Will alone is not enough!
Certain types of accounts and property can go directly to named beneficiaries, without being under the jurisdiction of Probate Court. If you have listed “pay-on-death beneficiaries” for accounts like brokerage accounts, including retirement accounts or life insurance, these typically go directly to the people named as beneficiaries on those accounts. They are called “non-probate accounts” because, by naming a beneficiary on the account, the Probate Judge doesn't need to figure out who can legally receive these if your die without a trust, and the estate goes through probate.
Steps to Take Now:
- Make an appointment with a collaboratively-trained estate planning attorney. Collaborative training does not increase your attorney's fees — it just ensures your attorney is equipped to offer options that may be needed, that another attorney may not fully consider or offer. It's possible that your divorce attorney may be trained to handle your trust and estate matters as well. If you need a new, capable estate planning attorney, we gladly offer referrals. Couples often prefer to continue to work with the same estate planning attorney they had prior to divorce. However, the attorney who previously prepared a joint plan, could face a conflict of interest by helping both or just one of you with a new estate plan. They may be able to provide a “Bridge Plan” to hold you both over until your divorce is finalized. Your T & E Attorney will be able to tell you if they can represent either, both or neither of you.
- Gather your estate planning documents. Ask your T & E Attorney for the list of documents needed. To assess the impact on you and loved ones during and after divorce, locate your important estate-related documents before meeting with your T & E Attorney. If you have no estate plan in place, you still need to create a trust and plan that's ready to immediately “hold” and protect your assets as soon as the divorce is finalized. A trust can protect your beneficiaries from the significant costs and taxes of probate.
- Check your beneficiary designations. Make a list of your current accounts, the institutions and their numbers, including bank, brokerage, IRA, and other accounts. Note who is named as a “pay-on-death beneficiary” for each account. Share this with your T & E Attorney. Do not make any changes that may violate your divorce ATROs (“Automatic Temporary Restraining Orders” – please see definition on “Divorce and Trusts & Estates”. Note any accounts without named beneficiaries and be sure to discuss this with both your Divorce and T & E Attorneys! Be careful regarding the timing of who gets what when. For example, a grandchild in college could lose their financial aid benefits if that grandchild gets their inheritance prior to graduating from college or graduate school. Your T & E Attorney can advise you.
- Identify your Trusted People. When considering a new or Bridge Estate Plan (a trust that holds you over until your divorce is finalized), you may name your former (or soon-to-be former) spouse as one of your trusted people or you may wish to name someone else. Avoid making your selected person a target of legal disputes by carefully considering your beneficiaries' roles and relationships to that person, and to each other, e.g. Is the person already a target for jealousy and resentment? Is there reason to imagine that two beneficiaries might gang up on this person? Make a list of the people in your life on whom you can depend to follow your wishes and to skillfully abide by the details of the law in the event of your death. Make sure you first ask your trusted people if they are willing to assume these important responsibilities before presenting their names to your T & E Attorney.
- Select trusted people:
- Whose decisions are likely to be respected by all beneficiaries?
- Who is likely to be skilled at helping beneficiaries avoid unnecessary legal disputes that will drain the assets you are passing on to heirs?
- Who is not likely to be resented, challenged and targeted given existing relationship challenges with siblings, children and/or other beneficiaries who could get lawyers involved to sue that person? And,
- Who is a level-headed, diplomatic, effective listener, skilled at considering and valuing multiple, different points of view?