A Trust and a Standalone Will – Generally speaking most people are best served by having a will, regardless of whether or not they also have a living trust.  It is the will, not the trust, which speaks to assets held in a decedent’s name, excluding any so-called non probate assets such as those held in joint tenancy (where there is a surviving joint tenant) and any so-called Pay on Death or Transfer on Death accounts which pass to a surviving death beneficiary.    

          Typically though not all assets of a person are held the living trust.  Often one or more checking accounts, vehicles are outside of the trust in the person’s name.  Sometimes amounts due the decedent, such as undistributed inheritances, are pending when the decedent died, and also subject to the decedent’s will. 

          That is why a so-called pour over will typically accompanies the living trust.  The pour over will leaves assets to the decedent’s living trust.  The non-trust assets once transferred into the trust become integrated into the trust’s distribution scheme and also enjoy any asset protections afforded by the trust.

          However, there are times where a standalone will may accompany a trust.

          If the decedent has a small estate (under present California law a small estate is an estate with assets which total under $150,000 in gross value) outside the living trust then the small estate is not subject to probate.  Transferring major assets into the trust that will inevitably become answerable for the decedent’s debts (such as real estate subject to liens) can sometimes result in a small estate outside the trust.  Then a standalone will may favor a person’s beneficiaries over the decedent’s creditors. 

          Assets inside a small estate are not subject to any formal administration, such as either postmortem trust administration or probate.  The successor trustee of a deceased settlor’s trust, or the personal representative of a deceased settlor’s court supervised probate estate, must notify all of the decedent’s reasonably ascertainable creditors and pay all valid debts. 

          With small estates assets are typically claimed without any probate by the beneficiaries using a small estate procedure.  The small estate beneficiaries inherit without assuming any legal duty to solicit creditor claims from the decedent’s creditors.  This has been described by some as “take the money and run” informal estate administration.  The foregoing is not to say that the beneficiaries will not themselves decide to pay the decedent’s debts, they may well do so as they feel doing so is justified or for the best.

          That said, not having a duty to solicit does not mean these beneficiaries who receive assets necessarily escape potential liability to the decedent’s creditors.  Rather the creditors of the decedent’s estate, and/or living trust, must themselves either open a timely probate or proceed directly against the individual beneficiaries who received assets.  In that case, the beneficiaries may then be held liable to pay for the decedent’s debts, up to the value of what the assets received or the sale proceeds of such assets.  Nevertheless, tracking down all beneficiaries, discovering what each received, and prosecuting recovery claims can be too onerous and not worthwhile to the creditors. 

          In addition, any other non-probate assets, besides the living trust assets, such as life insurance, joint tenancy assets, and pay on death accounts (including retirement accounts) also pass directly to the surviving beneficiaries outside of the decedent’s trust or probate administration, as relevant; except in unusual cases when the trust or the decedent’s estate receives these assets, such as when there is no surviving beneficiary or when the estate or trust is the named death beneficiary.  Depending on the type of non probate asset involved, like life insurance, these nonprobate assets may sometimes themselves not be answerable for the decedent’s debts.

          Clearly, when a person has serious debts the foregoing considerations are relevant to the estate planning.   

“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”