Estate planning often involves various asset types, such as, real property, tangible personal property, bank accounts, retirement accounts, and life insurance. How each asset type is managed during incapacity and transferred at death to beneficiaries also varies.
Real property, tangible personal property, and bank accounts can be transferred to a trust for lifetime management (in the event of incapacity) and distribution at death outside probate. California law, under certain circumstances, permits assets omitted from a living trust to be transferred into the trust upon court petition.
Using a so-called, “Heggstad petition” assets titled in a decedent’s name may be retitled to the decedent’s trust. This requires evidence that the settlor (who created the trust) had intended to transfer the omitted assets to the trust. Evidence can be in the form of a pour over will (leaving all assets in the decedent’s individual name to the trust), an assignment of assets to the trust, and the decedent’s declaration to hold assets in trust.
Next, a will speaks only at death and says who inherits the decedent’s probate assets. In California, probate is required when a deceased resident has an estate whose probate assets have a combined gross value over $166,250 (2020). Thus, people use a living trust to hold title to their real and tangible personal property.
The will, however, does not speak to “non-probate” assets, such as assets in a trust, joint tenancy assets (e.g., financial accounts and real property) that pass to the surviving joint tenant(s), and assets with designated death beneficiaries (e.g., bank accounts, brokerage accounts, retirement accounts and life insurance) that pass to the surviving beneficiaries.
Whether such assets should pass to the surviving joint tenant or designated death beneficiary, however, can be challenged. That is, if there is clear and convincing evidence showing a contrary intention by the decedent. Such evidence needs to be specific and credible. A will itself can provide clear and convincing evidence that the decedent’s prior designation of a death beneficiary was no longer the person whom the decedent intended to inherit the account.
The fact that a decedent’s estate planning documents (e.g., wills and trusts) can be used to overturn designated death beneficiary forms raises concern. A person may intentionally leave certain financial accounts and real properties outside his living trust or will to different beneficiaries. Estate planning documents may speak in general terms when discussing the allocation of assets whereas designated death beneficiary forms are very specific.
For example, a wife may name her second husband as death beneficiary on her Transfer on Death (“TOD”) brokerage account but leave other assets in her living trust to her children. The wife’s living trust may be accompanied by a general assignment assigning all her financial accounts (including brokerages) to her living trust. That assignment, if executed after she named the husband as the TOD death beneficiary, might be offered by the children as arguable proof that she intended the TOD brokerage account to pass to her children under the trust.
Next, another way that complications may arise is with powers of attorney and joint tenancy bank accounts or when a principal either has more than one power of attorney, has more than one agent under the same power of attorney, or has an agent who is not the same as the joint tenant on a bank account. Problems may arise if the agents and/or joint tenant(s), as relevant, do not act together in agreement to control the same assets or affairs.
The foregoing general discussion shows the importance of having a knowledgeable estate planning attorney who understands and can address such issues so that they do not later create problems.
Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.