When an Incarcerated Person Inherits Assets in California

What issues arise when an incarcerated person inherits assets in California? A prisoner may inherit as a decedent’s heir (i.e., no estate planning) or as a beneficiary to the decedent’s estate planning (will, trust, or death beneficiary).

Major issues include (1) how will the prisoner’s legal interests be represented; (2) is the inheritance subject to victims’ restitution claims, and (3) how are the inherited assets managed while the prisoner is still incarcerated.

An incarcerated person can still inherit assets. While in prison it is difficult to hire a trusts and estates attorney. A possibility is for the prisoner to appoint a trusted relative or friend as agent under a power of attorney to represent the prisoner in all matters that affect, as relevant, the decedent’s trust or probate estate, from which the prisoner is now, may become, or claims entitlement, as either a beneficiary or an heir.

The incarcerated person’s inheritance may become subject to restitution claims by his or her victims for economic damages. In a probate matter, the personal representative or the estate attorney is required by Section 9202 of the Probate Code to provide specific notice to the Director of the California Victim Compensation Board (“CalVCB”) if either one “knows” that an heir or a beneficiary of the estate is, or has ever been, confined in a prison, jail or other similar situation(s). CalVCB helps victims by pursuing restitution claims from the criminals that caused them economic losses (broadly).

If the decedent’s estate is not probated, however, then section 9202 does not apply but section 216 of the Probate Code still applies. Section 216 more broadly requires, “the estate attorney, or if there is no estate attorney, the beneficiary, the personal representative, or the person in possession of property of the decedent [to give notice to CalVCB if any of them “knows” that an heir or beneficiary has previously been confined].”

Both sections 9202 and 216 of the Probate Code apply only when the relevant person(s) “knows” that an heir or beneficiary of a decedent’s estate either is or was previously confined in a prison, jail or similar situation. Neither require anyone any investigation.

Any assets received, less any restitution, must still be managed. One possibility is for the incarcerated person acting through a legal representative – such as, an attorney or through an agent under a power of attorney — to establish and fund a trust, or at least have the agent as representative manage assets. A trust would say who benefits, and how and when assets are distributed. If the incarcerated person expects release, the trustee could preserve assets for the future.

The foregoing issues can either be eliminated or at least improved if the decedent while still alive had either removed the incarcerated person as a beneficiary by doing estate planning — and so completely avoid all these issues — or at least had provided that the inheritance is held in a so-called “discretionary spendthrift trust” [i.e., asset protection trust against general creditor claims]. The trustee then has absolute discretion over asset management and whether and how to make any distributions either directly to or for the benefit of the incarcerated person and his or her family.

However, in California, even a discretionary spendthrift trust does not wholly eliminate the enforcement of restitution orders against trust distributions as and when they are made. Section 15305.5 of the Probate Code provides that, “ … the court may, to the extent that the court determines it is equitable and reasonable under the circumstances of the particular case, order the trustee to satisfy all or part of the restitution judgment out of all or part of future payments … .” This means a facts and circumstances analysis to determine what is fair and reasonable. Thus, some or all restitution is likely to be paid from trust assets.

The foregoing is not legal advice.  Consult a qualified estate planning attorney for guidance. 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.