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You’re Doing it Wrong: Failing to File Creditor’s Claim in your Bay Area Trust or Will Lawsuit

So you want to bring a lawsuit because a Trust was not administered properly by the surviving spouse? You better be prepared for a big surprise—your lawsuit may be sunk before it even starts if you do not understand how to properly preserve your rights in Court.

The biggest problem with Will and Trust lawsuits is that the procedure is overly complicated. One wrong move and your case can be in jeopardy. This is especially true where you are taking issue with how a Trust was administered by a surviving spouse.

Typically married couples create a joint trust that requires that half of the couples’ assets be set aside in a Bypass Trust (sometimes called an exclusion trust or family trust) after the first spouse dies. This Bypass Trust will usually be used to help support the surviving spouse and then pass on to the children. The surviving spouse typically does not have the power to change the ultimate distribution provisions for the Bypass Trust. This can be important in blended families to ensure that each spoues’ children receive a fair share of the estate even after the death of one spouse.

The problem is that not every surviving spouse understands the requirement to separate the assets and preserve half of the estate for the children. So instead they group all the assets together, take them out of the joint trust and create a new trust with all of the assets—leaving the property to his or her own children and excluding the deceased spouse’s children.

This type of lawsuit is essentially a breach of trust claim against the surviving spouse. The problem is that most children do not find out about the breach until after the surviving spouse dies. Once they discover the issue, their natural inclination is to file a lawsuit against the new Trust to get the assets back. But this is A BIG MISTAKE.

The proper approach is to file a claim against the person’s estate because you are seeking to hold that person personally liable for his breach of the original trust. That means you have to file a form called a “creditor’s claim” in the probate estate. And that claim MUST be filed within a year of the surviving spouse’s death or else you are forever barred from seeking a return of the assets.

What if there is no probate estate opened for the surviving spouse? Then open it yourself. As a creditor you have the right to open a probate for a decedent and then file your claim in the probate estate. Once the claim is filed, you then have preserved the statute of limitations and can take action to correct the wrongs of the surviving spouse.