Course 8 — Lesson 3 The Talk for California Failed Trust Terms

[Music] Now let's listen to Stuart and Keith discuss the options and their recommended approach to this difficult problem Keith I think these cases are interesting because the spouses when they go to create a trust I don't think they really understand that when the first spouse dies that you're gonna have to take 50% away from the surviving spouse and lock it away in a locked box keeping it from that spouse and I think that if spouses understood this when they're doing the estate plan you might see some different planning going on but be that as it may in this case Renee's the surviving spouse good luck telling her she doesn't own half of whatever it is she thought she owned while she was living with her husband but there clearly was not a bifurcation made in the sub trusts were not funded the survivors trust and a bypass trust you've opined that the petition for instructions is the best bet now so if I make you the judge of this case how do you rule on that petition for instructions well and I agree with you that these cases are super confusing I don't think most spouses understand what happens when one of them dies if you have this type of trust and you know imagine if their only asset is a house it's their house their own principal house and yeah maybe it's worth a million or two million but now you come along say Oh your husband just died and by the way you only outright owe and half your house now I'd be pretty shocking but I think if I was looking at this as a judge the the guiding light to these cases is what is the trust require you have to follow the trust terms that's the bottom line and in these types of cases the funding and the bypass trust and the survivors trust is mandatory it's a mandatory thing that's how these most of these trusts are set up every now and again you come across one where it's discretionary and that's different but that's not what this case was about so as a judge I think you have to look and see well the trust required this funding half of it had to go into this bypass trust that didn't happen and as I once had a judge tell me many years ago it's never too late to do the right thing and I think that's how most judges are going to come down on these cases they're gonna say well that's why I had to happen so let's make it happen what would happen in a case like this where let's say Renee had taken the assets all of the assets after Phil passed away and let's say she consumes 60 or 70 percent of those assets during her lifetime then how much is Betty and Linda going to get at the end of the day here if the court does is you anticipate the court will do boy that really depends on the type of trust and the trust terms because some of these trusts say that the spouse is entitled to get distributions from the bypass trust the part that's locked away the revocable section some of them say the surviving spouse can only get money out of the bypass if their other assets are first depleted well that's a huge difference because if Renee has to deplete her assets before she gets anything out of the bypass trust and that means all of that spending that you're mentioning 60 percent was spent fifty percent of that had to be the survivors trust before you hit the bypass in that case Betty and Linda are gonna get nothing and Danielle and Jamie are gonna get 40% but if the trust is different if it has more liberal distribution provisions then the arguments going to be well it should have been spent you know 50/50 so you know sixty percent was spent there's 40 percent left 20 percent will go to Betty and Linda 20 percent to Danielle and Jamie the trust terms on these cases are critically important to answering that question it's not gonna be the same in every case it's gonna be vastly different okay and say that you represent Danielle and Jamie and obviously they want to secure the interest in the bypass trust and let's say it's one of those bypass trusts where the surviving spouse can come in and basically take the principal for certain expenditures her housing expenditures it's got a little bit of a not completely liberal distribution on allowance but she's able to tap those resources and use them would you advise Danielle and Jamie to be aggressive and to really come after Renee prior to her death and make her account and give her a hard time or would you tell them to sit back and wait see how things shake out I mean what would be your advice to them it's tough I mean the problem with being aggressive and we can you can certainly do that and we've had cases where we but the problem is you're gonna end up spending a lot of money on attorneys fees and you may or may not get a whole lot of value for that so you can force Rene to account it's an irrevocable trust you can force her to give you information you might even be able to slow down distributions but you're probably not gonna stop them you can be guaranteed that once you start getting aggressive you're if you're not already you're gonna get disinherited from the survivors trust the revocable portion so that's going to be gone so it's you're not necessarily gonna get a lot out of it but there again it depends on the circumstances so if Rene's just spending the money and there's not gonna be anything left and you feel like you need to take action to help preserve something maybe it's worth doing something but it's not the reason why it's not an easy road to go down is because Rene does have rights to the assets and the bypass trust during Rene's lifetime she's not just a nonentity that's not entitled to anything she's entitled to something and that's where problems arise now once Rene's gone hey fine you know in this factual scenario rain Rene was already passed her rice have stopped now we can go back and recreate things and get assets and get assets today money in hand but if Rene is still alive you'll do all this fighting and you may not get any money today because the money even if you recoup it it would go back to the bypass trust where it's held for Rene's benefit so who are you really benefitting by all that action so you really have to think about that it's not gonna be right for every case we have Daniel and Jamie who are want to be aggressive to protect the bypassed in interest that they believe they have and they might want to get aggressive with Rene while she's still living and so there's this this road you come to it's a fork in the road you can go left or right you can become aggressive with Rene you're gonna she's gonna probably tap as many assets that she can on the bypass trust going forward yeah legally if she's allowed to she's gonna probably make sure that Daniel and Jayne get Jaime getting that of her survivors trust or do they just lie and wait and see what happens depending on the facts if Rene is sick if she's older you might want to just relax I can think of one case where we had in the past where you had people in Daniel and Jamie's position and they just stood and just bit their tongue and it was very hard because there was indicators circumstantial evidence that led us to believe that the survivor spouse surviving spouse was using more assets than she was entitled to was taking them out of the bypass trust she dies lo and behold she had not even funded the bypass trust but she also had not taken Danielle and Jamie out of her portion of the survivors trust and so now we were able to go in and we were able to get them a really nice distribution both from the bypass and the survivors trust something that would not have been available if they had attacked Renee during her life so they were in a better position they were in a better percent is actually better to wait because they were gonna get more than they otherwise would have and I found that there's a couple times in the cases that we represent beneficiaries in the east trust and a case mat trust them state matters and this one being a good example where patients can pay off but it's painful it's hard to go through but it's almost better to wait and see I'll tell you where this case is easier is where there's a lot of money this is a 20 million dollar estate chances of Renee being able to spend down both sides of the estate are pretty small and so you usually can recoup any damages from the survivors trust back to the bypass trust at Renee's death so what do you think about the contest so I don't like the idea of trying to contest the trust amendment because I think there's a risk involved in that and I'm assuming and the facts didn't say that let's just assume that the trust has a no contest clause what do you think about just trying to invalidate Renee's amendment so that Danielle and Jamie get a hundred percent of everything no I would I would be cautious about that especially if this is a larger estate because the petition for instructions does the job what it does is it guarantees that they get what they should get under the bypass trust now you're gonna have to go and we're gonna have to read you know go back to an allocation of when Phil passed away after Renee passed away we're gonna figure out what the values were on Phil's date of death and get that funding to happen back in the bypass trust but that's money you've got and I don't what's the saying a bird in the hand is better than two in the bush right and so you've got that you may want to consider bringing a contest if for instance let's say that Danny Jamie are also beneficiaries of Renee's survivors trust and we have Renee suffering from dementia and Alzheimer's and she's been living on hospice for the last three years and two months before her death her trust is amended miraculously by the help of two neighbors or I guess her sisters Betty and Linda here and Betty and Linda get everything I may consider contesting under those circumstances but you've got to have a real careful conversation with Daniel and Jamie to make sure they know what they're risking it may be a small risk based on those facts as I just laid them out but that would be a point in time where I might think about doing it but as the facts that you gave in the hypothetical I would advise a client don't do don't don't contest it's not worth it you could end up losing your entire inheritance let's get everything that's owed to you in the bypass trust and then one last question what if Renee has cleaned out the trust so she took the assets out of the trust there's nothing left in the trust she just put it in their own individual name now if you file a petition for instructions asking the court to put half of the trust assets into the bypass trust what the other side is gonna say is well there's nothing in the trust so half of nothing is nothing what do we care go ahead and do that yes so what do you do so you're gonna have to bootstrap that petition for instructions with what we call an 850 petition and that's just simply under Probate Code Section 850 we lawyers call it an 850 petition and it's where you're saying look somebody some entity some person has assets out there that belong to this trust we're gonna identify those assets and we're gonna ask the court to determine that the titles of those assets should really be back into the trust so that's more of a two-step analysis you've got to first convince a court that these are assets that should be back in the trust hopefully the court agrees with you and transfers the assets to the trust and then the question is how much to be allocated to the bypass trust so that Danielle and Jamie get their rightful inheritance so you can hunt them down it's really what it comes down if they're titled assets it's much easier but yes you can hunt them down and you can hopefully again this all comes back to you carrying the burden of proof to make sure that the court is convinced that you're right so that the assets can be titled back in the name of the trust and what do you think the chances are of getting what you want out of this by writing a letter option number five well and we've always felt this about letters we have a rule at this firm that we write one letter it's we always tell clients it's not going to be successful we always hope it is but it isn't successful but the letter comes in not only from a standpoint of hoping that maybe it will work this one time when it never works but it's also evidence that you did reach out to somebody and try to resolve the problem judges like to see that did you see any grounds for financial elder abuse I didn't see anything I didn't think that that was a factor in this case I don't think it's worth the time or ever right I think Betty and Lind are in good shape you wouldn't want to sue them for financial other abuse they're just gonna say oh look at this we're beneficiaries of what Renee chose to do and we're gonna stand on that it's gonna be our job as lawyers and Danielle and Jamie's job essentially to show that Renee made mistakes here that she wasn't entitled to do the trust terms didn't allow her and the trust terms actually benefit Daniel and Jamie and we need to enforce those trust terms finally for financial elder abuse I don't think would be successful in this case. [Music] [Applause] [Music]