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One of the primary reasons that people create a family trust is to avoid probate. Why is it that they don’t always work out as planned and actually end up in the probate court?
Reason one: The family tried to save money by doing it themselves and not hiring an experienced attorney. Trust documents must include certain elements and the trust can be legally unenforceable if the required language is not included. Failure to name a successor trustee (one who will manage the trust when the original trustee is unwilling or unable to act) may require court involvement to appoint such a successor trustee.
Reason two: The named trustee fails to carry out the duties imposed upon him/her by the terms of the trust. The trust may require that certain income or principal of the trust be paid to an individual (beneficiary) but the trustee lacks the know-how to perform that task. If the trust failed to name a successor trustee then, again, a petition may need to be filed with the court to appoint another trustee who is qualified to act.
Reason three: The trustee commits fiduciary abuse by misappropriating trust assets. Unfortunately, this occurs much too often. A trustee has one primary duty: to do exactly what the trust tells him/her to do. Unless the trust grants specific authority, a trustee has no legal right to use trust assets for personal use.
But an unscrupulous trustee can take advantage of the family trust by, for example, withdrawing and pocketing money from a trust owned bank account. Such a dishonest trustee can mortgage a trust-owned house and pocket the loan money. When such wrongful acts are discovered, the matter may need to go to court to remove the thief, seek reimbursement, and appoint a new trustee.
Reason four: Undue influence over a mentally incapacitated trustor. The trustor is the person(s) who contributed property to the trust and decides who will receive the trust assets when the trustor passes away. As the years go by and the trustor grows older, their mental capacity may diminish to the point where they are susceptible to undue influence.
An unscrupulous caregiver or friend may intentionally manipulate the elderly trustor into amending the trust to add the caregiver/friend as a beneficiary and disinherit the trustor’s originally named beneficiaries. If this occurs, then the matter must be submitted to the court to invalidate the improper changes that were made to the trust.
Reason five: The trust was never funded. In order for a trust to be valid, it must own something. Many do-it-yourselfers neglect to identify the assets that are to be owned by their trust. Upon the trustor’s death, the beneficiaries may learn that title to the home was never transferred into the trust.
In Riverside County, California, for example, failure to create a trust transfer deed to a home may not be fatal to the validity of a trust. If such a deed was never prepared and recorded, but the trust document itself listed the home as a trust asset, then a probate court petition can be filed to have the court acknowledge the home as a trust asset and therefore avoid a full-blown probate case. Under this scenario, a probate court petition must still be filed, but the trust remains valid and the costly and time-consuming probate process is avoided.
These are just some of the top reasons why trusts do not always keep you out of probate court. However, a properly prepared and executed trust document is still the best way to avoid probate.
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