Last month, I discussed why probate is bad and how to avoid it in California. And just in time for Halloween, even though terms like probate and trusts can be scary, we will face our fears and discuss what happens when estate planning goes wrong. Let’s talk about how your estate can end up in probate even if you set up a trust and/or made beneficiary designations on your major assets.
- Your beneficiaries died. While designating beneficiaries on your accounts is a fairly simple way to make sure the assets go where you want, it only works if your beneficiary is still alive at your passing. If the beneficiary dies before you, and you haven’t made alternate arrangements, the assets usually go back to the estate. If the assets are worth enough, it can trigger a probate.
- The documentation gets lost. My father likes to say “If it’s not in writing, it never happened.” In order for your assets to go to the people you want, there has to be written evidence of your intent, usually in the form of a trust or the beneficiary designation form you filled out for the financial institution. If these documents are lost, then the distributions you outlined can’t be made. Financial institutions and lawyer’s offices are supposed to keep copies of these documents. Still, anything run by humans is prone to error, and you can’t count on them to hang on to these documents for several decades. This is why I always advise my clients to keep copies of all important documents in a safe place and ensure that someone knows where to find them if needed.
- The asset was never placed in trust. The trust is only in charge of the assets held in the trust. That means that if an asset is not moved into the trust, the trust does not control it. Ideally, all assets should be moved into the trust during your lifetime, but in reality, there may be good reasons to keep some things out. If the assets left outside the trust are worth enough, it can trigger a probate.
Before you freak out, in California, the courts will allow assets to be moved into the trust after death, but only if you can provide evidence that the asset was supposed to be a trust asset. This is usually accomplished through a Schedule of Assets or Assignment to Trust, outlining the assets that belong to the trust. I keep these as broadly worded as possible to include as much as I possibly can. Others like to specify specific assets, but I’ve had cases where probate was required because the list was too specific and the asset in question couldn’t be included.
All these scary problems can be avoided by regularly reviewing your estate plan to ensure your beneficiaries are up to date, you have all the necessary documentation, and all your high-value assets are covered. If you would like to review your estate plan, you’re welcome to contact me at kaway@kawaylaw.com.
