Surly Lawyers - Probate Question

[Dr Fear 1269]

So, Grandma died a few weeks ago and I am doing the probate, I've done them before, but not many.  There are two main assets being a non-homestead family property and an investment account. The investment account is now frozen and they will only deal with an executor, so we have to do a full probate.

My main issue is that there are testamentary trusts in the will for the 4 heirs (4 children ages 63-68) and none of the trigger conditions to terminate the trusts have happened or will happen soon.  There is a provision (below) for the trustee to distribute the principal.  The goal would be get the money directly to the heirs and not leave it in a trust. Everyone is on board with this.  So do I just set up the trusts and immediately liquidate them?  Can I petition the court to ignore the trusts?  Something else?

 

 

[TwiceHorn 31677]

That is pretty much a spendthrift provision, which is generally regarded as preventing the distribution of the entire corpus of the trust to the beneficiary.  Are you the trustee?

One thing that's going to be unfortunate is that settling the trusts is a tax-free event, but distributing them is not.

Not sure it will fly, but having the heirs beneficiaries consent on record to bypassing the trusts entirely would probably be preferable, both from a fiduciary liability and a tax standpoint.

[Dr Fear 1269]

16 minutes ago, TwiceHorn said:

That is pretty much a spendthrift provision, which is generally regarded as preventing the distribution of the entire corpus of the trust to the beneficiary.  Are you the trustee?

One thing that's going to be unfortunate is that settling the trusts is a tax-free event, but distributing them is not.

Not sure it will fly, but having the heirs beneficiaries consent on record to bypassing the trusts entirely would probably be preferable, both from a fiduciary liability and a tax standpoint.

Ehhh, I may be over my skis on this one.  This is in Harris County, anyone have a attorney recommendation?

[zork 629]

There is a pretty large, unless your relative was really rich, threshold to cross before inherited funds/value trigger taxable events IIRC and I am not an accountant nor lawyer.    You can inherit x amount before it becomes taxable.  However, the trust issue might complicate things a bit.

Hmm, maybe not:

 

inherited trust funds and taxes

 

You can discuss the forms required to get the investment disbursed with the company holding the funds/investments.  Because they will want you to have each person recieving funds/investments fill the form out at minimum to determine if any withholding needs to happen and each of them sign it so all know whether withholding happened or not.  So when it comes time for tax returns the amounts and any withholding or not (if the totals don't go over the threshold mentioned above).  

Good records for everyone so they can do their taxes correctly should make it fairly easy.  If you are talking about yuge sums of money/investments that is a different story.

When my mom died a few years ago the amounts didn't rise to the thresholds then,   and they have been raised with the recent tax changes from 2 years ago.  so it was just accounting for the received funds, filling out the paperwork before the transfers could take place, and then making sure you had those totals from the forms so you could fill out your taxes correctly.

 

[TwiceHorn 31677]

It's not a matter of the exemption.  That deals with estate taxes, which are paid by the estate before distributions.

The issue I'm talking about is taxation of the recipient.  Almost all distributions from an estate to an heir or beneficiary are tax free to the heir/beneficiary.

In the case of the will cited above, the beneficiary from the estate is the trust, so that passes tax-free.  Subsequent distributions from the trust are going to be income to the beneficiaries of the trust in most cases.

[Jerry Callo 8828]

What will?  I didn't see any will.

[TwiceHorn 31677]

2 minutes ago, Jerry Callo said:

What will?  I didn't see any will.

Haha, there is that.  Some financial institutions will deal on the basis of a death certificate, but probably not large sums.

[TwiceHorn 31677]

I should add that a "spendthrift trust" gives the beneficiary protection against his/her creditors because distributions from the trust are solely within the discretion of the trustee.  Creditors thus can't compel the beneficiary to distribute the entire trust to themselves, generally speaking.

Although the theory is that the beneficiary can't get it all, or all at once, hence the creditor protection, I'm not sure the trustee is bound NOT to distribute it all or all at once.

But, if you can bypass the trusts altogether, that would be a beneficial tax situation.

[hornian 5251]

If I understand the question correctly, you are asking whether the trust must be set up if the conditions in the will aren’t met. 
 

Short answer: no. 
 

Long answer: most testamentary trusts are conditional (under certain age at times of testator’s death or incapacitated at time of testator’s death). If the condition is not met, the trust is disregarded and the property is distributed outright to the beneficiary during the administration of the estate. 

[Orale 1112]

Helping a cousin probate his mom's, my aunt's, will. Cousin is the sole beneficiary. She passed with few assets. She had some stocks and mutual funds and my cousin says her financial institution gave him control over those without needing anything from the court. Would those assets still need to be included in the inventory? 

[DalTxHornFan 3122]

16 minutes ago, Orale said:

Helping a cousin probate his mom's, my aunt's, will. Cousin is the sole beneficiary. She passed with few assets. She had some stocks and mutual funds and my cousin says her financial institution gave him control over those without needing anything from the court. Would those assets still need to be included in the inventory? 

If we are talking Texas, this sounds like a situation where no inventory would need to be filed if OK with your Cousin, the sole beneficiary:

Sec. 309.056. AFFIDAVIT IN LIEU OF INVENTORY, APPRAISEMENT, AND LIST OF CLAIMS. (a) In this section, "beneficiary" means a person, entity, state, governmental agency of the state, charitable organization, or trust entitled to receive property:

(1) under the terms of a decedent's will, to be determined for purposes of this section with the assumption that each person who is alive on the date of the decedent's death survives any period required to receive the bequest as specified by the terms of the will; or

(2) as an heir of the decedent.

(b) Notwithstanding Sections 309.051 and 309.052, or any contrary provision in a decedent's will that does not specifically prohibit the filing of an affidavit described by this subsection, if there are no unpaid debts, except for secured debts, taxes, and administration expenses, at the time the inventory is due, including any extensions, an independent executor may file with the court clerk, in lieu of the inventory, appraisement, and list of claims, an affidavit stating that all debts, except for secured debts, taxes, and administration expenses, are paid and that all beneficiaries other than those described by Subsection (b-1) have received a verified, full, and detailed inventory and appraisement. The affidavit in lieu of the inventory, appraisement, and list of claims must be filed within the 90-day period prescribed by Section 309.051(a), unless the court grants an extension.

(b-1) Absent a written request by a beneficiary, an independent executor is not required to provide a verified, full, and detailed inventory and appraisement to a beneficiary who:

(1) is entitled to receive aggregate devises under the will with an estimated value of $2,000 or less;

(2) has received all devises to which the beneficiary is entitled under the will on or before the date an affidavit under this section is filed; or

(3) has waived in writing the beneficiary's right to receive a verified, full, and detailed inventory and appraisement.

(c) If the independent executor files an affidavit in lieu of the inventory, appraisement, and list of claims as authorized under Subsection (b):

(1) any person interested in the estate, including a possible heir of the decedent, a beneficiary under a prior will of the decedent, or a beneficiary described by Subsection (b-1), is entitled to receive a copy of the inventory, appraisement, and list of claims from the independent executor on written request;

(2) the independent executor may provide a copy of the inventory, appraisement, and list of claims to any person the independent executor believes in good faith may be a person interested in the estate without liability to the estate or its beneficiaries; and

(3) a person interested in the estate may apply to the court for an order compelling compliance with Subdivision (1), and the court, in its discretion, may compel the independent executor to provide a copy of the inventory, appraisement, and list of claims to the interested person or may deny the application.

(d) An independent executor is not liable for choosing to file:

(1) an affidavit under this section in lieu of filing an inventory, appraisement, and list of claims, if permitted by law; or

(2) an inventory, appraisement, and list of claims in lieu of filing an affidavit under this section.

(e) Any extension granted by a court of the period in which to file an inventory, appraisement, and list of claims prescribed by Section 309.051 is considered an extension of the filing period for an affidavit under this section.

Added by Acts 2011, 82nd Leg., R.S., Ch. 1338 (S.B. 1198), Sec. 2.43, eff. January 1, 2014.

Amended by:

Acts 2013, 83rd Leg., R.S., Ch. 1136 (H.B. 2912), Sec. 41, eff. January 1, 2014.

Acts 2015, 84th Leg., R.S., Ch. 949 (S.B. 995), Sec. 33, eff. September 1, 2015.

Acts 2019, 86th Leg., R.S., Ch. 1141 (H.B. 2782), Sec. 21, eff. September 1, 2019.

Edited January 5, 2023 by DalTxHornFan

[Shaggy3.0 1695]

i now find myself in this situation.  

a relative has two daughters.  she passed away with life insurance and a will (all unconfirmed).  She had checking/savings. home/mortgage, car/financed.

when the relative was found (wellness check), the county judge froze all assets.

should this go to probate?  both daughters worried about unpaid obligations.

 

 

[kmac30 416]

Make sure someone pays that mortgage.

Edit - had a client pass away in 2012. Kids were scattered far and wide. Took some time to locate her son (he had joined a monastery). By the time they got everything moving the bank had foreclosed the house. They tried to fix it but we’re unable (either didn’t have enough $ or smarts - probably both).

[Shaggy3.0 1695]

56 minutes ago, kmac30 said:

Make sure someone pays that mortgage.

Edit - had a client pass away in 2012. Kids were scattered far and wide. Took some time to locate her son (he had joined a monastery). By the time they got everything moving the bank had foreclosed the house. They tried to fix it but we’re unable (either didn’t have enough $ or smarts - probably both).

Makes sense.  Both daughters are local--reside within 20 miles of each other.  Howver, daughter A claims a notarized will exists.  Daughter B is not so sure.  Isn't daughter A required to file the will in county probate (assuming it exists)?  Is there a way for daughter B to compel daughter A to file the will so they can move forward with covering all known debts/notes?

 

[Shaggy3.0 1695]

In other words, validating the will (probate) and assigning the exectuor the best way to ensure all debts are handled properly?

[HouTex 1901]

1 hour ago, Shaggy3.0 said:

Makes sense.  Both daughters are local--reside within 20 miles of each other.  Howver, daughter A claims a notarized will exists.  Daughter B is not so sure.  Isn't daughter A required to file the will in county probate (assuming it exists)?  Is there a way for daughter B to compel daughter A to file the will so they can move forward with covering all known debts/notes?

 

Would need more information for answer this.  I don't think B can force A to probate a will.  B can file a probate action in probate court as if there's no will.  B would serve A with the action and then A would need to come forward with the will or else the estate will pass as if there's no will--everything would go 50-50 to A and B--assuming no other siblings or a surviving spouse.  Does the purported will provide for a treatment other than a 50-50 split of everything between A and B?  If A takes the position that he/she gets everything under the will and proceeds accordingly without probate (not sure that's even possible), and if B does not agree then B should file a probate action as if there's no will in order to get A to produce the will.

It would be far better for A and B to work together and try to avoid probate all together.  And some of the assets are likely not subject to probate and there may be a simplified way to get the house and other assets in A and B's name other than probating the estate.  The life insurance and possibly the bank account will pass to the beneficiaries, or, in case of the bank account to the JOWOS, if there is one.  As for creditors, the executor or court appointed administrator would have to perform some amount of diligence to identify creditors and serve them with a notice to file a claim.  A or B should probably do that anyway and try to settle with creditors unless, and I don't know the answer to this, the assets in the estate are exempt from creditors' claims.  I've never looked at it, but if there's no surviving spouse with a right in a homestead, I suspect that a decedent's residual estate property is always subject to creditors' claims.  

[Shaggy3.0 1695]

7 hours ago, HouTex said:

Would need more information for answer this.  I don't think B can force A to probate a will.  B can file a probate action in probate court as if there's no will.  B would serve A with the action and then A would need to come forward with the will or else the estate will pass as if there's no will--everything would go 50-50 to A and B--assuming no other siblings or a surviving spouse.  Does the purported will provide for a treatment other than a 50-50 split of everything between A and B?  If A takes the position that he/she gets everything under the will and proceeds accordingly without probate (not sure that's even possible), and if B does not agree then B should file a probate action as if there's no will in order to get A to produce the will.

It would be far better for A and B to work together and try to avoid probate all together.  And some of the assets are likely not subject to probate and there may be a simplified way to get the house and other assets in A and B's name other than probating the estate.  The life insurance and possibly the bank account will pass to the beneficiaries, or, in case of the bank account to the JOWOS, if there is one.  As for creditors, the executor or court appointed administrator would have to perform some amount of diligence to identify creditors and serve them with a notice to file a claim.  A or B should probably do that anyway and try to settle with creditors unless, and I don't know the answer to this, the assets in the estate are exempt from creditors' claims.  I've never looked at it, but if there's no surviving spouse with a right in a homestead, I suspect that a decedent's residual estate property is always subject to creditors' claims.  

Based on research and several consultations with two attorneys today, this is the correct approach.

Appreciate your insight.