Sorting out family issues involving a trust can be difficult. This week, Sacramento estate planning attorney Michelle Goff advises several adult children about their parents' trusts.
To see more of her advice on wills and trusts, go to: www.sacbee.com/ask. That's where you'll also find advice from our other local experts on investing, personal finances and taxes.
In California, can the executor of an estate legally do whatever she wants without consulting the other heirs?
My oldest sister is executor of our mother's estate and trust. Our mother's house is in the trust and this sister wants to purchase it. She paid for an appraisal and has begun the paperwork for a loan in the appraisal amount. My other siblings and I found out in an unrelated, casual conversation. The sister never asked for our input or opinions on the sale price.
Being the executor makes her both the seller and the buyer of the house. Is she legally within her rights? Apparently a signed contract is not needed since she is selling the house to herself. It just doesn't seem right. Another sister has formally contested the appraisal in hopes it will halt or delay the sale temporarily.
No, an executor may not make major decisions in the trust administration period without consulting the other beneficiaries.
If there is a probate proceeding under way, the executor is required to give a notice of proposed action to all beneficiaries, informing them of the proposed sale. If any of them objects, the only way a sale can be completed is if she gets judicial approval.
If the house is in the trust, as you indicated, then she is not subject to the formal notice requirement. However, as trustee, she is not allowed to engage in "self-dealing," which is what she is doing by selling the house to herself.
If she is paying fair market value for the home with an appropriate interest rate and everyone agrees, then the sale could be finalized. But that's only with everyone on board. Otherwise, you can always file a petition with the county court to stop the sale.
My mother recently passed away and I am the successor trustee of our family trust. The principal beneficiaries are three grandchildren. The family house is the largest asset and is currently titled under the trust. The grandkids are interested in turning it into rental property and creating a LLC as protection from potential liability.
Can we do this while the house is in the trust? Or do we need to retitle the home?
There is no rule that prohibits the property from being deeded from the trust to an LLC, but it is not the best approach. One of the major issues if you deed it from the trust directly to an LLC is that you may trigger the county assessor to reassess the property for Prop. 13 purposes.
The cleanest route is to follow the terms of the trust and retitle the home in the grandchildren's names. At the same time, you would file forms notifying the county assessor's office of the "change in ownership."
If possible, you might try to qualify for California's parent/grandparent exclusion, which prevents property from being reassessed when passed to a child by a parent or grandparent. Then you could form the LLC and transfer interests into it. There are highly technical steps at that point, so please contact an attorney specializing in estate planning or real estate law to guide you through the process.
Compiled by Claudia Buck