Estate planning is a fluid process. What might be the perfect plan today could be outdated tomorrow due to changes in the law, changes in the size and nature of the estate, and changes in the personal circumstances of various family members or other beneficiaries. This is why you should periodically review your estate plan documents to ensure that they continue to express your wishes in the most efficient manner possible. A review also serves as a “proofread” to help identify any typos or other mistakes in the documents that should be addressed.
In general, while you are living and have capacity, you are free to change your estate plan in any manner that you wish. However, once you lose capacity or pass away, your estate plan becomes irrevocable, “locked-in” to the way it was last drafted. What happens if your loved ones discover an outdated clause or mistake that needs to be addressed after you have lost capacity or passed away and you are no longer are able to change it?
Fortunately, the California Probate Code provides many avenues to address the need to make changes to an estate plan even if it is technically irrevocable.
Modification of an Irrevocable Trust
Although the Probate Code tries to protect the wishes of a Trust-Maker, the law has long recognized the need to update an outdated trust in a variety of circumstances.
California Probate Code Section 15403 allows for the modification of an otherwise irrevocable trust upon petition to the court if all the beneficiaries consent to such modification as long as the proposed modification either does not interfere with a material purpose of the trust or as long as the reason for the proposed modification outweighs the interest in accomplishing the material purpose of the trust.
California Probate Code Section 15409 allows for the modification of an otherwise irrevocable trust upon petition to the court if it can be shown that there was a “change in circumstances” that was not anticipated by the Trust-Maker which would defeat or substantially impair the accomplishment of the purposes of the trust.
These two Code Sections can be used in a variety of circumstances such as modifying a trust to eliminate outdated tax clauses, adding or removing certain beneficiaries, and taking advantage of new estate planning strategies that weren’t available when the trust was written.
Filling Trustee Vacancies
A trust will typically name an initial trustee, or “trust manager,” and one or more successor trustees in the event that the initial trustee becomes unable to serve. In addition to including several alternate successor trustees to cover contingencies, a well-written and comprehensive trust should include a procedure for filling a trustee vacancy. For example, the trust might provide that if no one named to serve as successor trustee is able to serve, then a majority of the beneficiaries may elect a successor trustee.
Absent such a procedure, California Probate Code Section 15660 allows an interested party to petition the court to fill the trustee vacancy.
It is essential to transfer title on most assets to your trust. This process, known as “trust funding,” can often be overlooked. If it is discovered that you owned assets outside of your trust after your death, your family might be required to endure an expensive and time-consuming probate, the very procedure your trust intended to avoid. However, if you left a writing that lists the assets you intend to title to the trust, your successor trustee can often obtain a court order stating that the assets are trust property despite the fact that they are titled to your individual name. This procedure is known as a “Heggstad petition” after a famous case involving such a circumstance.
Heggstad petitions are unique to California and can often save a family thousands of dollars, months of time, and a lot of headache. Because of this procedure, many attorneys include a “schedule of assets” as an attachment to a trust in the event that a Heggstad petition becomes necessary.
Petition to Determine Whether a Power of Attorney is Effective
A Durable General Power of Attorney grants an agent authority to make financial decisions for you in your individual capacity in the event of your incapacity. Like trusts, Power of Attorney documents can contain outdated clauses or typos that create confusion. California Probate Code Section 4541 allows an interested party to petition the court to determine various aspects of a Power of Attorney such as whether the Power of Attorney is in effect, approving the acts of the Power of Attorney agent, and compelling third parties such as banks to honor the authority of the Power of Attorney agent.
Although there are often specific court procedures that might be available to address a particular problem in an estate plan, any court procedure often involves additional time and expense. Savvy attorneys often draft provisions for a “Trust Protector” to allow for the modification of a trust without the need for court intervention under certain circumstances. The Trust Protector’s powers can be very broad or can be limited to a few specific powers, depending upon how the trust is drafted.
Once only reserved for sophisticated estate plans, the use of Trust Protector provisions for even basic estate planning is becoming more common as clients and their attorneys recognize the wisdom of providing an efficient method to address changes in the law or drafting ambiguities in certain situations.
While it is important to periodically review your estate planning documents, even the most meticulous person can leave an estate plan with problems that need to be addressed. It is important to understand that in many cases, there is likely to be an avenue through the law to fix a broken estate plan.
KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California and Kyle may be reached at 831-920-0205.
Disclaimer: This article is for general information only. Reading this article does not establish an attorney-client relationship. Before acting upon any of the information presented in this article, you should consult a competent attorney who is licensed to practice law in your community.