Should I sign an Inheritance Settlement Agreement? How does Estate Distribution to Beneficiaries work if a Trust is ambiguous or outdated? What are the responsibilities of a Trustee of a Trust? The California Estate Planning Attorneys at CunninghamLegal can help you with a trust settlement, help a Trustee with responsibilities and options when the terms of the Trust are unclear.
California Trust Administration and Trust Settlement
Ever hear this: “Don’t Settle,” or better yet, “Never settle for less”? These may be wise words to follow in certain aspects of your life, but what about your legal life, or specifically, your trust or inheritance? In what cases might it make sense to look into a Trust Settlement?
After a person dies and their Estate is being administered, unforeseen circumstances can arise that affect distribution of the Estate. Such factors can include ambiguities or errors in the Estate Plan, changes in the law, problems with specific assets, and unfortunately – disagreements among heirs. Sometimes, due to a combination of these factors, it is not possible to satisfy each person’s desire (or opinion) as to the distribution of the Estate. When there is a Trust, a settlement among the heirs/beneficiaries can be useful to resolve some of these challenges. Although settlement can also be an option in a Court administered probate, that process has parameters which are outside of the scope of this article.
In a privately administered Trust, a Trustee (often a family member) is the fiduciary named in the Trust who will gather the assets, pay expenses, perhaps liquidate assets and prepare the estate for distribution. Say, for example, the Trust contains the long-time family residence, cash accounts, investments, and dad’s classic 1959 Chevy convertible. The Trust says to distribute all property “equally to my children who survive me.” Let’s add to our hypothetical that the family wants to hold on to the home and one child wants the ’59 Chevy. What options does the Trustee have?
Trust Settlements and Other Options Available to the Trustee
It might make sense for the Trustee to sell all of the assets and merely hand out checks in equal amounts to each Beneficiary. However, this seemingly simple approach could cause a great amount of discontent among the Beneficiaries, or cause other problems. If the Trustee is a family member, this could cause anger and resentment for years to come, if not forever. Let’s look at a few of the options available to the Trustee.
- The Trustee could ask a court how the Trust should be distributed. This is not necessarily a lawsuit. The court sits in an administrative role and is empowered to instruct the Trustee. Instructing the Trustee and determining how Trust Property should pass are two of the Court’s specific powers pursuant to Probate Code § 17200. The details of a 17200 Petition are laid out elsewhere, and may or may not be relevant to your trust settlement questions.
- Effective January 1, 2017, a Trustee may use the Notice of Proposed Action for preliminary and final distributions. Found in Probate Code §§ 16500 – 16504, the Notice of Proposed Action relieves the Trustee of liability for taking specific actions. The actions must be described in the Notice, and the Notice must be provided to all affected beneficiaries. Using this process for Trust distributions was specifically prohibited until January 1, 2017. Using our example above, a Notice of Proposed Action can now be issued describing the proposed distribution and/or sale of the house and the ’59 Chevy. The Trustee might seek input from the family members prior to issuing the Notice. If no Beneficiary objects within 45 days of receipt of Notice, the Trustee can be confident in taking the described action. If a timely objection is received, the Trustee may then choose to file the matter for court determination.
- Now, let’s look at the trust settlement option. Similar to other litigation, a Trust Settlement tells the “story”, describes the issues, and sets forth the solution. A Trust Settlement specifically lays out the provisions of the trust, the Beneficiaries, the assets, the distributions outlined in the trust, and the distribution the beneficiaries have agreed upon. The proposed settlement still must conform to the letter and spirit of the Trust document. Each Beneficiary may retain their own attorney (at their own cost) to review the settlement and provide input and suggestions. This is often a good idea to avoid second thoughts or confusion later. The settlement could say that one Beneficiary will receive the ’59 Chevy, and the remaining Beneficiaries will own the home together and rent it out. It may also direct to sell certain assets or a buy out of the house by one child. It would reconcile how the Estate will be equally allocated in light of the distribution. If the Beneficiaries come to this agreement, the settlement can be signed, which can include a release of liability for the Trustee. The trustee is then free to make the distributions.[1]
Filing a Trust Settlement with the Court
If there is remaining animosity, the trustee may still file the settlement with the court for approval. The difference here between bringing a settlement to court and filing a Probate Code §17200 Petition for instructions is that as to the settlement, the court is being asked to approve and ratify the agreement. In a 17200 Petition, the Court would make its own determination as to how the trust should be distributed.
So, settling is not always bad and shouldn’t be avoided. CunninghamLegal handles simple and complex trust administration for clients throughout California. Please contact us to discuss your trust drafting and administration needs.
What Do We Do as California Estate Planning Attorney Specialists?
The lawyers and staff at CunninghamLegal help people plan for some of the most difficult times in their lives; then we guide them when those times come. If you are a trustee or beneficiary considering a trust settlement, consider a consultation with our team.
Make an appointment to meet with CunninghamLegal for California Estate Planning and Trust Administration. We have offices throughout California, and we offer in-person, phone, and Zoom appointments. Just call (866) 988-3956 or book an appointment online.
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We look forward to working with you!
Best, Jim
CEO, Partner, Certified Specialist – Estate, Trust, and Probate Law at CunninghamLegal
At CunninghamLegal, we guide savvy, caring families in the protection and transfer of multi-generational wealth.
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[1] There are other statutory requirements such as a trustee accounting that must be complete prior to distribution. The trustee must complete all required tasks prior to distribution, even if there is a settlement. Those tasks are outside the scope of this article.
