What Inheritors Need to Know about Wills, Trusts, and Probate

Join Katherine as she talks with Ashley Sundar, estate attorney and founder of Sundar Law, about what inheritors need to know about wills, trusts, and probate. 

Learn more about Sunnybranch wealth:
www.sunnybranchwealth.com

Download the FREE Sunnybranch guides for inheritors:
www.sunnybranchwealth.com/newsletter-download

Connect with Sundar Law:
www.sundarlaw.com

Disclosures: https://www.sunnybranchwealth.com/disclosures 

Sunnybranch Wealth LLC (“Sunnybranch Wealth”) is a registered investment advisor offering advisory services in the State of Oregon and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.

Transcript

Katherine: Hi everyone. And welcome to episode three of "Planning for Inheritance" a Sunnybranch Wealth podcast, covering as the name suggests all things inheritance. I'm your host, Katherine Fox, founder and advisor at Sunnybranch Wealth. I'm an inheritor and I built Sunnybranch to serve current and future inheritors who need help managing their financial lives and building a plan to create positive impact with their wealth. 

Before I introduce our guest today, a quick note that the Sunnybranch guides for inheritors are available for free to anyone who is struggling through any part of the inheritance process. You can find that guide available on my website, sunnybranchwealth.com or get a copy via Instagram @sunnybranchwealth. The link will also be available in the show notes. 

With that housekeeping out of the way, I'm excited to announce our guest on today's podcast: Ashley Sundar, founder of the estate planning firm, Sundar Law. Ashley has spent the last 17 years focusing on all aspects of inheritance [00:01:00] law, including working for a probate judge after graduating law school, setting up estate plans, administering estates and trusts after someone dies and resolving inheritance disputes. Ashley is based in Portland, but licensed in Oregon, California, and Florida and she works with individuals and families in all of those states. Ashley, welcome. I'm so glad you can join us today.

Ashley: Thanks Katherine. 

I am super happy to be here today with you. I too am an inheritor, and as you mentioned, I am an attorney focusing on inheritance law, so it's a topic I address every day and I really enjoy talking about. 

Katherine: Ashley our questions today are going to focus on real life situations that inheritors and future inheritors encounter. To kick us off is a question that I hear all the time from my clients. Can you tell us what it means to be an executor or an administrator of an estate?

Ashley: Yes. Being an [00:02:00] executor of an estate is a very important job with many responsibilities and duties that are aimed towards carrying out the wishes of a deceased person. An executor is a person who's been appointed by a probate court judge to manage all of the assets of someone who has died and to do things like pay all that person's final debts and tax liabilities. Most people would say that an executor's most important job making sure all the debts and the liabilities of the deceased person are paid is to distribute the remaining assets of the estate and whether that's a house, cash, investments, artwork, distribute all those items to the inheritors. 

There are quite a lot of technical issues that come up after someone has died, and they might involve unique assets and investments, running the deceased person's business, paying taxes, dealing with [00:03:00] obligations to prior spouses, and there are even challenges sometimes interpreting wills that might be unclear. And by, by that I mean sometimes a will is just poorly drafted and it doesn't really say who gets what. It's very important, and some courts actually require an executor to work with an attorney throughout the process because it's so complex. Working with a CPA and a financial advisor is really important as well, and that's because there are a number of tax and investment decisions that have to be made after someone dies.

Katherine: Ashley, it sounds like a huge job to be an executor or an administrator of an estate. Before we move on, can you tell me is there preparation for this job or is the person who's named usually someone who's just thrust into this role?

Ashley: So a lot of the times it's thrust onto people. A deceased person may have named someone to be their [00:04:00] executor, and that that named executor has no knowledge that they were ever appointed. So sometimes it's thrust upon a person. I usually recommend that families talk amongst themselves as to who's gonna be in charge after someone passes away, so that there, there's some firsthand knowledge of what's coming down the pipeline, so to speak. 

And then they're also professional executors. So sometimes families, if things are really complex, whether from a personality standpoint or just from an asset standpoint, when there's a lot of complexity, sometimes it helps to actually appoint a professional executor, and that's usually a company, a bank, or sometimes a person that just does the job professionally every day, and they tend to be a little bit more expensive than a family member because they're allowed to be paid. But sometimes it's worth paying a little bit more to make sure things are handled smoothly. 

Katherine: I understand how that could be a good decision, especially if you have someone who had a very complex estate or maybe there was a really [00:05:00] high amount of family strife. You mentioned that an executor could be appointed by a probate court judge. Can you tell us a little bit more about what probate is and when an inheritor may encounter it?

Ashley: Yes, so probate is court supervised process of settling an estate and it, it often takes nine months, up to two years, depending on the complexity of the assets, the family, and even in which state the person passed away. For example, in Oregon, a probate might last only a year or so, but in California they tend to be much longer. So you could be looking at a two year probate there. 

An executor that's appointed by the court actually has to ask to be appointed and be given the authority to handle the estate before they can actually do anything. And to do that they have to file paper paperwork with the court, [00:06:00] say why they're qualified to do the job, and essentially affirm under oath that they'll do everything properly and won't steal money. It, it sounds kind of silly to say it like that, but that's really what the court is concerned about, that the executor's a trustworthy person and will do everything correctly and and won't misuse assets. Within about three months after being appointed by the court the executor has to make an inventory, which is just a list of the assets that belong to the deceased person, and they have to file that with the court and list all of the approximate values of the assets. 

One of the most important parts of the probate process, at least the court and to the law, is the search for what are called estate creditors. And creditors are essentially people or companies to whom a deceased person owes money. So that could [00:07:00] include something like a credit card bill, so American Express might be a creditor. It could also include mortgages, hospital bills, and even money that might be owed to a business partner or a former spouse if there's some, some kind of obligation under a divorce decree. It takes around five or six months to identify and pay creditors, and the executor even has to publish notice in a newspaper for a few weeks. Typically, no distributions can be made to the inheritors until all the creditors are identified and paid. And after the creditors are paid and any other taxes determined and any other monies that the deceased person owes to anyone.

After all that happens. The executor can ask the court's permission to distribute the money to the inheritors. Um, the executor has to prepare and submit what's called an accounting of all of the estate activity, [00:08:00] and the executor has to give that accounting to both the inheritors and to the court. And the accounting really lists all the activity of the estate. So all the money that was spent, all the money that came in and it's supposed to essentially balance. And again, getting back to the point of did the executor manage the estate properly, were all the dollars and cents accounted for? That's what the court looks at, and it's only after the court approves this accounting can the executor distribute the assets to the inheritors. 

This entire probate process, including the inventory of the assets, the list of their values, the payments of the creditor claims, and the accounting it's somewhat slow, as I mentioned. It takes a year or two sometimes, and it's all part of the public record. This means that there's no privacy in probate, so for people that are very private, at the end of the day, they may not have been thrilled that their estate had to go through [00:09:00] probate if it wasn't something that they thought about. And an inheritor might encounter probate in a couple of scenarios. 

And the first scenario is pretty common, unfortunately. And that's when a deceased person did not have a will, a trust or any estate planning documents. And in that scenario, the inheritors are usually the deceased person's closest relatives, which can sometimes be a shock for families weren't expecting to inherit. And again, the deceased person may or may not have wanted their closest relatives to inherit, but without a will, that's what's going to happen. And the second scenario where probate will come up is when the deceased person did have a will, which is great because it'll say who gets what. But that deceased person did not have what's called a living trust agreement.

Katherine: Probate sounds like it takes up a lot of time and is a huge administrative burden, not something that anyone wants to be dealing with, but especially not [00:10:00] when you're dealing with grief on top of that. You mentioned a revocable living trust. Is that a quote unquote easier way to inherit?

Ashley: That's correct, Katherine. So a revocable living trust is essentially a will substitute and it avoids that long public process of probate that I just described. With a revocable living trust, the creator of the trust actually transfers their assets to a trustee before they die. And then when the creator dies, the trustee transfers the assets to the creator's beneficiaries after death. And that's much, much faster than kind of transfer that would occur in probate. And again, much, much more private. It's not part of a court case or part of the public record. 

And there's no real downside to setting up a trust while someone's alive. It, it works for most people. [00:11:00] For example, Katherine, if you were to set up your own revocable living trust today, you would be the trustee of it. You would have full access to your assets for the rest of your life, and there's no loss of control on your part. You're not giving your your assets or your money away. You still have total control. And this living trust may seem too easy to be true, but it's really just a function of how the laws work in the estate and trust world. Any assets that are in someone's sole name to go through the court supervised probate process, but any assets that are owned by the trustee of a living trust, which I just described, will avoid probate entirely.

Katherine: Ashley, can you talk a little bit more about trusts being more private than the probate process and what that really means?

Ashley: So with the probate process the executor is [00:12:00] legally required to file with the court a full list of all, your assets that you own, um, down to your bank accounts, your house, any investments that you might have, any kind of artwork or special personal effects, whether it's jewelry or just motorcycles, cars, any kind of item like that.

It's part of a list that's filed with the court. And anyone can go and look at that list. So in, in reality, it's maybe not something that everyone in the world will see because you have to go look for it at the court. But I've had many clients with nosy, nosy family members, neighbors, other people that knows someone's passed away. And it's super easy for them to just go to the court, look at records and have more information, not, not that. I don't know what they wanna do with it at the end of the day, but it's really an invasion of privacy for a lot of [00:13:00] people. 

Katherine: Knowing all of this I'm sure our listeners are going to be very grateful to know that there's a way they can avoid probate through a revocable living trust. Can you talk more generally about other common types of trusts that inheritors may encounter as part of the estate settlement process?

Ashley: Sure. Yeah. The, the, and the revocable living trust is the most common one, but there are a lot of other types of trust that an inheritor might encounter. Uh, there are what are called irrevocable trusts. And an irrevocable trust is a trust that can't be changed. It's, it's fixed. Um, and it may have been set up by someone like a grandparent or another relative many years ago. Sometimes I, I see trust that date back to, I don't know, the 1920s or 1930s, which, you know, some, some good planning, many, many moons ago, um, or inheritors might [00:14:00] encounter irrevocable trusts that are set up more recently by a family member, and that's usually done for tax planning purposes. 

Anyone can set up an irrevocable trust, but it usually comes up for families with significant monetary wealth, maybe if their estate is worth more than $25 million. And the reason it comes up more often for those sorts of um, families is because when you create an irrevocable trust, you have to essentially give away your assets, and the creator does lose some control in that circumstance for rest of the creator's lifetime. So you have to have enough to be able to give away a big chunk and not feel that every day, let's say. 

And then there, there are many other types of trusts. Probably the most common other type that inheritor an inheritor might encounter as a irrevocable life insurance trust. And that's a [00:15:00] irrevocable trust that's funded after creator dies. It's funded with a life insurance policy that was held on the creator's life and that can be a nice little addition to an estate. If it makes sense for someone to pay what can be a lot of money for life insurance premiums over time, they can leave anywhere from half a million dollars to a couple million dollars to their family in in that life insurance trust. 

Katherine: So Ashley, you talked about these irrevocable trusts, general irrevocable trusts, irrevocable life insurance trusts. From my perspective, working with inheritors, I find that trusts are often a situation where someone has thought they were going to inherit money outright from their parents' estate. And now they're finding out instead they're inheriting from a trust with all these strings attached to their their wealth. The Question I often hear is if there's a way to [00:16:00] get rid of an irrevocable trust the industry term would be to "bust the trust" can you talk a little bit more about that?

Ashley: Definitely. And that, that's a really good question. That comes up very often, and it is definitely possible to bust or terminate an irrevocable trust that you've inherited before you go about doing that, though, it's always just, taking a look and maybe thinking about it with an attorney and considering if it makes sense to actually bust the trust. And that's because these inherited irrevocable trusts, even though they have strings and can be a little complex, sometimes they do offer some protection against creditors and they have some estate tax planning benefits. So those protections won't make sense for everyone. 

Some of the, the tax planning is only relevant for super wealthy people and some people [00:17:00] don't have a worry about creditors, so there's gonna be no benefit there. But assuming it makes sense to end a trust or or terminate it, most states actually do let you do that. You actually can terminate a trust through a written agreement or through a court process and, for the most part, as long as everyone that's affected by the trust and who is interested in the trust as a beneficiary agrees you can accomplish pretty much anything. And it, it can be a shock for someone who's set up a trust or who is setting one up to realize that, well, maybe my, my wishes won't be honored in the exact manner that I wanted them to be.

But these laws are set up so that there is flexibility. And if it makes sense for the inheritor that they're able to actually terminate this trust. And I mentioned the beneficiaries of the trust [00:18:00] or whoever's interested in the trust having to agree. And for the most part, the agreement of of the people that you'll need involve current trust beneficiaries and what are called remainder beneficiaries. And what I mean by current and remainder beneficiaries. Are the current beneficiaries are the inheritor himself or or herself and whoever, the inheritor or whoever is receiving money from the trust currently. So that's a current beneficiary, and a remainder beneficiary is who receives the money and the trust after the inheritor dies because just pretending that: your inheritor has inherited a trust with half a million dollars, and the inheritor only spends maybe a hundred thousand dollars of that trust before they die. Who gets that $400,000 that's left there? So that's [00:19:00] a remainder beneficiary, and that's why you have to get a agreement among the current beneficiaries and the remainder beneficiaries. And Oregon law allows this, and it's, it's pretty simple and straightforward and it happens fairly often. 

And a straightforward example of how it might happen is let's pretend that your mother set up a trust for you, Katherine. You, you can be the inheritor. So your mother has passed away. You've inherited an irrevocable trust. It's for you and your two children, let's say. So if you agree and your children agree and you all sign off on an a written agreement, then the trust can be terminated. It's as simple and straightforward as that.

A slightly more complex example might be if, and I'll, I'll pick on you again, Katherine. Let's say that your mother set up a trust for you. Um, but she knew [00:20:00] that you never planned to have children. You, you just didn't want to have children. So the trust is actually for you while you're alive. And then when you die, however much money is left in the trust would go to the Humane Society. And that's because mom just wanted, you know, she wanted you to be taken care of, but wanted the money to go somewhere nice after you're gone. So in that circumstance, things can be a little bit more complex because the Humane Society may say, hey, wait one second. We're supposed to get whatever is left when you're gone, and we're gonna use that money to help animals and do all these great things. So they're not necessarily going to agree right off the bat. And you can still accomplish a trust termination, but it becomes more of a negotiation. So maybe, and, and by this point or the inheritor would probably need to have an attorney involved and you might be able to work something out where maybe the Humane Society gets, I don't know, 20% of the trust today [00:21:00] in exchange for saying, okay, we'll let you terminate it. You can take the rest of the money. We'll get our little piece today and we'll be happy and we'll we'll all go our separate ways. 

So as I just alluded to, it's really important to work with an attorney whenever you're terminating trusts because you have to make sure that whoever needs to agree actually does agree and signs off in writing. You also want to ensure that there are no unintended tax consequences or any other weird legal issues. Essentially if you, if you terminate a trust by accident or without getting all the correct parties to agree, you could actually be sued. And I've seen it happen unfortunately. So it's just really important to dot your i's and cross your T's and make sure everything's handled properly.

Katherine: So it sounds like getting out of an irrevocable trust is theoretically possible, but it's something that you would really want to be sure that you're certain about [00:22:00] before you start down that path, because it could be complicated, expensive and lengthy.

Ashley: Definitely. That's right.

Katherine: Well, Ashley, that is all the time we have for today. I want to thank you so much for joining us and for sharing your estate planning and inheritance expertise with all of our listeners.

Ashley: It's been my pleasure, Katherine. I'm Al. Always happy to talk to inheritors and dig deep into these issues.

Katherine: For anyone interested in getting in touch with Ashley, you can find her at sundarlaw.com that's S U N D A R law.com or ashley@sundarlaw.com. And tune in next month for the next episode of planning for inheritance with Sunnybranch Wealth I'll talk to you then.