What are Trusts, Trustees, and Beneficiaries?

This video features Vincent Casiano, an Estate Planning attorney based in California.

California Estate Planning Lawyer Explains Everything You Need to Know About Trusts

Video Transcript:

Vinny Casiano: 

You are dealing with somebody else's money and you can't just do what you want.

Molly Hendrickson: 

What does a trustee do and what should you consider when selecting one? We're gonna find out right now on this episode of Ask the Lawyer. My guest is California attorney, Vincent Casiano. And I wanna remind you that if you wanna ask Vinny questions about your situation, it's easy, go to askthelawyers.com and click the button up top, it says ask a lawyer, or you can always call the phone number you'll see at the top of the screen. Vinny, Thanks for joining us today.

Vinny Casiano: 

Thanks for having me.

Molly Hendrickson: 

So let's start at the beginning, can you tell us what is a trust and how are trusts administered in California?

Vinny Casiano: 

Well, that's a huge question, and I could actually spend literally weeks talking about trusts, there isn't just one trust, there are many different types of trusts, and in fact, I was on a panel last year where we talked about all the different types of trusts there are... But most people, when they refer to a trust, what they're referring to is a revocable living trust, and that is a document that somebody creates husband and wife if they're married or a single person, where they put all of their property into the trust, so that the trust then governs how that property is dealt with, both during their lifetime, and also when they pass. A trust in order to be valid, needs to have three, four different requirements, I'll call it. First, there must be a trustee, that's the person that manages the trust. Right. Second, there must be a... Well, before that, I should say first, there must be somebody who creates the trust, that's called a grant or a settler or a trustor. Then there must be a trustee, and that's the person that manages the trust, and then there must be a beneficiary, and that's the person that gets the advantage of the assets that are in the trust, when you create a revocable living trust, most frequently, one person or a married couple hold all three of those positions, they create the trust, they manage the assets in the trust, and they're the beneficiary of the trust in a Revocable Living Trust, that's a trust that allows people to do whatever they want, they can take...

Vinny Casiano: 

They can take the property, they can put it in, they can pull it out, they can do whatever they want with that property, because it's their property and it's a flow through... From a tax perspective, it's a flow-through entity, so there's no taxation of it, but if they were to become incapacitated, they named somebody else to take over as trustee, and that person can manage those assets for them and utilize it to pay for any expenses they have. So on and so forth.

Molly Hendrickson: 

So who serves as a trustee in California? And how is that determined?

Vinny Casiano: 

Well, the trustee is determined by the document itself, and it used to be... Years ago, when I first started, I would name, okay, the parents would say, Oh, we'll be the trustee, and then I'll make my first kid, the successor trustee. And what you learn as you practice for a while that the last thing... Well, one of the things you wanna do with the trust, you wanna avoid court, you wanna avoid probate. You don't wanna have to go to court. 'cause they cost so much money to go to court to do anything. So if you just need one person as the trustee, the successor trustee, as we call it, and that person can't serve because they pre-decease or they just don't want to, or they're incapacitated, and you don't have anybody else mentioned, unless you have other provisions in that document that state, this is how we're gonna choose the next trustee, sometimes you have to go to court anyway... And that's what you wanted to avoid. So my article of who's going to be the successor trustee, went from one paragraph 20 years ago to now being five or six paragraph with all sorts of ways to choose a trustee if the trustees that are named are not able to act.

Molly Hendrickson: 

So can a trustee also be a beneficiary?

Vinny Casiano: 

Absolutely. And that's what I said in the beginning. In most revocable trusts, at first, it is the person that creates the Trust or the married couple that creates the trust... That are the beneficiaries of that trust. Understand there's a huge difference here, Molly, when the trustee that created the trust and it's their property in the trust, no longer is serving, and now maybe it's one of their children, maybe it's a brother or sister because that property is not the trustees property any longer. It's somebody else's, and that trustee is considered to be a fiduciary and they just can't do whatever they want with the property, they have to do things in a very particular way. Sometimes that's counter-intuitive. And in this day and age of litigation and going on, and as the longer I practice in this area and the more disputes I've become involved in, one of the things you realize is, even when you have a married couple that have the trust, there are some times that the surviving spouse has to be careful on what they do with the property because the children may start to complain that that surviving spouse, maybe it's a parent, maybe it's a blended family, they're not doing the right thing, and they can actually be sued, horrible situation. And most families don't get into that, but I'll tell you, there are plenty of families that do, and a lot of times that's the reason for that, is because the successor trustee does not get legal advice on what they can and cannot do.

Molly Hendrickson: 

So does a trustee have a time limit to administer assets in California?

Vinny Casiano: 

Yes. Well, it depends, some trusts go on for quite some time, and in other words... And the trust that I create right now are revocable living trust, mom and dad created a trust when they pass away, then sub-trusts are created for the children where their share of the inheritance filters down into these trust for the children, and that can give asset protection that can protect against future ex-spouses, legal issues they run into, disability, creditor problems. So I do not recommend that people just leave money out, right, unless it's a very small amount of money, and even if you do that, you wanna make sure the person has capacity to be able to get it. Okay, but if we just have the revocable living trust, and mom and dad created and they die, a notice of trust administration is supposed to go out within 60 days, that means that anybody that is mentioned in that trust, any of the heirs are entitled to get a notice, under a probate code 1616.7 that says, Hey, this trust is now irrevocable, it's no longer a revocable trust, because the people that created have died and it can't be changed any longer.

Vinny Casiano: 

You have a right to take a look at this trust in the next 120 days, and if you don't like what it says, If you wanna object to it, you can... You can object it for a million reasons, you don't think it's valid, there were changes made right at the end of life, you know, the person that did it didn't understand what they were doing when they signed it, you know, you're a child that they didn't even know existed, and you should get a part of that at all sorts of reasons why you have that, but that notice is supposed to go out in 60 days. In reality, sometimes that notice doesn't go out for quite some time, it's a technical foul, but it needs to go out, if it doesn't go out, then people can have the right years later to come in and contest what happened and what the trustee has done.

Molly Hendrickson: 

But once that notice goes out, you're within that time limit.

Vinny Casiano: 

Molly I have to tell you that is like the first 1% of trust administration that is just giving everybody notice and they've got the right to object if you've given it out to everybody, then after that 120 days. Well, then they can't object to what the trust says any longer, right. And a lot of people can get caught sleeping at the helm on that one, if they don't realize that.

Molly Hendrickson: 

So can a trustee sell real estate or other property or assets without the beneficiaries agreeing to it?

Vinny Casiano: 

In essence, the trustee can sell the property without the beneficiaries agreeing to it, but they are opening themselves up to a large amount of potential liability. There is... One of the things that can be done in both probate and trust administration is there's a notice of proposed action that can be sent to all of the beneficiaries, and I utilize this every week, in all the trusts I do... Especially if there's gonna be a sale of real property, what we do is we tell the beneficiaries, Hey, we're about to sell this piece of real property, here are the terms of the sale. How much is it being sold for, who is buying it? What are the commissions? What are the costs? All sorts of different things, and they have the right then after they get this notice to object. In probate, they have 45 days, which is a long time. Excuse me, in trust administration, they have 45 days in probate they only have 15. Now, the beneficiaries can consent to the action, they can say, Oh, I agree that, so you have to wait the 45 days, but if you wait 45 days and nobody's objected, that's as if they've consented and that covers that trustee from any liability that Beneficiary...

Vinny Casiano: 

You can't come in later on down the line and say You shouldn't have sold that property to that person or for this amount or how you did it, you shouldn't have done it. Sorry, we gave you the notice of proposed action, you didn't take advantage of your legal rights, you can't now complain that I did something wrong.

Molly Hendrickson: 

So what can beneficiaries do if they believe that the trustee isn't fulfilling their obligations?

Vinny Casiano: 

Well, certainly, one of the things I send out, I get this phone call. Again, another phone call I get a couple of times a week. Right, I've got a memo that I've drafted where I say, These are the Trustee's responsibilities. Right. One of the things that people don't understand, if we flip it on it's head, If you're a trustee, one of the things you might say, Oh, this is an honor, I've been named as the trustee here, but once you find out all the responsibility that you have and the personal liability that you face in these particular situations, you may decide that this is not so much an honor, but a burden, because there's so many things that you have to do... Again, that word fiduciary, Molly, you are dealing with somebody else's money and you can't just do what you want... A lot of the phone calls I'll get from a beneficiary says, my brother's in charge or my uncle's in charge, and he's telling me I can't say anything and he can do whatever he wants, and he doesn't have to give me any information. That's ridiculous, absolutely ridiculous. First, one of the first responsibilities of a trustee is to keep the beneficiaries reasonably informed about the administration of the trust, and that includes giving them financial information on what's in the trust, money that's come in, money that's going out, a full accounting has to be done and the beneficiaries can demand that that be done in a court-appointed fashion, which is...

Vinny Casiano: 

It is counterintuitive, your Tax guy can't do it the way that the court needs it, and it's all geared towards giving beneficiaries enough information so that they can... They can object to what the trustee has done, but again, when I get this phone call, sending out this memo to people so they can see this list of things that trustees have to do, right, and then I'll talk to people on the phone about, Okay, what have they done, and then they can say, if they wanna hire me to actually file formal objections to what the trustee has done, and in many cases, sometimes we ask for the removal of that trustee and for the trustee to be surcharge for what they've done.

Molly Hendrickson: 

Vinny, thank you so much for taking the time to talk to us and giving us such good information. 

Vinny Casiano: 

Oh, you're welcome, it's my pleasure. 

Molly Hendrickson: 

And that's gonna do it for this episode of Ask the Lawyer. My guest has been lawyer Vincent Casiano. I wanna remind you, if you'd like to ask Vinny questions about your situation, go to askthelawyers.com, click the button at the top of the page that says Ask a lawyer, and it will walk you through the very simple process. Thanks for watching. I'm Molly Hendrickson for AskTheLawyers.

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