A Letter To Heirs
A practical lawyer for whom we drafted a trust asked us to write a letter telling his heirs what to do with his trust upon his death. Here is a letter we now give my clients when we do a trust for them:
Dear Doe Family:
Mr. Doe asked me to write a letter to keep with the trust papers telling you what to do when Mr. Doe dies.
Please understand that the reason Mr. Doe went to the expense and trouble of drafting a trust was to make the transfer of his property from himself to his heirs as easy and cost-free as possible.
I have been writing trusts for decades and in the overwhelming majority of these trusts a lawyer is not employed when the person who set up the trust died. As a practical matter, the heirs are usually successful in obtaining title to the assets of the person who died without the help of a lawyer.
Before I can illustrate with some examples, we need to define two terms. An original trustee, also called a grantor, is the person who set up the trust and started out administering the trust themselves for their own benefit. A successor trustee is the trustee of the trust who takes control later, typically when the grantor or original trustee dies.
Now, let me illustrate with some examples: Mr. and Mrs. Doe put their house into a trust. Then Mr. Doe dies. The trust still owns the house and Mrs. Doe, if she wants to continue living there, doesn't have to do anything. But, let us say, that Mrs. Doe now wants to sell the house and move into something smaller. If she sells through a real estate agent, the real estate agent and the title insurance company will take care of the sale and not charge any more than if the house had been in Mrs. Doe's sole name. But, let's say Mrs. Doe is a real do-it-yourselfer and the house is a sale by owner. She could have a lawyer draft some paperwork (a Certificate of Incumbency with Mr. Doe's death certificate attached) showing that she is now the sole trustee. She would file that with the County Recorder and then could sell the house in her capacity as trustee.
Or to take another example, Mr. and Mrs. Doe have a major financial account in the trust. They both die. Jane Doe, their daughter, is the successor trustee. When the financial account was put into the trust, a "Certificate and Affidavit of Trust," was given to the institution showing that after Mr. and Mrs. Doe die, Jane Doe will the successor trustee. In most cases all Jane Doe will have to do is show the financial institution the death certificates of Mr. and Mrs. Doe. (In case the financial institution has lost the paperwork, Jane Doe should have the Trust and Certificate and Affidavit of Trust to show the institution.)
But there are at least three situations in which professional assistance could be very valuable.
The first situation concerns debts of the person who died. Under a 2011 law, a person who receives money from a dead person, even if it is through a trust or through a payable on death bank account, can be in certain circumstance liable for the debts of the dead person up to the amount of money they received. The successor trustee may publish a Notice to Creditors which can be useful in cutting off many creditor claims. If this is at all a concern, the successor trustee should consult a lawyer.
The second situation concerns tax issues, especially if the dead person left a tax sheltered retirement account. The problem here is that the I.R.S. may have a claim for deferred taxes as the money is withdrawn from the retirement account, say a non-Roth IRA. It may be possible for the heirs to have the dead person's tax deferred account rolled into their own tax deferred account. A tax professional should be consulted if this would be a desired result.
The third situation concerns self-dealing by the Successor Trustee. Suppose Mom has her house in a trust and has 5 adult children and one of them lives with her and is the Successor Trustee. The Trust provides equally for the 5 adult children. The child who lives with her, the Successor Trustee, wants to buy the house from the Trust. This is called "self-dealing" by the Trustee. In such a situation the Successor Trustee wants a good deed from the Trust to himself. Since no realtor or escrow company is involved, the Successor Trustee will have to do all the paperwork or hire a Lawyer to do it. The Lawyer, in this case would draft a Certificate and Affidavit of Incumbency" to the effect that the Successor Trustee was the new Trustee and a deed. In such a case the Lawyer would want affidavits from all other Trust beneficiaries that they approved of the Trustee selling the property to himself at such and such a price.
Reed & Mansfield