Using Trusts as a Probate-Avoiding Tool (VI)—How to Avoid Probate for Everyone (15)

How to Avoid Probate for Everyone: Protecting Your Estate for Your Loved Ones

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Personal Property: How to Divide Up Your Stuff

One of the biggest problems in winding up estates is the “stuff”—all the furniture, garage contents, collections, family photos, and so forth. It is a time-consuming job, and if there are multiple heirs, disagreements and hard feelings can create long-lasting family problems. I have had to litigate personal property divisions because people can get stubborn over items that have seemingly little cash value. A couple of examples:

Dad died. Mom had predeceased him. The two children did not get along at all. The primary problem was the family photos. They were in two cardboard boxes in the possession of the son. He was willing to give his sister some of them, but only the few that he chose. She wanted half and wanted her choice. After lots of fruitless negotiation, I finally brought it in front of a judge. I explained my client’s thinking, and the other attorney reiterated that of his client. Being a judge can sometimes be simple. He did the King Solomon solution. His words, which caused the siblings to decide to solve the problem themselves, were as follows:

“Where are these pictures?” “Right here, your Honor,” I said, pointing to them at my feet. “Okay. Empty them on the table. Make a pile.” I dumped both boxes out on the plaintiff’s table. They were loose, not in albums, and some spilled onto the floor. “Now, I want you to stir them up as best you can, then shove half on one end of the table and half on the other end. You don’t have to count them; a guesstimate is fine.” I did that. “Okay,” said the judge, “The pile on the left goes to the sister, the pile on the right to the brother. Next case.”

That’s why we have judges. This was some time ago—nowadays I think the judge would order them digitized so two copies would be easily available.

Here is a sample of what I put in trusts to cover this situation:

Personal Property Distribution: The Trustee must follow the directions of the Grantor as to the distribution of personal property attached as a signed or handwritten listing which is incorporated into this Trust Instrument, regarding the disposition of specific items of personal property or groups of personal property (for example, “All fishing equipment”) of every kind including but not limited to furniture, appliances, furnishings, artwork, kitchenware, silverware, glass, books, jewelry, wearing apparel. Any personal property and household effects of the Grantors not listed shall be distributed pro rata in value in the same shares as all other trust assets. The Trustee shall decide on a method of dividing such unlisted assets such as selection by taking turns or by public auction or private sale. The list may be amended from time to time provided it is either notarized or written in the Grantor’s handwriting.

Trustee Powers

The section of a trust spelling out specific powers of a trustee typically runs to several pages as written by most attorneys and as found in form books. However, in carrying out actions on behalf of the trust, banks, brokers, and title insurance companies usually require a notarized form specifying the trustee’s authorization to carry out the particular transaction they are dealing with. For example, in selling real estate, the title company will want an affidavit stating that the trustee has the power to sell real estate owned by the trust. The affidavit generally has to be dated close to the date of the proposed sale so that the title company is satisfied that the trust document has not been amended in such a way as to limit that power. Some title companies and banks want to be given an entire copy of the trust, including all amendments.

Two things are problematic about that. The first is privacy. The title company does not need to see to whom you are leaving your assets at your death and any restrictions or limits on the inheritances. That’s your business and has nothing to do with the sale of the property. The second is that trusts are often thirty or forty pages long, and the full document will likely have to be recorded as evidence of the trustee’s power to make a legitimate and insurable sale.

What I do is include a separate all-inclusive paragraph spelling out a laundry list of specific trustee powers to cover the most likely kinds of transactions in which the trustee might engage. By including this single paragraph in a one- or two-page Affidavit of Trust (also sometimes called a Trust Certificate), you will have provided the necessary information in a concise manner that will not give out unnecessary information and will be inexpensive to record. Title companies often have their own forms for this purpose.

Here is a sample of this general statement of powers (this is not a complete list of all powers contained in the document) that usually satisfies those with whom you are transacting business:

Any Trustee/Grantor has the power and authority to manage and control, buy, sell, and transfer the Trust property, in such manner as the Trustee may deem advisable, and shall have, enjoy, and exercise all powers and rights over and concerning said property and the proceeds thereof as fully and amply as though said Trustee were the absolute and qualified owner of same, including the power to grant, bargain, sell and convey, encumber and hypothecate real and personal property, and the power to invest in corporate obligations of every kind, stocks, preferred or common, and to buy stocks, bonds, and similar investments on margin or other leveraged accounts, except to the extent that such management would cause includability of an irrevocable trust in the Estate of a Trustee.

Early or Partial Distributions of Assets to Heirs

The short-form description of the duties of a trustee after the death of the grantor is to identify and gather the assets and debts of the grantor and distribute them as instructed in the trust. Sometimes this takes a while and heirs don’t want to wait. Also, a trustee has a duty to manage the assets responsibly, which may include investing as appropriate to earn available interest on cash accounts.

The usual cause for delay is being unable to liquidate assets quickly. Often there is real estate that needs to be sold so that the money can be distributed to the heirs. But it might take many months or even years to find a buyer. In the meantime, the other trust assets will be on deposit somewhere earning taxable interest, which leads to accounting fees and taxable income.

Having a paragraph in the trust that allows the trustee to make early distributions to the heirs eliminates some of the beneficiary unrest and allows them to get at least some of their inheritance right away. The trustee needs to hold back a reserve to cover expenses that might be incurred while waiting for a real estate sale, since if she distributes everything except the real estate then it might be difficult to collect the pro-rata shares of future expenses from them, such as property taxes, utilities, insurance, and repairs.

As to specific bequests of personal property, there would be no reason to wait on handing those out. If the grantor designated things like an automobile to a particular person or specific items listed on an attachment to the trust that are to go to a particular person, the trustee would likely be safe in handing out those things.

Here is a sample of what I put in trusts to cover this situation:

Partial Distributions to Trust Beneficiaries: After the death of Grantor, the Trustee shall have the authority, in his or her absolute discretion, to make partial distributions of Trust assets to the Beneficiaries named in this Trust on a pro-rata basis, prior to the complete distribution of the Trust assets according to its terms. The Trustee shall also have the authority to retain in the name of the Trust a portion of the Trust assets for contemplated expenses during the interim between the death of the Grantor and final distribution.

(To be continued...)

This excerpt is taken from “How to Avoid Probate for Everyone: Protecting Your Estate for Your Loved Ones” by Ronald Farrington Sharp. To read other articles of this book, click here. To buy this book, click here.

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