Wills and Contingent Inheritance

I'll leave others to speak to California law, but one thing I do know is that many places (including California) will allow a no-contest clause, which basically says, "If you dare to challenge the will in court, and you lose, you also lose out on whatever part of the estate you had coming to you." So if any of the heirs want to make noises about whether or not the will is fairly written, they may need to be careful about how far they challenge things, or else they run the risk of losing all claim to what they would have had if they had only cooperated. Generally, as long as you don't put in something illegal-- "...as long as you don't marry a black person/Catholic/foreigner!"-- a will can have as restrictive terms as you want. But because of that first bit, you want to make sure any restrictions will be perceived as reasonable by the courts, and upheld. ("As long as you don't dye your hair!" "As long as you become an engineer!" "As long as you marry Fred!" would probably get overturned.) Not being allowed to speak on x subject matter that directly relates to them and their experiences would probably not be seen as a reasonable limitation.

Another thing to beware of is that trusts can be expensive to operate, especially when the trustee has no incentive to be economical. I've heard anecdotes about trusts that have been pretty much drained by unethical trustees. The trustee gets compensation; there are annual accountings; the trust itself has to file annual tax returns; etc. What I usually run into is where heir assumes control of the trust when they reach a particular milestone: usually a certain age (21, 25, 35, whatever), but in the past, it might have been more likely to be something like "upon marriage", "upon graduation", etc.

You might take a field trip down to the probate clerk's office at the Travis County Courthouse, and see what their setup is like. Basically, you provide the name of the deceased and the date of death, and they'll be able to pull up the information for you. They'll probably charge per page if you wanted to print out a copy, but if you just wanted to look at it, I believe that should be free. The system would probably be very similar to a large city in California, so you might try it out just to get that firsthand experience flavor. In comparison, in my little rural county of less than 20k, you can generally count the number of estates probated on the month's docket on two hands.

I'm a lawyer but neither a California attorney nor a trusts and estates lawyer. That being said, testators have a great deal of leeway in placing conditions on testamentary bequests, particularly if a surviving spouse is not involved. From a quick look on line, in California the will would have to be filed within thirty days after death.

Relevant laws re taxation and domicile etc., will apply, but googling - Dead hand control - may give you some ideas as to what may introduce conflict into the situation.

Property would be placed in a trust prior to death for estate tax purposes. Trusts would be for the father's benefit during his lifetime, with the trust transferring to the child upon father's death. The will would be so that any property not included in the trusts would be covered, but would be a very small amount of the estate.

Wills are public documents after death, but trusts are not. Easy to add a clause to the trusts about nondisclosure of the father. The trust may never vest the children with the principle, but just income, with the principle going to another generation (limited to lives in being plus 21 years).

Properly done, it can be kept very private. But things can go wrong.

Jim Clark-Dawe

jclarkdawe said:

Property would be placed in a trust prior to death for estate tax purposes. Trusts would be for the father's benefit during his lifetime, with the trust transferring to the child upon father's death. The will would be so that any property not included in the trusts would be covered, but would be a very small amount of the estate.

Wills are public documents after death, but trusts are not. Easy to add a clause to the trusts about nondisclosure of the father. The trust may never vest the children with the principle, but just income, with the principle going to another generation (limited to lives in being plus 21 years).

Properly done, it can be kept very private. But things can go wrong.

Jim Clark-Dawe

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Mainly curious here, Jim.

Re the 'for estate tax purposes' in the first sentence, I'm wondering what that means?

I know trusts is a very complicated area and laws differ, but I've always understood that if a settlor retained 100% benefit from his own settlement, the property in the settlement was still deemed to be part of his estate for estate duty purposes.

Bufty -- In the US, under Federal law, after the first $5 million, all transfers in the estate are taxed by the IRS. By carefully arranging when the transfer effectively occurs, such as to a grandchild upon the death of the child, one can defer some of those taxes or eliminate them entirely. A straight-up will is the least effective instrument to use for estate tax purposes.

For example, if you leave your estate of $10 million to your wife, you're wife is going to be paying over a million to the IRS. If instead, we set up a trust within the will leaving half of your estate to your wife, and the other half to a trust for the benefit of the wife (each effectively being $5 million), you can pass the entire estate tax-free to your wife.

Once an estate is going over $1 million dollars, any competent attorney in the US starts planning for taxes on the estate. An estate of $100 million in the US, done properly, is a massive document or documents.

Please note that my numbers may be off a bit as I haven't done estate work for many years. I did a quick look at the current numbers, but haven't done the extensive research to put any reliance in the numbers, but the principle is the same.

Jim Clark-Dawe

jclarkdawe said:

Bufty -- In the US, under Federal law, after the first $5 million, all transfers in the estate are taxed by the IRS. By carefully arranging when the transfer effectively occurs, such as to a grandchild upon the death of the child, one can defer some of those taxes or eliminate them entirely. A straight-up will is the least effective instrument to use for estate tax purposes.

For example, if you leave your estate of $10 million to your wife, you're wife is going to be paying over a million to the IRS. If instead, we set up a trust within the will leaving half of your estate to your wife, and the other half to a trust for the benefit of the wife (each effectively being $5 million), you can pass the entire estate tax-free to your wife.

Once an estate is going over $1 million dollars, any competent attorney in the US starts planning for taxes on the estate. An estate of $100 million in the US, done properly, is a massive document or documents.

Please note that my numbers may be off a bit as I haven't done estate work for many years. I did a quick look at the current numbers, but haven't done the extensive research to put any reliance in the numbers, but the principle is the same.

Jim Clark-Dawe

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Thanks, Jim. I follow that.

It's just that from the earlier post I understood it was suggested the father create a trust in his own favour while he was still alive 'for estate tax purposes', which I took as meaning there was death tax benefit or relief available in such cases. Over here, that would fall under the category of a reserved benefit and I believe the trust assets would still form part of his estate when he died. Maybe different over there across the 'pond'.

Thanks for your patience.

Bufty -- The trust(s) would be part of the taxable estate, but the idea is to fall into a deduction or an exception or delay the date on which the tax is imposed. For example, you can transfer as much as you want to a spouse under the unlimited marital deduction through a qualified domestic trust (QDOT). That means you can defer taxation until the spouse dies, but usually you limit this to 50%. But it depends. In the US we've created a system where we use trusts to avoid estate taxes. It makes sense to our Congress.

Cheryl -- Normal language for a child would be "my son, Number 1, of Sometown, State." But you use as much detail as you think you are going to need to make the person unique.

A couple dying in the same accident becomes important as to which dies first. However, most, if not all states have a law to deal with this, usually somewhere around 30 days. This can also be defined in the wills and/or trusts. This used to be a major issue, including one case where how the husband and wife were seated on the airplane that crashed to try to determine who had died first. Depending upon the estate plan, this can make a massive amount of difference.

Usually a will or trust sets out specific bequests first, with the remainder to the remaindermen, in this case, the wife. In other words, Number 1 Son receives $5 million dollars, with the wife receiving the remainder of the estate. If the remainder of the estate is $5, that is all she gets. If the remainder of the estate is $5 billion dollars, then all Number 1 Son gets is $5 million.

In planning a husband and wife estate with significant assets, the estate will never go entirely to the surviving spouse. Each person is entitled to a significant standard deduction on their estate (which is why estate taxes are only paid by the top 2% of Americans). No one throws away this deduction. Any attorney who failed to use it would be probably guilty of malpractice.

Jim Clark-Dawe

So, this the experience of a friend of mine

A friend own a reasonably historic house in Savannah. He doesn't want to own this house, but can't sell of it. His Momma's family is old Savannah and owned this house since before the Civil War. The house has a trust and an entail that insists that the house must pass to a blood family member, with the standard preference given to a male. So, when his Grandmother died the house should have passed to his Momma, but she deep had issues with Grandmother. His brother objected -- he legit thinks its haunted -- none of the extended family lives south of the Mason-Dixon line. So, since he was under the age of 18 at the time my mother passed the house to him. Since he was a minor, his Momma said to, "Shut your mouth and take one for the team."

As it has been explained to me, he own this house, can't sell it. Can't donate to the National Parks Service, because that's part of the federal government and also expressly prohibited in the deed restriction. If any family member challenges the ruling in court the house, and the house's endowment, would be donated to the Georgia Historical Society. His uncle, who also refused to take the house, explained that the only way his family could ever get rid of it was if it burnt down, which is something he apparently considered doing a number of times when he was a teenager.

So yeah, this is off topic, sorta.

CEtchison said:

Would it be possible for their inheritance to be placed in a trust or some other such thing where payouts would be made annually instead of a lump sum upon his death?

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Absolutely. Very common to use a generational skipping trust to avoid taxes.

CEtchison said:

And if so, could the decedent stipulate that the children must sign and adhere to a non-disclosure agreement or something along those lines to keep them from writing a tell-all book or do interviews regarding their father?

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Less common but perfectly legal in most states (won't say all because I don't know them all...). You see these clauses in celebrity wills more often than just common folk like me, but plausible.

CEtchison said:

And if so, would it be plausible they would forfeit any future inheritance if they were to violate the agreement?

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That's dependent on the agreement, not the will.

CEtchison said:

Also, from what I've found online, the will would become public record once it has been filed with the court. How long might this be after his death? Days? Weeks? Months?

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Instantly upon filing. May take a while to show up in searches, but it's immediately a public record. There are ways around the actual distribution of the estate being public records, blind trusts, offshore accounts, businesses being beneficiaries, etc.

Jeff