Even when beneficiaries want to agree to a certain allocation of assets, it is often very difficult to actually put the agreement into effect. This is especially true when the agreement is contrary to the rules of intestate succession (i.e. who inherits when there is no Will or Trust) or terms of the decedent’s Will or Trust. Frequently, the issue comes up in real estate and vehicle transfers where the state keeps track of title. Unfortunately, informal agreements are not necessarily enough even when full, formal probates are unnecessary.
As an initial matter, it is generally not acceptable for beneficiaries to get together and simply decide the “who gets what” without someone having the formal authority to do so. If a person was acting as Power of Attorney (POA) or Conservator for the decedent, that power lapsed upon death so the former POA no longer has the authority to access accounts or make decisions. Instead, before assets start being distributed, someone should determine what authority is necessary, especially if there is a chance that certain items were specifically allocated to certain people.
When someone dies, determining whether there are any estate planning documents is an important first step. If there is a trust, multiple successor trustees are typically named in priority order in the document; the successor trustee, if he chooses to serve, only has control over trust property. If the trust has not been properly funded (i.e. accounts and assets are not titled in the trust) or if there is not a trust, then you will have to determine whether probate is necessary or some other, informal process may be used. If there is a Will, then the document will typically nominate an executor to administer the probate estate. If there is not a Will, or the nominated executors are unwilling or unable to serve, someone should request the Court to become administrator of the estate. It is this person’s obligation to gather up and inventory all the assets before they are distributed. This person must also investigate whether there are any creditors who could make a claim to the assets. Allowing individuals to take valuable assets without providing for creditor payment could result in the person administering the trust or estate to have to pay the creditors from his own pocket.
If a full, formal probate is necessary, the court will oversee the process of asset distribution and most assets will be distributed among the beneficiaries after payment is made to the creditors. For example, if there are no creditors and four equal beneficiaries, each will receive a 25% share of the house, a 25% share of the car, etc. If everyone simply “agrees” that one beneficiary is entitled to an entire asset, there generally must be an offset so that everyone receives his “fair share.” In estates with very few liquid assets, it may be difficult or impossible to offset shares within the probate estate. Additionally, when a full probate is unnecessary, all beneficiaries must still join in the Small Estates Process that every state has. In either case, there is a waiting period to allow creditors to make claims against the estate; most notable, Medi-Cal may need to be notified if the decedent was receiving benefits.
In short, even when all beneficiaries are in agreement, it may not be enough for distribution. Ensuring that creditors are provided for and formalities are followed will avoid the possibility for future liability.
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