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What Is Income And Principal For A California Trust?

In order to be a legal trust, it must have property.  Trust property is separated into income property and principal property.  Many times a trust will specify who is to receive the income property and a different set of people will receive the principal income.  For joint trusts, when the first spouse passes away, the trust can restrict the surviving spouse's ability to access the principal of the trust and limit him to only using the income during his lifetime.  The principal is reserved for the children and to be distributed after the death of the second spouse.  This is can be in cases where the trust has income producing property such as rental income or generates interest or dividends.

Without any restrictions, the surviving spouse could use the principal and interest as he or she sees fit.  The distinction between interest and principal can get muddled at times.  Probate Code Section 16320 through 16375 sets forth the guidance...

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California No Contest Clauses: When Does A No Contest Clause Apply?

The current statute governing no-contest clauses contained in Probate Code Section 21310, et. seq. That section significantly limits the effect of a no contest clause.  Even if the document contains a no-contest clause, it only can be enforced in three specific scenarios.  Those scenarios are: 

  • A direct contest brought without probable cause;
  • A pleading to challenge the transfer of property on the grounds that it was not the transferor's property; and 
  • The filing of a creditor's claim or the prosecution based on the creditor's claim.

This only applies if the document you are challenging contains a no-contest clause. The effect of triggering a no contest clause is that you will be disinherited.  If you are challenging a will or trust that does not have a no-contest clause, then you will not be subject to disinheritance if you challenge the trust or will and lose.

A direct contest means you are challenging the validity of the trust or will or an...

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What Is A No Contest Clause?

Many wills and trusts contain a no contest clause.  A common no contest clause states if you challenge the terms of the will or trust you will be disinherited.  If you believe their deceased loved one was preyed upon and the will or trust does not reflect their true intentions.  If you are faced with that situation, it is common to inquire what will happen if you contest the trust.  Perhaps you are being discouraged from contesting the trust or will because you are being told you will be disinherited.

It is important to recognize the no contest clause is meaningless if you have been disinherited.  If the will or trust gives everything to the person who took advantage of your mother or father, the no contest clause does not matter because you are not inheriting anything under the current will or trust.

The only way you will be able to receive your rightful inheritance is to file a will or trust contest.  The no contest clause applies to direct...

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My Father Left His Estate To Someone Else. Do I Have A Right To Inherit My Father's Estate?

When Karin's and John's father passed away, they expected they would inherit their father's estate since they were his only children and he was not married when he passed away.  When they located his estate plan, they found that their father left his entire estate to someone who is not family.  They were shocked and surprised.  Is there a right to inherit from your parents?

Simply put, there is not a right to inherit from anyone.  If the decedent executed the estate plan with his or her own free will free of any undue influence and had the capacity to do so, a person can name any beneficiaries he or she chooses.  If Karin and John do not do anything, the estate plan is considered valid.  In order to set it aside, a petition must be filed in the court to set aside the trust or will.  This is called a trust or will contest.

The will or trust contest challenges the will or trust based on undue influence, fraud or lack of capacity.  To set aside...

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What Is The Difference Between A Trustee, Administrator and Executor?

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The terminology can be confusing.  Many times when I first speak to individuals over the phone, they use the terms interchangeably.  Many times the person does not even know whether they are looking at a will or trust.  Trustee, administrator and executor all have very different meanings.

A trustee is the person in charge of a trust.  An administrator is the person appointed by the probate court to oversee a decedent's estate when there is no will.  An executor is the person appointed by the probate court to oversee a decedent's estate when the will has been admitted to probate.

Probate and trust administrations have very different processes.  Probate is the process to administer a decedent's estate when there is either no will or there is a will but not a trust.  A probate is a formal court supervised proceeding to administer the decedent's estate.  Probate is always a requires a formal court proceeding.  

Trust administration...

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My Father Passed Away and Owes Taxes. Will His Children Be Required To Pay His Taxes?

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The estate of a loved one can be difficult to navigate.  This is especially true if your father owed taxes to the Internal Revenue Service.  It is not uncommon for the beneficiaries of his estate to feel conflicted.  On one hand they want to receive their inheritance.  On the other hand they want to do things properly.  The conflict becomes real when the beneficiaries realize that if the taxes are paid, they will not receive anything.  

Your father's beneficiaries are only entitled to what is left in his estate after the bills and expenses of his estate are paid.  No one is "entitled" to inherit from their parent.  The good news is your father's creditors, including the Internal Revenue Service, are limited to the assets of his estate.  This means that if the taxes are worth more than his estate, the IRS can only look to his estate and the taxes do not need to be paid in full.

This assumes the beneficiaries do not distribute the...

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What If Someone Dies Who Owes Me Money?

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If someone dies and they owe you money, you are a creditor of their estate.  If the funds are not secured by real property, such a a mortgage, you have a limited amount of time to take action or you are barred by law from collecting your debt from the decedent's estate.

Under California law, a creditor has one year to bring a file a claim in court against the estate or he/she is forever barred by law from enforcing that debt.  Even if a probate is never opened for the decedent, the one year statute of limitation applies.

A creditor can open a probate to file a claim to preserve the creditor's right to sue for the debt.  If a creditor fails to file a claim in the probate court within one year of the date of death, the creditor is barred by law from collecting its debt.  The statute of limitation applies even if the creditor is not informed the person passed away.  

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My Mother Has Dementia and I Am Named As The Successor Trustee. Am I Required To Act?

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Watching your mother's dementia progress can be incredibly challenging emotionally, cognitively and physically.  If you are also grappling with legal issues, it can seem overwhelming.  Generally, adult children are trying to balance their parent's independence with the need to protect them from predators.

Generally, when a revocable living trust is set up the person who created the trust also serves as the initial trustee.  The trust document designates a successor trustee to serve as the successor trustee when the original trustee either passes away or becomes incapacitated.  

If you are a successor trustee and you are aware your mother is unable to manage her finances, she may be incapacitated.  The successor trustee does not have an obligation to act from a legal stand point.  The successor trustee does not have any duties or responsibilities under the trust until they agree to accept the appointment as successor trustee.  

However,...

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I Just Received A Letter From The IRS And I’m Scared To Open It. What Do I Do?

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Receiving a letter from the Internal Revenue Service is scary.  Your heart skips a beat, your hands sweat and your mind envisions the IRS seizing your bank accounts and home.  You just stare at the letter in your hands with fear in your heart.  

The first thing to do is to take a deep breath and open the letter.  Once it is opened, read the letter.  The IRS generally provides instructions what to do if you disagree with the letter.  Many times IRS notices do not require any further action from you.  This can include letters just notifying you they are still processing your return, are correcting an error on your return or your annual statement.

If you disagree with the letter, send a written letter to the IRS explaining why you disagree and include any supporting documentation that supports your position.  It will take the IRS at least 30 days to respond.  Be sure to keep a copy of the notice and any written correspondence you  send...

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What Do I Need To Demonstrate If I Am Deducting Gambling Losses On My Tax Return?

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For many, gambling holds a unique allure.  Whether your game is black jack, craps, slot machines, pai gow poker, or another game, the allure of gambling can be exciting.  The excitement and anticipation of winning can be exhilarating and the disappointment of losing can be devastating.  All gambling income, no matter how small, is taxable income.  

You can take a loss for your gambling losses but only to the extent of your winnings for the same year.  For example, if you lost $40,000 the year and your winnings are $30,000, you would only be allowed to deduct $30,000 in losses.  If you have $40,000 winnings and $30,000 in losses, you would have $10,000 in taxable income.  If you have no winnings but $30,000 in losses, you would not be able to deduct your losses. 

You as the taxpayer have the burden of proof to substantiate your gambling income and losses.  To meet your burden of proof, you must have a log (or similar record) which...

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