LASTING COMMITMENTS: Being a beneficiary

Estate planning, like any field, has its own special uses of language. Many of the key terms are commonly used words such as “beneficiary,” which take on precise meanings in the context of wills and trusts.

Here’s a hypothetical situation that introduces some of the basic roles and ideas. It’s based on an actual question that a friend asked me, though names and details here are fictional.

Here’s the question. Please step into my friend’s shoes: “My ojisan (uncle) asked if I would like to be his beneficiary. What do you think I should tell him?”

In the context of estate planning, a beneficiary is a person who receives an inheritance. So you may be inclined to answer, “Yes!”

But do you know what your ojisan owns? For example, if his sole asset is land in Gardena that used to be the site of a gas station, you should do a little investigation. Would you acquire liabilities along with the property if you were to accept it, such as paying for harm to local neighbors from gasoline that may have leaked from underground tanks?

On the other hand, if your ojisan owns a regular single family residence, then you would probably feel honored to be under consideration to be named a beneficiary.

It is also possible your ojisan may have meant to ask whether you would be willing to be a successor trustee or an agent. He may ask you to serve as a fiduciary, which would mean taking on formal legal powers and duties. There are many types of fiduciary roles in the fields of law, business and health care.

For estate planning purposes, the three major types of fiduciaries are a trustee (of a trust), an executor (of a will), or an agent (under a durable power of attorney for finances).

A trustee manages the money and property in a trust. The type of trust that most individuals and couples create for their own property is a revocable living trust, meaning they control the property, and it is still theirs for tax purposes, while they are living, but when they die the trust controls what is done with the property. (Provisions vary for the level of control that a surviving spouse may exert over the shared assets.)

If your ojisan would like you to help him with issues involving his trust in the future, then what he may really be asking is whether you are willing to be nominated to be his successor trustee. The trustee is the person currently serving as manager of the trust assets. Your ojisan is most likely the current trustee of his own trust. Each person who forms a trust — the “settlor” or “trustor” of his or her own trust — has the opportunity to name a person (or people or institutions) to take over once the settlor is not able to manage the trust. This alternate money manager role is probably the one that your ojisan is hoping you might accept. You would become involved in case he loses capacity, or when he passes away.

If your ojisan does not have a trust, but instead has decided to distribute his property by will, then he may want you to be the executor of his will. An executor is a person (or an institution like a bank or trust company) who represents the deceased person — the decedent — before the court. The executor is responsible for gathering all of the decedent’s assets, presenting them to the court, handling payments to creditors, then distributing assets to the beneficiaries. Even when a living trust is in place, it is good practice to have a will in place as well. Typically when a settlor creates a trust, it is part of the same drafting process to create a “pour-over will.” The pour-over will is designed as an emergency document in case the settlor forgets to put all of his or his assets in the trust. The pour-over will scoops up forgotten assets and pours those assets into the trust, with the guidance of the probate court. However, if enough assets are already in the trust as of the settlor’s death, a court process is less likely to be needed. (For details, see our “Trusts vs. Wills” article at https://www.calestateplanning.com/estate.htm.)

If your ojisan’s estate planning lawyer has been thorough, he or she will have prepared a “durable power of attorney for finances” — abbreviated as “DPAF”— or sometimes as “POA” for “power of attorney.”

Your ojisan may ask if you are willing to be an agent (or “attorney-in-fact”) under his DPAF. As the “principal,” meaning the creator of the DPAF, your ojisan would authorize the agent to sign documents and checks and make financial decisions for him. A DPAF might give this power to the agent right away, if there is a high level of trust between principal and agent, or it might be a “springing” DPAF, meaning that the agent’s power would “spring” into effect in case of a future determination that the principal is no longer able to be responsible for his own affairs. Frequently, DPAFs are very broad, allowing the agent to have a substantial amount of authority on behalf of the principal.

California statutory DPAFs, containing the basic provisions under state law, can be found at Sec. 4401 in the California Probate Code. Some digital copies of the code do not have the text of the form but several copies are available online for free download. An editable version is available from the Sacramento County Law Library forms archive, at http://saclaw.org/legal-forms/ captioned, “Uniform Statutory Power of Attorney.” A version at the Santa Cruz County Law Library, at https://lawlibrary.org/download/109.pdf, includes the opening explanation and warning that, under Probate Code Sec. 4128, must be distributed with a DPAF form meant for use by a person who does not have the advice of an attorney.

Although the statutory DPAFs are designed for people to use on their own, it is better to receive advice from a lawyer because the form can grant or withhold powers in many different ways and combinations, and a more detailed DPAF may be more suitable than a simple one.

In the next column, I’ll discuss the health fiduciary roles that ojisan may ask you to undertake: agent under a Durable Power of Attorney for Health Care, or agent under a Durable Power of Attorney for Personal Care.

This article is general information only. It is not legal advice. Laurie Shigekuni has practiced estate planning, probate and trust administration law since 1996. She graduated from U.C. Santa Cruz in 1983 and U.C. Hastings College of the Law in 1989. Laurie Shigekuni & Associates is based in San Francisco with a satellite office in Pasadena. Japanese language services are available from a bilingual attorney or a bilingual law school graduate. For details see www.calestateplanning.com. The views expressed in the preceding column are not necessarily those of the Nichi Bei Weekly.

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