California  |  Wills and Trusts

Legal Question

Asked on: 8/27/13, 10:15 am

My husband is an only child. His parents had a living trust which named him as the trustee. They were both in their 80's and passed away this year within a few months of each other. My husband had previously seen an earlier version of the trust from twenty years ago where he was listed as the beneficiary and trustee when his parents died. After their deaths he discovered that their lawyer had convinced them last year that changes to the 2013 tax laws were going to result in large increases in inheritance tax, and had them add an amendment setting up an irrevocable dynasty trust as the beneficiary, he is listed as the sole trustee on that new trust, and he is now trustee on the living trust. Their estate was less than 2 million dollars and there would have been no inheritance taxes owed. Almost all of the estate is capital gains, in stock and home appreciation, and the dynasty trust exposes that to capital gains tax on sale of the assets, which previously would not have applied as he would have inherited with a new basis. His parents never understood this, his father told him shortly before he died that no taxes would have to be paid because of the trust. In short, the amendment is completely irrational in terms of estate planning. The only person who benefited from it was the lawyer, who charged them a couple of thousand dollars to draw it up. The living trust contains clauses to the effect that anybody who challenges any part of it gets nothing.

Both his parents and we live in California. How should he go about cleaning up this mess - is there some not too painful way to petition to have that amendment thrown out, as it is insane, without triggering that poison pill clause in their living trust? My husband does not want to spend years in court and tens of thousands of dollars on lawyers, but neither does he want to be bound by that crazy amendment. The whole thing is incredibly frustrating - handling their estate would have been easier and less expensive had they died intestate!

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