The Intersection of Dying Intestate and Guardianships
Dying intestate, or without a valid will or trust, can have serious legal implications. When a person dies with no will or trust, the distribution of their assets and property is determined by State law, specifically Probate Code sections §6400-6414. Dying intestate can lead to unintended outcomes, disputes, and additional complications when administering the estate.
For example, if a person dies intestate leaving behind one child and one spouse, the spouse will inherit all of the community property and the child and the spouse will each get ½ of the decedent’s separate property. If a person dies leaving behind a surviving spouse and two or more children, the surviving spouse will inherit all of the community property and 1/3 of the decedent’s separate property, the children will inherit the remaining 2/3 of the separate property. If the decedent dies with no surviving family members (including extended family), the state of California will take possession of the assets.
Complications can arise when a minor child inherits through intestate succession. In California, a minor cannot legally own property until they are 18 years of age. Thus, if a minor inherits money from a deceased parent or relative they cannot legally take possession of the money until they reach the age of 18. Most estate plans are drafted in a manner that addresses this issue. For example, most trusts are drafted to create “continuing trusts” for minors. These continuing trusts legally own the assets on behalf of the minor, and distribute money to the minor for their support until they reach a specified age. Once the minor reaches that specified age and becomes an adult, the continuing trust will distribute the assets outright.
When a person dies intestate, there is no estate plan in place accounting for distributions to minors. Depending on the amount of money the child is inheriting, a court order may be necessary to distribute money to the minor. If a child inherits more than $20,000, the court can order that:
- A guardianship be created and the money turned over to the guardian;
- The money shall be invested with the County Treasurer;
- The money shall be deposited in a blocked account, or a single premium deferred annuity, with withdrawal only allowed by court order;
- All or part of the money must be turned over to a custodian under the California Uniform Transfers to Minors Act.
The Complications of a Guardianship
To highlight the complications that can arise, take as an example the following scenario. Husband and wife are married with one minor child. The husband dies unexpectedly with no estate plan and $500,000 in community property and $500,000 in separate property. Under the laws of intestate succession, the wife will inherit all of the community property and $250,000 of the separate property. The child will inherit $250,000 of the separate property. In order to complete the probate of the estate, the court will order one of the four designated options above so that the minor can receive their distribution. In this scenario, the court elects for a guardian to be appointed. The mother decides to petition to be guardian of the child’s estate.
Mother will first have to be elected as guardian of the estate by the court. Mother will have to go through extra court proceedings and incur additional costs in order to petition the court for guardianship. This will add time to the administration of the estate and cause additional fees to be incurred. After the mother is appointed guardian of the estate and the assets are distributed, mother will continue to be the guardian of the estate of the minor until the minor is 18.
Guardians owe the ward (minor) fiduciary duties. Under probate code 2420, the guardian of the minor’s estate can apply the income of the estate to support the child, taking into account the size of the estate and the minor’s condition of life. However, the ability to pay for the support of the minor from the estate is subject to the overriding duty of a parent to support their child. Therefore, a guardian must obtain court approval before expending guardianship funds to support the minor when the minor’s parent is alive.
Thus, whether the mother/guardian can expend funds from the child’s estate to support the child will be in the discretion of the court. This can add an additional hurdle for the guardian/parent when they want to use the assets from the estate to pay for things such as private schooling or special care for the child. The court will decide if the expenditure of estate funds is necessary, taking into account the parental duty to support the child and the parent’s ability to pay the expense themselves. The court can determine that funds from the estate are not necessary, and the parent will be forced to front the cost of the expense without assistance.
As mentioned above, a well-crafted trust can prevent these issues by creating a continuing trust for the minor. The creator of the trust can grant the trustee of the continuing trust broad discretion to care for the minor, avoiding the need for court approval to make expenditures on behalf of the minor.
The example above is specific but highlights the lingering implications of dying intestate. Contact an experienced attorney at Naimish & Lewis for guidance in probate and estate planning.
