In brief, Michael Jackson’s parents are asking the court to appoint Katherine Jackson (Michael’s mother) as guardian of his three children, as administrator of his estate, and as a special administrator to immediately assume control of his assets.

The probate petition is drafted as if Michael Jackson didn’t have a will; supposedly, an attorney has an original will signed by Michael Jackson which will be filed for probate. In California, a person in possession of a decedent’s will has 30 days from the death to deposit the will with the superior court in the county where the decedent lived.

The typical model is that the property that belonged to the person who passed away should be transferred into the “B” or Bypass trust. In some circumstances, another trust – referred to as the Q-TIP or “C” trust – will also be funding with some of the property from the person who passed away.

The other trust – the “A” trust, also known as the Survivor’s trust, holds the property of the spouse who is still living.

It’s not unusual for the surviving spouse – especially if they didn’t pay attention during the estate planning process, or if they used a trust mill or an attorney who couldn’t be bothered to explain the estate plan which was developed – to be surprised to learn that they’re obligated to take half of the property they’re accustomed to thinking of as “theirs”, and to move it into a new bank account or brokerage account.

(The exact details of the split between the A, B, and maybe C trusts depends on the property you own, how title was held (separate property versus community property), and the terms of your trust, so it’s not possible for me to describe exactly what to expect without actually reading your trust and understanding your property situation.)

In any event, unless the joint trust has been specially drafted to preserve flexibility at the first death, the trustee of the trust – typically the surviving spouse – is required to move assets into the bypass trust.

Why is this required? Because the different trusts – A, B, and C – are treated differently from a legal and from a tax point of view. For example, the B and C trusts are typically distributed according to the rules created by both spouses together; while the surviving spouse typically has the power to give the property in the A trust to anyone they choose.

In practical terms, this is most often an issue where the surviving spouse and the spouse who passed away had different ideas about who should receive their property – often because the surviving spouse remarries, or because this was a second marriage for one or both of the partners, and some of the children weren’t the biological offspring of both partners.

What happens if the bypass trust isn’t funded? The trustee – either the surviving spouse, during their lifetime, or the successor trustee – may face a lawsuit from frustrated beneficiaries, who are angry that their inheritance has been taken away from them or mismanaged.

The court ruled that a creditor cannot force the trustee of a discretionary trust to make a distribution to the beneficiary, if the trustee has reasonably determined that the beneficiary does not need a distribution to provide for their health, education, maintenance, or support.  The practical effect is that – since there is no distribution – the creditor cannot get their hands on the funds which have been preserved for the beneficiary.

This opinion concerns a case where the beneficiary was convicted of attempted murder – but it is likely to be helpful to people in much more mundane circumstances faced by many families, such as divorce, business disputes, and even bankruptcy created by overwhelming medical bills following catastrophic injury or illness.

If your estate plan does not provide asset protection for your family – or if you are using the state’s default estate plan, which does not provide asset protection for beneficiaries – you should think seriously about sitting down with competent estate planning counsel to make sure you’re doing everything you can to provide for the people who depend on you, and the people you care about most.

General duty to administer trust appropriately. The Trustee must adminster the trust according to the law and in accordance with the trust document. Good intentions are not enough to insulate a trustee from liability if they do not comply with California law and the trust document. (Probate Code Section 16000).

Duty of loyalty. The trustee must administer the trust solely in the interest of the beneficiaries; the trust cannot be used or managed for the benefit of the trustee. Of course, the trustee may also be a beneficiary in some cases. (Probate Code Section 16002).

Duty of impartiality. If a trust has two or more beneficiaries, the trustee must deal with them impartially – the trustee cannot favor one beneficiary over another – even, or especially, where the trustee is also a beneficiary. (Probate Code Section 16003).

Duty to avoid conflicts of interest. The trustee must avoid conflicts of interest – e.g., situations where the trust’s interests and the trustee’s personal interests (or the trustee’s family’s interests) are opposed to each other. (Probate Code Section 16004).
Duty to control and preserve trust property. The trustee must actively control and preserve the trust property; the trustee cannot passively allow the property to be injured, dissipated, or lost. (Probate Code Section 16006).
Duty to make trust property productive. The trustee must make sure that the trust property is invested wisely, and so that its value is preserved and enhanced. (Probate Code Section 16007).

Duty to separate and identify trust property. The trustee must maintain a clear distinction between trust property and the trustee’s own property, or the property of other people. For example, a trustee must not deposit money belonging to the trust into the trustee’s personal bank account. (Probate Code Section 16009).

Duty to report to beneficiaries. The trustee must keep beneficiaries informed with respect to matters involving the trust. (Probate Code 16060 – 16061.9)
Duty to account to beneficiaries. The trustee must prepare statements regarding the financial transactions of the trust and provide them to current beneficiaries upon request and on at least an annual basis if the accountings are not requested. (Probate Code 16062)

Duty to exercise discretionary powers reasonably. Even where a trust provides that the trustee can exercise “discretion”, the trustee must exercise that discretion in a reasonable way. The trustee cannot act in an arbitrary or unfair fashion, even if the trust says that the trustee’s discretion is “uncontrolled” or “absolute”. (Probate Code 16080)