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Environmental Issues In Estate Planning

How to administer contaminated property to protect and benefit your heirs

Many estates include a parcel of contaminated property and are thus subject to a host of special federal, state, and local environmental laws. These laws target "owners" (people holding legal title to the contaminated property) and "operators" (people who have authority to control the process causing the contamination), regardless of who was at fault. Many environmental laws apply retroactively, which means that contamination caused by an activity that was legal when performed may result in substantial cleanup liability now or later. It is important to ensure now, through proper estate planning, that the contaminated (or potentially contaminated) property is handled correctly, so that beneficiaries are not bequeathed a packet of problems. Recently, especially in California, there has been an increase in the use of living trusts to avoid probate and minimize estate taxes. While environmental laws apply equally to properties held in trusts, a trust does provide an opportunity for extra planning when a contaminated property is involved.There are many conflicts that may occur when environmental law and estate administration meet. These are some of the more common problems that may arise:

  • The trustee has a duty to make trust property as productive as possible, but environmental law forbids any use of a contaminated property until it is cleaned up.
  • The purpose of a trust may be to provide support for beneficiaries, which requires the trust to make distributions to the beneficiaries, but environmental laws may require trust assets to be used for cleanup of contamination before payments can be made for support of any beneficiary.
  • The trustee and beneficiaries may disagree about how a contaminated property should be handled, yet the trustee has certain duties under the law which, if not followed, may result in personal liability to him or her.
  • The property owner may have a difficult time finding a person willing to take on the job of trustee with all of its administrative problems and pitfalls, including the possibility of personal liability for the trustee.
  • The costs of cleanup may be more than the contaminated property is worth; in fact, these costs could conceivably use up your entire estate.
Certain provisions can be included in trust documents to address these and other problems caused by contamination of trust property. The provisions cannot eliminate liability of the trust estate and the trustee for the cost of the cleanup, but they can provide the trustee with increased options when administering the trust and trying to reconcile the beneficiaries' desires with the trustee's duties under the law.Some Possible Provisions:
  • Include language allowing the trustee to arrange for an environmental audit of the property (at trust expense) before the property is accepted into the trust.
  • Include language protecting the trustee from legal action by beneficiaries who may claim that the trustee's actions in complying with environmental laws constitute a breach of trust.
  • Include language empowering the trustee to clean up previously sold or distributed trust property using trust assets.
  • Include language exonerating the trustee from liability to beneficiaries (and to other parties) for acts taken in compliance with environmental law, except for acts by the trustee that cause or contribute to the violation of the law.
  • Include language relieving the trustee from personal liability for costs (including legal fees, costs of cleanup, fines and penalties) he or she may otherwise incur by accepting trusteeship. (California law prohibits exoneration for grossly negligent or intentional acts.)
  • Include language authorizing the trustee to have the property appraised (at trust expense) by a knowledgeable appraiser, who will include a "lack of marketability" discount in setting a value on the contaminated property. This will help minimize estate tax.
  • Include language notifying the trustee to explore all available sources of assistance for cleanup costs, including but not limited to California Underground Storage Tank Cleanup Fund, all past owners or tenants of the property, and all insurance policies that covered the property at any time during which contamination may have occurred.
  • Include language mandating that the trustee hire a licensed environmental consulting firm to ensure that the cleanup is performed correctly.
  • If the trustee will be leasing the property, include language instructing the trustee to have legal counsel review leases on environmentally sensitive property, or for property leased for sensitive uses such as service stations, to ensure that the tenant will bear appropriate responsibility in case of contamination.
A piece of contaminated property can drastically change the nature of your estate. Some thoughtful advance planning can limit the financial damage to your estate while still ensuring that the property cleanup will meet legal requirements.
Attorney Deborah A. Malkin has practiced law in Santa Cruz, California since 1988. She specializes in wills, trusts, and other forms of estate planning, as well as probate matters. Deborah A. Malkin is a Certified Legal Specialist in Estate Planning, Trusts & Probate, certified by the Board of Legal Specialization of the State of California.

Deborah A. Malkin
Attorney at Law

2425 Porter Street, Suite 3
Soquel, CA 95073

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