Estate Planning Bits

Selecting a trustee - making sure you get it right

When establishing a trust, many decisions have to be made such as: At what ages will distributions be made? Who the beneficiaries will be? Who will be contingent beneficiaries in the event that the first named beneficiary is deceased? However, one of the most important decisions is the selection of a trustee. This is the person or entity who will be in charge of administering the funds in the trust if the grantor becomes incapacitated or dies. 

The responsibility of the trustee is that of a fiduciary, which means that they have a high decree of responsibility to administer the funds, even a greater responsibility then they would have had to manage their own funds. In addition to the management of the trust, administration involves the distribution of funds to or for the benefit of beneficiaries. 

In the event that there is a broad standard provided to the trustee for the beneficiary’s comfort, maintenance, support, education, and enjoyment, the trustee must determine how much money should be distributed at certain times and what proper use of the funds was intended by the creator of the trust. This may involve such things as the payment of tuition to a college as well as the purchase of a vehicle. For example, the trustee will have to determine whether the student should have a new Chevrolet or a used Volvo. 

The trustee will also be required to file income tax returns, as well as estimated taxes throughout the year and review the income, gains, losses, and deductible expenses for purposes of taxes. The trustee normally engages the services of an accountant who is well versed in trust taxes, but it is up to the fiduciary to make all of the appropriate decisions based on recommendations provided to the trustee.

There may also be difficult decisions that a trustee has to make such as whether funds should be distributed for the benefit of a beneficiary who might be getting married. Should a wedding gift be purchased from those funds for the benefit of the newlyweds? Is it appropriate for the trust to expend funds for a honeymoon, and if so, to what extent? Should the bride and groom travel first class on their honeymoon?

Often the grantor will name an individual person to serve as the trustee or perhaps two individuals to serve together. In the event that a person does not wish to have family members involved in the administration and investments of the trust, it may be preferable to select a corporate fiduciary, be it a bank, trust company, or investment firm to serve as the trustee. The trustee will then attend to the duties as well as be responsible for all investments. 

In the event that an individual trustee is named, then that person may decide that they wish to delegate the investment responsibility to a corporate trustee, and this language should be included in the trust to allow the individual to engage the services of a professional advisor for financial decisions as well as professionals for taxes, legal issues, etc. 

While there is no right or wrong decision as to the most appropriate person or entity to serve as the successor trustee, it is important to be sure that the correct decision is being made. Once the document is signed, if the grantor has second thoughts about the trustee, and as long as the trust is revocable, a relatively simple amendment may change the fiduciary to a different family member, friend, corporate entity, or a combination of the above. Unfortunately, in certain situations there is no family member who is trustworthy, responsible, and will devote the necessary time to the important task of being the trustee. In those situations, it is probably better to select someone outside the family. 

It should also be mentioned this should be discussed with the attorney who is preparing the documents to help assure that the person is being selected for the correct reasons, not merely because they are related or wealthy.

Hyman G. Darling, Esq.

Why you may need a prenuptial or postnuptial agreement

With so many people getting divorced and with so many second marriages and blended families, it is very important to consider a prenuptial or a postnuptial agreement. By executing these documents in anticipation of a death or a divorce, the division of the assets at that time are negotiated prior to the event happening, hopefully preventing extended and extensive lawsuits in the future. This doesn’t mean that an agreement won’t be contested, but if the agreement’s groundwork is laid properly, it will be a difficult burden for a person to challenge the validity or fairness of it.

In all agreements there should be full disclosure of all assets, income, liabilities, and even proposed or projected assets or liabilities that may come in to play in the future. In the event that full disclosure is not made, and to the extent that a person does not list an asset or liability, the agreement may be held to be invalid for the purpose as originally created. Therefore, all parties should be very cautious to provide as much information as possible to the drafter of the agreement to prevent challenges down the road.

Another requirement in most states is that the parties each have their own lawyer. In fact, if they do use a single lawyer to represent both parties, the document may be held to be invalid because one party may not have had adequate counsel.

There are also cases where only one person has counsel and the other person does not. In these cases, the person who does not have counsel may be able to proceed with a valid claim against the agreement for that very reason. Even if they waive the right to counsel, after the fact, they can claim that they were duressed or forced into signing the agreement or were told to not engage the services of an attorney.

The document is especially important in a blended or second marriage when one spouse dies, so the surviving spouse doesn’t have the opportunity to waive the will, which means that they could otherwise take a forced share of the estate even if they were omitted from the will. This right may be waived by the contract of establishing the prenuptial agreement.

Prenuptial and postnuptial agreements are very important and valuable estate planning documents to be considered at the time that the will and/or trust are being established They helps assure that any children from the first marriage receive assets, since even if all assets were held in a trust for the surviving spouse, the possibility exists that they could be dissipated by taxes, expenditures, fees, and possibly long-term care expenses.

Prenuptial and postnuptial agreements may spell out all rights regarding financial support, use of the home, use of a second house, allocation of taxes, etc. This is one of many documents that should only be completed with the advice and counsel of an attorney. Although it is very uncomfortable in many cases to consider this contract, it should be considered as part of the marriage itself. Also, in many situations, clients wait until the last minute to have this document prepared and signed, but case law indicates that the sooner it is signed prior to the marriage, the better chance the document has to be enforced.

By: Hyman G. Darling, Esq.

An inheritance is not a right – anyone may chose to disinherit a child - but at what cost?

A person who wishes to leave assets to family members in different proportions other than equal may do so under the law. However, one person who may not be disinherited is one’s spouse, and each state has its own rules as to what percentage a spouse may receive if he or she is disinherited from a will. Normally, the percentage is based on whether there are children born of the marriage, other heirs of law of the decedent, and the amount of money that is otherwise left to the surviving spouse under the terms of the will.

Nevertheless, a person need not leave money to any other individual under the law. If this is going to be the case, then a specific omission of that particular individual and possibly their offspring and spouse should be specifically directed within the will or trust. Their names and addresses should be provided so that when the testator dies, the information will be available to the attorney probating the estate to provide the formal notice as required.

In addition, at the first meeting with the client, the lawyer will hopefully take sufficient notes so that there will be a paper trail of the reasons for the omission of the family member. The reasons may be as varied as the family growing apart, not caring for the spouse of a child, a child who has a disability, or there may not have been any communication and respect for the parent, which will negate any bequest to the surviving child.

In the event that the attorney is not available to testify at a hearing due to the fact that perhaps he or she has retired, passed away, or merely closed their practice, notes should be kept that, indicate that from the first meeting through the signing of the document, the client was consistent in their goals and intentions to omit a particular family member, friend, or charity. The information causing the omission of a family member should be specific, clear, consistent, and accurate.

In some states, there is a clause known as a no-contest clause that may be included in the document, so that if the family member contests the will, even if successful, they would receive no bequest. However, some states have determined that this is not an enforceable law, and they have made efforts the change in the law, which may affect any property, regardless of how it is held at the time of death.

However, if a person is specifically omitted and the no contest clause is added, there is no incentive for the beneficiary to waive the contest. On the other hand, if a specific amount is left to this beneficiary, and if the beneficiary were to object and lose, they would also lose the specific bequest as set forth in the estate planning documents. This will hopefully deter a person from contesting a will and allow the estate to proceed.

It is important to consider the feelings among all parties when treating family members unequally. For example. an attorney may ask a client if it is fair to penalize a successful child by leaving them less. A client should also be informed that when they pass away, if there is a contest, and the children fight amongst themselves, there will be no parent to act as referee.

It is always important to consider each personal situation to determine whether or not it is appropriate to leave unequal shares to beneficiaries upon death. The preservation of inter-family relations is often as important as the financial gains, especially after the death of the parents.

By: Hyman G. Darling, Esq.