LIVING TRUSTS

Published on: September 22, 2011

Disinheriting a Child or Heir in a Will or Trust

The decision to disinherit a child can be very difficult for some people. Other people just want to give less to one child and more to another. There are usually valid reasons behind the decision and it is not one people take lightly. Most clients I see are reluctant to share their reasoning behind their decision. They think, correctly, that “they can leave money in their will or trust to whomever they wish.” However, it is very important to discuss your reasoning with your attorney. Once you pass away your estate planning attorney is in the best position to testify about the language and intent of your estate plan.

You intent is crucial to determine the validity of your will and trust if it is ever contested. Many people think, incorrectly, that a will or a trust cannot be challenged. However, any estate planning document can be challenged by a disinherited heir on two grounds. The first is undue influence, meaning that the person who benefited from the will or trust exerted too much influence over the person leaving them an inheritance. The only other ground is lack of capacity meaning that the person making the will or trust did not understand what they were doing when they executed their estate plan.

There are a few ways to prevent a contest of an estate plan. One is to have a ‘no-contest clause’, sometimes referred to as an ‘in terrorem clause’ in the will and trust. Basically this states anyone contesting the terms of the estate plan gets nothing. The other popular phrasing is the person contesting gets one dollar. The problem is these clauses only work if you give the person you are disinheriting something in the first place. I always advise clients who want to disinherit children completely to leave them some amount of money so that a disinheritance clause will work. The purpose of the clause is to take an emotional decision about being disinherited and making it an economic decision.

Published on: June 2, 2011

2011: Revocable Living Trust: Definition

by Scott C. Soady

A revocable living trust, be definition is a legal agreement for the trustee to hold property [legal title] for a beneficiary. A revocable living trust is one of the only legal documents you can make with yourself which is legally binding. Another name for a revocable living trust is an inter vivos trust.

This trust, which is revocable, is created to avoid probate while still obtaining the goal of property management both short term and long term. The modifiability of a revocable living trust gives it advantages so that beneficiaries can be added or removed and other conditions regarding disposition of property made. The trust can also be completely revoked.

The Internal Revenue Service has specific rules and regulations for revocable living trusts. In addition, the San Diego County Probate Court has jurisdiction to enforce the terms and conditions of a living trust if the trust administration is contested.
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Published on: March 31, 2011

More Information About Special Needs Trusts

by Scott C. Soady

In our last blog, we discussed how a special needs trust may be a necessary part of your estate plan if you want to provide for an individual with a disability. A special needs trust, sometimes called a supplemental needs trust is one that must contain specific language and must be tailored to fit the needs of the special needs beneficiary. Since the special needs trust is designed to manage inheritances and other resources of a disabled person while maintaining the individual’s eligibility for public assistance, it should be drafted by an estate planning attorney familiar with special needs trusts.

A third party special needs trust is the type of trust set up by parents, grandparents, or other individuals for the benefit of the disabled beneficiary. The beneficiary must be under the age of 65 and disabled. The persons setting up the trust are the grantors of the trust. The trust is funded with resources other than those of the beneficiary such as a cash inheritance after the death of the grantors or insurance proceeds. The person who will manage the third party special needs trust is the trustee, but cannot be the beneficiary.

The trust gives the trustee or the successor trustee the absolute discretion to make distributions for “special needs” the beneficiary may have such as supplemental medical care, transportaton, education, computers, and other items which may enhance the quality of life of the disabled person. The trust is to supplement, not replace what the public assistance covers. The trustees may be the parents, grandparents, or siblings of the special needs beneficiary or a private professional fiduciary with experience in special needs trust administration.

Published on: February 8, 2011

Why a Trust is so Important for Your Kids

by Scott C. Soady

A revocable living trust is an important part of your estate plan when you have children. Children under the age of 18 cannot inherit large sums of money. If you have assets in your estate which would go to your minor children and you have no trust, the Probate Court will have to appoint a guardian for your child’s estate. The ability to choose how and when you want your children to be given their inheritance is thus lost.

A revocable living trust is a better alternative so that you can specify how the money will be spent and at what intervals. Many parents are concerned about their child’s ability to handle money when they are 18 or even 21. As an example, a couple who create a trust for their children can provide that if something happens to them, the children will receive one-third of their inheritance at age 25, one-third at 30, and the balance at age 35. In the meantime, the trustee has the discretion to make distributions for support, health, and education. You can also give your trustee the discretion to make distributions to start a business, obtain an advanced degree, or make a down payment on a home. Such dispersals would then be deducted from their next scheduled distribution.

When you create your revocable trust, choosing a trustee is very important since that individual may be handling your child’s money for a period of time. Your trustee should be trustworthy, honest, good with money, and have the ability to get along with the beneficiaries. You can choose an older sibling however many parents feel a family friend may be better suited to deal with the children and make unbiased decisions. You can also choose a private professional fiduciary although these individuals will charge a fee to manage your children’s money.

Published on: January 4, 2011

How the Lack of an Estate Plan Can Affect Your Loved Ones

by Scott C. Soady

If you do not have a will, or better yet, a trust, your estate will be distributed according to the laws of “intestacy” set forth in the Probate Code. There may be a difference between how your estate is distributed according to your wishes and how it will be distributed pursuant to the Probate Code. Here are some disadvantages of intestacy you might want to consider:

1. The Court chooses the individual who will distribute your estate. The Court will appoint someone called the administrator to manage your assets and distribute them to your heirs at law. Maybe the person appointed is the person you would have chosen anyway but maybe not. Maybe two or more individuals will apply to the Court to be named administrator causing discord in the family.

2. The process of probate takes a long time. When you die without a will or a trust, the probate process here in San Diego typically can take a year or longer. The administration of a trust usually progresses much faster. If there are issues that need court intervention, the trustee can petition the Court for assistance, but most trust administrations are handled without going to court.

Published on: November 27, 2010

5 Wacky Wills

by Scott C. Soady

From time to time it is fun to look back on what are some of the strangest bequests people have put in their estate planning documents.

1. An eccentric lawyer named Charles Vance Miller, a resident of Canada, was noted for his practical jokes. He left a large sum of money from his estate to the woman who could produce the most children in the ten year period after his death. The contest which became known as the Great Stork Derby resulted in 4 women each receiving $125,000 (Canadian money) for each bearing 9 children.

2. Harold West thought he might become a vampire after his death in 1972 so he left instructions in his will that his doctor drive a stake into his heart just to be sure he was properly dead. Who knows if the doctor carried out his wishes.

Published on: November 7, 2010

Estate Planning When Your Beneficiary Has an Addiction Problem

by Scott C. Soady

Many clients have questions about leaving a distribution from their estate to a beneficiary who has an addiction. Leaving money or assets to an individual who has an alcohol, gambling, or drug addiction can be concerning so they want to make sure that the individual will not squander their inheritance because of their addiction.

The experienced estate planners at Scott C. Soady, A Professional Corporation can include custom provisions in your revocable living trust to keep an addicted beneficiary from receiving a distribution. Such provisions can be tailored to fit your specific situation. You can provide that the beneficiary submit to drug or alcohol testing, be sober for a specific period of time, be employed for a certain period of time or other specific conditions before they can receive a distribution. You can keep the inherited assets in trust for such a beneficiary and only have it distributed by a trustee at various intervals if he or she remains sober. You can provide that the beneficiary may use trust funds to receive treatment or rehabilitation. There are many options to provide for a loved one but also insure that the money will be used wisely by the beneficiary.

Also consider the drug or alcohol addiction of a person you are considering acting as your agent under a power of attorney. The agent under a durable power of attorney for finances would be the individual handling your finances should you become disabled. An adult child who has a gambling, alcohol, or drug addiction may not be the best choice to be your agent under a power of attorney.

Published on: October 8, 2010

Ancillary Probate Can Increase the Cost of Probate

by Scott C. Soady

Probate is the legal process instituted in the Probate Court to determine the beneficiaries of a person’s estate and distribute the probate assets to the person’s heirs or beneficiaries. Ancillary probate is an additional probate proceeding that is required in addition to the state where the decedent lived and died usually because the decedent owned property in another state. That property could be real property, a car, boat, farm, vacation home or timeshare. The laws of the state where the property is located will determine the costs of the ancillary probate and in some cases, who receives the property after the ancillary probate.

One of the disadvantages to having an ancillary probate in addition to the one in the home state is that it will add to the total cost of administering the probate estate because of additional filing fees, appraisal fees, and attorneys’ fees. Also if the probate estate is an intestate one, that is, a probate because there was no will or trust, the persons entitled to receive distributions could be different than those entitled to inherit in California.

For example, in California, the estate of a person dying with no will and leaving a spouse and one child would be distributed one-half of the community property to the spouse and one-half to the child. As to separate property, it would be distributed one-half to the surviving spouse and one-half to the person’s child. In New York, if a decedent is survived by a spouse and one child, the surviving spouse would receive $50,000 and one-half of the residue of the estate; the child would receive the balance.

Published on: September 30, 2010

What is a “Stale” Trust?

by Scott C. Soady

Many trusts created by married couples provide for the splitting of the trust into 2 subtrusts after the death of the first spouse. These types of trusts go by a variety of names: A/B trust, marital exemption trust, by pass trust, or disclaimer trusts. In these types of trusts, the joint assets must be allocated between the trust for the decedent and a trust for the surviving spouse or in the case of a disclaimer trust, a disclaimer must take place within nine months of the date of death.

Often the surviving spouse does not administer the trust after the death of his or her spouse for a variety of reasons. The surviving spouse may not want to go to the expense of paying attorney’s fees or it may be that the surviving spouse is not aware of the duty to do something after the first death. Whatever the reason, the delay in administering the trust can cause problems especially if the delay has been substantial.

Such a trust is called a “stale” trust. One of the problems that can occur with a “stale” trust is tax consequences. Often trusts that split into two trusts upon the death of the first spouse are created in order to take advantage of the federal tax exemption for estate taxes. Assets that are appreciating are usually allocated to the trust for the deceased spouse. If the trust is not split, there may be an important tax saving lost. Another problem with a “stale” trust may be the remainder beneficiaries instituting litigation because of the lack of funding of the decedent’s Trust at the time of the first death.

Published on: September 19, 2010

FAQs about the Operation of Your Revocable Living Trust

by Scott C. Soady

If you have a revocable living trust, there may be questions that you have about the funding and operation of your trust. Here are a few frequently asked questions about your trust once it is in place.

1. How do I re-title assets into the name of my trust? If you are single, you are the sole Trustor (also called a Settlor) and the sole Trustee. To transfer your assets into your trust, you need to re-title the assets into your name as Trustee of your trust. As an example, if your trust is called the John M. Smith Trust dated 2/25/10, you would transfer the assets into the name of the John M. Smith Trust dated 2/25/10. If you are married, your trust might be called the John M. and Sally S. Smith Trust or maybe the Smith Family Trust. You will re-title your assets to John M. Smith and Sally S. Smith, Trustees of the Smith Family Trust dated 2/25/10. With bank accounts, the easiest way to take care of transferring your accounts is to go personally to the bank and advise them that you have a trust and want your accounts in the name of your trust. Other assets such as mutual funds, stocks and bonds, etc. can be re-titled by contacting the company or your broker to complete the necessary paperwork. Real property that you owned at the time you created the trust should be transferred into your trust by the attorney creating your trust, but if you acquire additional real property, remember to transfer it into your trust by a deed recorded with the county recorder.

2. Do I have to transfer all of my assets into my trust? It is not necessary to title all of your assets in the name of the trust. Some examples of property that is not usually titled in the name of your trust are automobiles, life insurance policies, and retirement plans. You also might own real property or other assets in joint tenancy with other individuals which you want to keep titled in that manner.