We regularly to get people coming into our office with existing trust-based estate plans. These plans are typically prepared by their previous divorce attorney, real estate attorney, the family lawyer or other general practitioner. When we review these plans, rarely do the plans have the options which the people want. These plans are typically forms-based. The planner just grabs the form out of a form book and put the client’s name on it. Every trust drafted by the planner is the same and usually has very limited options.
There are a lot of options that you can have in your trust that can take effect during your lifetime, upon your mental disability and after your death. Your trust is basically a contract. It’s a contract in which you the trustmaker, creates and controls the trust; and enters an agreement with you the trustee, who manages the trust; for the benefit of you the beneficiary, who receives assets how and when you choose. What kind of instructions can you put in this contract? Well, you can put just about anything you want in this contract, so long as it’s not illegal, immoral or against public policy.
Today, we are going to discuss some of the most common options that people add to their trust-based estate plan when coming to our office, which they did not have in their previous plan. We rarely ever see the options that we are going to discuss today in the existing trusts of our new clients.
Have a family disability panel.
Would you rather have your loved ones making the determination that you no can no longer effectively manage your property and financial affairs or someone outside the family. Most of our clients choose loved ones to make that determination by unanimous decision or by majority rule, privately within the family. Once the determination is made and a disability certificate is signed, that will trigger your successor trustees to handle your trust assets and your financial agents in your financial power of attorney to handle your property and financial affairs outside the trust. Most of the existing trusts that come into our office typically have the trust form options of either one or two physicians making your mental disability determination. With this option, your loved ones would have to a find doctor or two, take you to them, have them examine you and then have them sign the disability certificates.
Allow additional signers on trust bank accounts.
You may want to have additional signers on your trust bank account so that someone can pay your bills while you are in Florida or Arizona. Or maybe you just want to personal assistant to help you with paying your bills. You don’t want your personal assistant to be a co-trustee of all of your trust assets, just on your checking account. If your bank account is in your trust, with the trust forms, typically only the named trustees can be signers on the account. However, you can put a provision in your trust that allows you to add a special co-trustee on any account just by adding them to the signature card or depository agreement. We have been putting this option in our trusts for years and our clients utilize it on a regular basis.
Provide for a trust protector
When you became mentally disabled or after your death, your trust generally becomes irrevocable. This generally means it cannot be changed. If circumstances such as a change in the law adversely affects your trust, unless you have provided otherwise, you loved ones would have to petition the probate court to fix your trust. Your loved ones have to schedule a court hearing, provide a notice of hearing to all interested parties, attend the hearing, have a court order entered and then serve the order on all interested parties. That process can easily take 45 to 60 days and cost several thousand dollars in legal fees. If however, you have provisions for a trust protector in your trust, your successor trustees or beneficiaries could appoint an independent third-party trust protector who would be able to amend and fix your trust in the privacy of the attorney’s offices. No public court hearings would be necessary. I like to call the trust protector, the trust fix-it person or trust mechanic, because the trust protector can fix the trust in the event that it breaks down as a result of a change in the law.
Include beneficiary lifetime trusts.
Most of our trust clients provide lifetime trusts for their beneficiaries’ inheritances. With lifetime trusts for your beneficiaries, including a surviving spouse and children, your beneficiaries will have full access to the inheritance, but no one else can. If your beneficiary get sued, creditors can’t touch it. There is creditor protection. If a beneficiary gets divorced, and the beneficiary has not commingled the inheritance in the lifetime trust with marital property, it will always be considered that beneficiary’s separate property in the event of a divorce property settlement. There is divorce or predator protection. Upon a beneficiary’s death, there are instructions to distribute the trust property without probate court involvement So there is probate court protection. And you can give your beneficiaries the power to designate successor beneficiaries. This is called a power of appointment. So with beneficiary lifetime trusts, your beneficiaries have creditor protection, divorce or predator protection, probate court protection and the power to change successor beneficiaries.
Provide remarriage protection for surviving spouse.
After your death, if your surviving spouse remarries Thor, her Swedish personal trainer, or Bambi, his aerobics instructor, do you want Thor or Bambi to have a claim to your marital assets and take them away from your children or other beneficiaries? You can put remarriage provisions in your trust, in which trust distributions are dependent upon Bambi or Thor signing a prenuptial agreement waiving all claims to your surviving spouse’s assets. This provision protects the entire marital estate from claims by Thor or Bambi. Many of our clients have thanked us for this provision because it is an easy way to bring up the discussion of a prenuptial agreement with a new fiancé after they have been widowed. The instructions are already in your trust.
Protect assets in the event of nursing home admission .
You may mistakenly think that your trust will protect your assets in the event of a nursing home admission. There are instructions that you can have in your plan to protect your assets in that event, but they are not typically contained in your trust. The instructions to protect your assets in the event of a nursing home admission are generally contained in your financial power of attorney. In the event of your nursing home in admission, would you like your assets to go to the nursing home or to your loved ones? Most of our clients would rather have their assets go to loved ones. To make that happen, you need a broad power of gifting in your financial power of attorney which allows assets to be gifted to your loved ones, including your surviving spouse and children. In the event of a nursing home admission you can then transfer the maximum amount of assets to your loved ones to protect those assets from being spent down on your nursing home care. If you are married and one of you is in the nursing home, with proper instructions in your financial power of attorney, you can generally protect 100% of your assets for the well spouse. If you are single in a nursing home or a married couple when both of you are in a nursing home, with proper instructions in your financial power of attorney, you can generally protect your home, a car, prepaid funerals and about one-half of everything else.
What do you do?
Review your trust. Are any of these options important to you? If so, amend your trust and other estate planning documents so that you stay in control of your assets while you’re alive and well, provide for you and your loved ones in the event of your mental disability, and when you’re gone, give what you have to whom you want when you want the way you want, all at the lowest overall cost to you and your loved ones.
By Matthew M. Wallace, CPA, JD
Published edited February 4, 2018 in The Times Herald newspaper Port Huron, Michigan as: Does your trust plan have these options?