What You Need to Know If Asked to Be a Trustee

“Would you be willing to be my trustee?” Being asked to be a trustee is a question that deserves serious consideration. First, because there are so many different types of trustees, the answer to the question posed above will vary greatly, says The Mercury in a recent article that asks “Should you be a trustee?”

At the very simplest level, a trustee is appointed when a trust is established. The most common type is for a person and their spouse. The person’s assets are retitled to be owned by the trust. The couple continues to file the same tax returns, using the same Social Security number and the income from the trust assets is treated as the couples’ income. This is often called a revocable trust or a living trust. In this case, the trustees are the same as the people making the trust. When you are trustee of your own trust, you retitle the assets into the name of the trust, but you continue to file income tax returns as if you owned that property directly.

When one of the couples dies, the other person usually becomes the defaulting trustee. If the property is being given to another person, it is generally treated as if the deceased person passed it directly to the person receiving the property. So, for instance, if the couple lives in a state with an inheritance tax, the spouse receiving property from the deceased spouse will be taxed based on your relationship as a spouse.

In most cases, the trust document names one successor trustee. That person is typically one of the couple’s adult children, although it could also be a bank or a financial institution. The successor trustee is responsible for managing the trust assets, dealing with banks, financial institutions and others on behalf of the person if they became disabled or incapacitated.

After the person dies, the successor trustee would continue in their role, and details of their responsibilities should be outlined clearly in the trust document.

Another type of trust is a simple trust that is part of a will, called a testamentary trust. It is often created to provide support for a minor beneficiary who might inherit assets. Usually, parents or the surviving parent of a minor beneficiary or an executor is named as a trustee for the child’s funds, until the child reaches a certain age.

Regardless of what kind of trustee a person is, they have a fiduciary responsibility, meaning that they are held to a high standard of accountability and must always put the needs of the trust before their own. The trustee is required to maintain accurate documents and cannot take funds for their own use. A trustee can be paid a reasonable fee unless the trust documents have other directions.

In most cases, the trust document gives the trustee the right to retain others, such as attorneys, accountants, or financial advisors to help fulfill their responsibilities. Sometimes that’s as simple as setting up a bank account, but other times it is more complicated.

When do you stop being a trustee? It is usually when the trust says the trust is to end, which is sometimes at a certain date, when the beneficiaries reach a certain age, or when the trust fund is empty. A court order can be made to the Court to either terminate or modify the trust.

For more complicated trusts, the help of an estate planning attorney will be needed to protect the trust and the beneficiaries. There are Special Needs Trusts (SNTs), created for an individual with special needs, who often receive help from government programs like Social Security Disability Insurance (SSDI) or Medicaid. There are different kinds of SNTs, depending on the needs of the individual and their family.

While the trusts listed above provide a brief overview of the most common type of trust, there are many others: irrevocable income-only trusts, intentionally defective grantor trusts, non-grantor trusts, qualified personal residence trusts and even more beyond that. Your estate planning attorney will be able to explain what kind of trust would be optimal for your family, while you are living and after you have passed. An attorney can also help you make sure you are protected while serving as a trustee.

Reference: The Mercury (July 17, 2019) “Should you be a trustee?”

 

Why Are the Daughters of the Late Broncos Owner Contesting His Trust?

Beth Wallace and Amie Klemmer, the two oldest daughters of the late owner of the Denver Broncos, Pat Bowlen, filed a lawsuit in a Denver area court challenging the validity of their father’s trust. Specifically, they are arguing that their father didn’t have the mental capacity to properly execute documents and was under undue influence when he signed his estate planning documents in 2009, according to Colorado Public Radio’s recent article “Pat Bowlen’s Kids Are Still Fighting Over Inheritance As 2 Daughters File Lawsuit.”

Dan Reilly, a lawyer for the Patrick Bowlen Trust, said in a statement that it is “sad and unfortunate that Beth Bowlen Wallace and Amie Bowlen Klemmer have elected to contest their father’s plan and attack his personal health,” adding the lawsuit was the “latest effort in their public campaign to circumvent Pat Bowlen’s wishes.”

Bowlen died in June at age 75 after a long battle with Alzheimer’s. He put the trust in place hoping that one of his seven children would succeed him in running the Broncos, a team he purchased in 1984. In addition to the two daughters, he had with his first wife, Sally Parker, Pat Bowlen had five children (Patrick, Johnny, Brittany, Annabel, and Christianna) with his widow, Annabel.

Wallace said in 2018 that she wanted to succeed her father, but the trustees said she was “not capable or qualified.” Likewise, Brittany Bowlen said last fall that she wanted to become the next controlling owner of the Broncos team. She will become part of the team in November in a management position to begin that process.

Reilly said that Wallace and Klemmer never raised the issue of mental capacity until after 2014 “when Ms. Wallace was privately told by the trustees that she was not capable or qualified to serve as controlling owner.”

Last month, Arapahoe County Court Judge John E. Scipione dismissed a lawsuit filed by Bowlen’s brother, Bill. That suit that sought to oust team president and CEO Joe Ellis, team counsel Rich Slivka, and Denver lawyer Mary Kelley as trustees. Bill argued that they weren’t acting in good faith or in Pat’s best interests.

The judge ruled in a separate case over the trust that the court and not the NFL would decide the question of Pat’s mental capacity at the time he updated his estate planning documents 10 years ago.

The trust also has a no-contest clause. In electing to challenge the validity of the trust in court, Wallace and Klemmer are putting themselves at risk of being disinherited, if they’re found in violation of the no-contest clause, and the 2009 trust is upheld in court. Their rights as beneficiaries would bypass them and go to their children.

Reference: Colorado Public Radio (September 14, 2019) “Pat Bowlen’s Kids Are Still Fighting Over Inheritance As 2 Daughters File Lawsuit”

How to Choose an Estate Planning Attorney

Estate planning is a critical part of financial planning, but it is something that many Americans prefer to procrastinate about. However, drafting a will, health care proxy, and power of attorney are too important to leave to chance, says Next Avenue in the article “How to Find a Good Estate Planner.” An experienced estate planning attorney can help prevent critical mistakes and help you adjust your plan as circumstances change.

Here are a few tips:

Look for an estate planning attorney. This is not the same as a real estate attorney. An attorney who practices real estate law is not going to be up to date on all of the latest changes to estate and tax laws. You should also determine if the attorney deals with families who are in similar situations as yours. An attorney who works with family-owned businesses, for instance, will be more helpful in creating an estate plan that includes tax and succession planning for small business owners, whereas an attorney who works with special needs trusts will be more informed on drafting those.

Experience matters in this area of the law. The laws of your state are just one of the many parts that the attorney needs to know by heart. The estate planning attorney who has been practicing for many years will have a better sense of how families work, what problems crop up when it comes time to execute these plans, and tips on how to avoid them.

Ask about costs. Don’t be shy. You want to be clear from the start what you should expect to be spending on an estate plan. The attorney should be comfortable having this discussion with you and your spouse or family member. Remember that the attorney will be able to understand the scope of work only after they speak with you about your situation. What may seem simple to you, may be more complicated than you think.

If a trust is added, the fees are likely to increase. A trust can be used to avoid or minimize estate taxes, avoid probate, save on time and court fees and create conditions for the distribution of assets after you die.

A full plan includes incapacity documents. Don’t neglect to have the attorney create a Power of Attorney form and any other advance directives you need. These vary by state, and you don’t want them to get too old, or they may become out of date.

Recognize that this is an ongoing relationship. Make sure that you are comfortable with the attorney, how the practice is run and the people who work there—receptionist, paralegals and other associates at the firm are all people you may be working with at one point or another during the process. You will be sharing very personal information with the entire team, so be sure it’s a good fit.

This is not a one-and-done event. Having an estate plan is a lot like having a home—it requires maintenance. Every four years or so, or when large events occur in your life, you’ll need to have your estate plan reviewed.

Your estate planning attorney should become a trusted advisor who works hand in hand with your accountant and financial advisor. Together, they should all be looking out for you and your family.

Reference: Next Avenue (September 10, 2019) “How to Find a Good Estate Planner”

Where Should I Keep My Estate Plan?

Many people ask their attorney to hold the original documents of their estate plan. This prevents the plan from being misplaced at home and keeps it away from prying family members.

Forbes’ recent article, “Keeping Your Estate Planning Documents Safe,” explains that because of the expense of storage and the move to paperless offices, some estate planning attorneys are now having their clients hold the original documents.

This saves money for the attorney, but it leaves the client with the problem of where to put the originals.

If you need a safe and secure place for them, here are some options.

No safe deposit boxes. Avoid placing the original documents in a safe deposit box, because the authority to get into the box is inside the box! If you pass away or are incapacitated—and nobody has access to the safe deposit box—they’ll need a court order to get access. For them to get the court order, they need the documents inside the box. It’s like the chicken and the egg.

Get a fireproof safe. A fireproof safe is a great place to keep these important documents.

Make copies. Get a set of hard copies in another location that is easily accessible. You can now use the safe deposit box to hold a set of copies of your documents. Your attorney should also have a set of hard copies.

E-records. Your estate planning attorney should also have an electronic copy of your estate plan and should send you an electronic version of the documents to keep with your e-records.

Treat your copies like the originals, and don’t lose it, in case the originals are misplaced or destroyed. If the original documents somehow vanish, your family may still be able to use a set of copies. For instance, a photocopy of a will can be probated, once the executor has attested that she has made a diligent search to find the original which hasn’t turned up.

Remember that this isn’t a “one and done” task. You should review your documents every few years to make certain the people you’ve named in them are still alive and your intentions haven’t changed.

Reference: Forbes (August 16, 2019) “Keeping Your Estate Planning Documents Safe”

Filing Taxes for a Deceased Family Member

If you are the executor of a loved one’s estate, and if they were well-off, there are several tax issues that you’ll need to deal with. The article “How to file a loved one’s taxes after they’ve passed away” from Market Watch gives a general overview of estate tax liabilities.

Winding down the financial aspects of the estate is one of the tasks done by the trustee or executor. That person will most likely be identified in the decedent’s trust or will. If the family trust holds the assets on behalf of the deceased, the trust document will name a trustee. If the person died without a will or trust, also known as “intestate,” the probate court will appoint an administrator.

The executor is responsible for filing the federal income tax for the decedent’s estate in cases where a return needs to be filed. Income generated by the estate, even after the death of your loved one, is subject to income tax. The estate’s first federal income tax year starts immediately after the date of death. The tax year-end date can be December 31 or the end of any other month that results in a tax year of 12 months or less. The IRS form 1041 is used for estates and trusts and the due date is the 15th day of the fourth month, after the fiscal tax year-end.

For example, if a person died in 2019 and the trustee chooses December 31, 2019 date as the tax year-end, the estate tax return deadline is April 15, 2020. An extension is available, but it’s only for five and a half months. In this example, an extension could be granted for September 30.

There is no need to file a Form 1041 if all of the decedent’s income producing assets are directly distributed to the spouse or other heirs and bypass probate or trust administration. This is the case when property is owned as joint tenants with right of survivorship, as well as with IRAs and retirement plan accounts and life insurance proceeds with designated beneficiaries.

The trustee also needs to keep in mind transfer tax issues, such as the estate tax and the gift tax. For recent years, this is not as much of a concern because no federal estate tax will be due unless the estate is valued at more than $11.2 million for a person who passed in 2018 or $11.4 million in 2019.

However, the trustee also needs to find out if there were large gifts given. That means gifts larger than $15,000 in 2018-2019 to a single person, $14,000 for gifts in 2013-2017; $13,000 in 2009-2012, $12,000 for 2006-2008; $11,000 for 2002-2005 and $10,000 for 2001 and earlier. If these gifts were made, the excess over the applicable threshold for the year of the gift must be added back to the estate, to see if the federal estate tax exemption has been surpassed. Check with the estate attorney to ensure that this is handled correctly.

Whether or not a person died leaving property to a spouse also impacts whether or not tax will be due. The unlimited marital deduction privilege permits any amount of assets to be passed to the spouse, as long as the decedent was married, and the surviving spouse is a U.S. citizen. However, the surviving spouse will need good estate planning to pass the family’s wealth to the next generation without a large tax liability.

While the tax consequences and tax planning strategies are more complex where significant assets are involved, an estate planning attorney can strategically plan to protect family assets, when the assets are not so grand. In fact, estate planning is more important for those with modest assets, as there is a greater need to protect the family and less room for error.

Reference: Market Watch (June 17, 2019) “How to file a loved one’s taxes after they’ve passed away”

What Should I Look for in a Trustee?

Selecting a trustee to manage your estate after you pass away is an important decision. Depending on the type of trust you’re creating, the trustee will be in charge of overseeing your assets and the assets of your family. In general, people choose either a friend or family member or alternatively decide to go with a professional trustee or a trust company or corporate trustee for this critical role.

Forbes’s recent article, “How To Choose A Trustee,” helps you identify what you should look for in a trustee.

If you go with a family member or friend, they should be financially savvy and good with money. You want someone who knows something about investing, and preferably someone who has assets of their own that they are investing with an investment advisor.

A good thing about selecting a friend or family member as trustee is that they’re going to be most familiar with you and your family. They will also understand your family’s dynamics.  Family members also usually don’t charge a trustee fee (although they are entitled to do so).

Depending on your family dynamics and personalities, however, your family may be better off with a professional trustee such as a private fiduciary or trust company that has expertise with trust administration. This may eliminate some potentially hard feelings in the family. Because your family member may be too close to the family and may get caught up in the drama, a neutral third party can also act as a barrier to potential fights and arguments. Certain family members may also end up having a power trip and enjoy having total control of your beneficiary’s finances a bit too much.

Trust companies, especially larger ones, will have more structure and oversight to the trust administration, including a trust department that oversees the administration. This will be more expensive, but it may be money well spent. A trust company can make the tough decisions and tell beneficiaries “no” when needed. It’s common to use a trust company when the beneficiaries don’t get along, when there is a problem beneficiary, or when the trustee is responsible for managing a large sum of money. A drawback is that a trust company may be difficult to remove or become inflexible. They also may be stingy about distributions if it will reduce the assets under management that they’re investing. You can solve this by giving a neutral third party, like a trusted family member, the ability to remove and replace the trustee in your trust documents.

Some people may also choose to have an attorney serve as their trustee. The advantage of a trusted attorney serving as a trustee is that they have familiarity with your family if you’ve worked together for some time. There will, however, be a charge for their time spent serving as trustee.

Talk to your estate planning attorney and go through your concerns to find a trustee solution that works for you and your family.

Reference: Forbes (May 31, 2019) “How To Choose A Trustee” 

Do I Need a Spendthrift Trust for a Relative?

Newsday’s recent article, “What to consider when creating a ‘spendthrift’ trust,” explains that a spendthrift trust can protect people from themselves. In particular, it can be great protection for those with an issue with drugs, alcohol, gambling or even a person who’s married to a wild spender.

A spendthrift trust—also called an “asset protection trust”—gives an independent trustee the power to make decisions as on how to spend the funds in the trust. The beneficiary might get trust benefits as regular payments or need to ask permission from the trustee to access funds at certain times.

A spendthrift trust is a kind of property control trust that restricts the beneficiary’s access to the money that a beneficiary might otherwise be able to access at his or her own will. This restriction protects trust property from a beneficiary who might waste the money, and also protects against collections by any of the beneficiary’s creditors.

Remember these other items about asset protection trusts:

  • Be sure that you understand the tax ramifications of a spendthrift trust.
  • If the trust is the beneficiary of retirement accounts, the trust must be designed to have the RMDs (required minimum distributions), at a minimum, flow through the trust down to the beneficiary.
  • If the trust accumulates the income, it could be taxable. In that case, the trust would have to pay the tax at a trust tax rate. That’s substantially higher than an individual rate.

It’s critical that you choose your trustee carefully. You may even think about going with a professional corporate trustee. If the wrong trustee is selected, he or she could keep the money from the beneficiary, even when the beneficiary legitimately needs it. If you have someone that you are thinking of taking care of who also has spending issues, be sure to talk to an estate planning attorney about creating a spendthrift trust.

Reference: Newsday (June 23, 2019) “What to consider when creating a ‘spendthrift’ trust”

What Happens When the Family Fights over Personal Items or Artwork?

A few years after her death in 2014, Joan Rivers’ family put hundreds of her personal items up for auction at Christie’s in New York.

As The Financial Times reported in “Why an art collector’s estate needs tight planning,” a silver Tiffany bowl, engraved with her dog’s name, Spike, made headlines when it sold for thirty times its estimated price. This shows how an auction house can generate a buzz around the estate of a late collector, creating demand for items that, had they been sold separately, might have failed to attract as much attention.

A problem for some art and collectible owners is that their heirs may feel much less passionately about the works than the person who collected them. Art collectors should think intentionally about what they want to happen to their collection after they die. A collector can either gift, donate or sell in their lifetime. He or she can also wait until they pass away and then gift, donate, or sell posthumously.

One way a collector can make certain his or her wishes are carried out or eliminate family conflicts after their death is to take the decision out of the hands of the family by placing an art collection in trust. The trust will have the collector’s wishes added into the agreement, and the trustees are appointed from the family and from independent advisers with no interest in a transaction taking place.

Many collectors like to seal their legacy, by making a permanent loan or gift of artworks to a museum. However, their children can renege on these agreements if they’re not adequately protected by trusts or other legal safeguards after a collector’s death.

Even with a trust or other legal structure put in place to preserve a legacy, the key to avoiding a fight over a valuable collection after the death of the collector is to have frank discussions about estate planning with the family well before the reading of the will. This can ensure that their wishes are respected.

Reference: Financial Times (June 20, 2019) “Why an art collector’s estate needs tight planning”

What are the “Must Have” Estate Planning Documents?

What do Aretha Franklin, Kurt Cobain, and Prince have in common? Aside from being famous and talented, each of these stars passed away without an estate plan. All three had the money and attorneys to draft a proper estate plan, but for whatever reason, they didn’t draft one. It’s a good lesson to not neglect your estate plan.

Motley Fool reports in the article, “3 Must-Have Estate Planning Documents To Get Done This Year,” that dying without an estate plan creates numerous problems for your family. If there are no legal instructions in place, probate law automatically dictates the distribution of your assets and selection of guardians for your minor children, which can cause problems or be contrary to your wishes. Regardless of your personal situation, you should think about creating these three important estate planning documents:

Trust. A trust is used to distribute your estate according to your instructions with more privacy, fewer costs, and less time than using just a will. A trust can say how much and what type of asset each heir will receive, to minimize family fighting after your death. If you have young children, you can designate guardians in your trust who will be in charge of their care and take care of any assets left to them. If you die without a trust, the probate judge will order who becomes their guardian and takes care of their money.

You also need a trust to make charitable bequests, to expedite the probate court process and to reduce or eliminate estate taxes. When you draft your trust, you’ll appoint trusted people to serve as the executor and the trustee.

Advance Health Care Directive. An advance health care directive (sometimes called a living will) can take effect while you are still alive. This is a legal document that sets out your instructions for medical treatment if you become unable to communicate, such as whether or not you want to be placed on life support. An advance health care directive can relieve the emotional burden from your family of having to make difficult decisions because you’ve already communicated your wishes through this document.

Power of Attorney. This legal document helps in the event you’re incapacitated or in the hospital in an unresponsive state. A power of attorney gives the individual you designate, also known as an agent, the authority to transact financial and legal matters on your behalf. Set up a power of attorney, before you need it. If you don’t and you’re unable to make decisions, your family may have to petition the court to get those powers, which costs time and money.

Estate planning is a huge favor that you’re doing for your family. Get these three legal documents in place.

Reference: Motley Fool (February 18, 2019) “3 Must-Have Estate Planning Documents To Get Done This Year”

What If My Beneficiary Isn’t Ready to Handle an Inheritance?

A recent Kiplinger article asks: “Is Your Beneficiary Ready to Receive Money?” In fact, not everyone will be mentally or emotionally prepared for the money you wish to leave them. What if your beneficiary isn’t ready to handle an inheritance? Here are some things to consider:

The Beneficiary’s Age. Children under 18 years old cannot sign legal contracts. Without some planning, the court will take custody of the funds on the child’s behalf. This usually occurs via custody accounts, protective orders or guardianships. If this happens, there’s little control over how the money will be used. The guardianship will usually end and the funds are paid to the child the second they turn 18. Giving significant financial resources to a young adult who’s not ready for the responsibility, often ends in disaster. Work with an estate planning attorney to find a solution to avoid this result.

The Beneficiary’s Lifestyle. There are many other circumstances for which you need to consider and plan. These include the following:

  • A beneficiary with a substance abuse or gambling problem;
  • A beneficiary and her inheritance winds up in an abusive relationship;
  • A beneficiary is sued;
  • A beneficiary is going through a divorce;
  • A beneficiary has a disability; and
  • A beneficiary who’s unable to manage assets.

All of these issues can be addressed, with the aid of an estate planning attorney. A testamentary trust can be created to make certain that minors (and adults who just may not be ready) don’t get money too soon, while also making sure they have funds available to help with school, health care, and living expenses.

Who Will Manage the Trust? Every trust must have a trustee. Find a person who is willing to do the work. You can also engage a professional trustee for larger trusts. The trustee will distribute funds, only in the ways you’ve instructed. Conditions can include getting an education, or using the money for a home or for substance abuse rehab.

Estate Plan Review. Review your estate plan after major life events or every few years. Talk to a qualified estate planning attorney to make the process easier and to be certain that your money goes to the right people at the right time.

Reference: Kiplinger (April 1, 2019) “Is Your Beneficiary Ready to Receive Money?”