How to Pick a Trustee

Clients frequently choose to use trusts in their estate plans, and once they and their estate planning attorney have made that decision, they’ll need to decide who to name as trustee or trustees. Picking a trustee is not always an easy process, explains Kiplinger in the article “Guidance on Choosing the Right Trustee (or Trustees) for Your Estate.”

Serving as a trustee creates many duties under state law, including acting as a fiduciary to the trust. That means the trustee must be impartial about their own interests, put the beneficiary’s interests and well-being first and be prudent with how they invest funds. Law prohibits a trustee from self-dealing, although depending on the scenario, the trustee might also be the beneficiary.

Here are a long series of questions that will help to assess a person’s ability to serve as a trustee:

  • Will the person be able to separate their personal feelings and interests from those of the beneficiaries?
  • Will all parties be treated fairly, especially if your children are not also your spouse’s children?
  • Can your trustee manage finances and investments?
  • Is there any risk that your trustee will be tempted to take a risk to obtain money at the expense of beneficiaries, including their own money problems or addiction?
  • Are there concerns about the health, age or capacity of the person?
  • Will a child who is a trustee be fair to the other siblings, even if they are step siblings?
  • Will a child be able to stand up to the other siblings?
  • Will the person who is managing work and family have the time to take on the responsibilities of the trustee when they will likely be needed to do so?
  • Does the person understand the family dynamics?
  • Has the person served as a trustee before?

Another common problem is people are unsure of who to ask in their family or where to look for back-up trustees, especially where they might not feel comfortable with those closest to them.  With that in mind, here are some potential people to consider, although their suitability will vary greatly in different circumstances:

  • Spouse
  • Parents
  • Children, step children, and grandchildren
  • Siblings and step siblings, nieces and nephews, cousins
  • Spouses of children, step children, siblings or other close family
  • Friends
  • Neighbors
  • Members of social groups, fraternal organizations, religious communities or other similar groups
  • Financial Professionals (not necessarily financial planners who likely aren’t permitted to, but CPAs or some attorneys for example)
  • Professional Trustees (e.g. a bank or other similar trustee)

I should note as well that I’m focusing on trustees in this article, but many of these same considerations apply to other fiduciary roles.  See here for more information on the other roles to consider.  https://www.galliganmanning.com/the-difference-between-an-executor-a-trustee-and-other-fiduciaries/

There is no one size fits all approach to picking a trustee, but hopefully this will provide guidance on who is right for you.

Reference: Kiplinger (Sep. 8, 2020) “Guidance on Choosing the Right Trustee (or Trustees) for Your Estate”

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When to Update your Estate Plan?

Waiting too long to update an estate plan may lead to bad plans and hurt families. Here are some milestones when you should consider changes.

Many people say that they’ve been meaning to update their estate plan for years but never got around to doing it.   Our office is located near the hospital system, so we get a lot of calls for last minute changes, which is difficult, and sometimes not possible.  Worst of all, we occasionally have to probate out of date wills or administer old trusts that left complicated, unnecessary tax planning, unsuitable executors or trustees, or in some cases, beneficiaries the client meant to change, but never did.

As a way to avoid those scenarios, this blog will talk about when you need to review your estate plan.  This isn’t exhaustive and the best approach is to review the plan every few years, but these major life events often indicate a need to change your plan.  The list as follows comes from Kiplinger’s article entitled “12 Different Times When You Should Update Your Will” and gives us a dozen times you should think about changing your estate plan, as well as a few more of my own:

  1. You’re expecting your first child. The birth or adoption of a first child is typically when many people draft their first estate plan. In Texas the designation of a guardian for the child happens outside a will, but it is still important to provide a trust and trustee for that child in your estate plan as well.
  2. You may divorce. Update your estate plan before you file for divorce, because once you file for divorce, your estate plan and assets may not be able to change until the divorce is finalized. Doing this before you file for divorce ensures that your spouse won’t get all of your money if you die before the divorce is final.
  3. You just divorced. After your divorce, your ex no longer has any rights to your estate (unless it’s part of the terms of the divorce). However, even if you don’t change your estate plan, most states have laws that invalidate any distributive provisions to your ex-spouse in that old will. Nonetheless, update your estate plan as soon as you can, so your new beneficiaries are clearly identified and that any obligations created in the divorce are fulfilled.
  4. Your child gets married. Your current estate plan may speak to issues that applied when your child was a minor, so it may not address your child’s possible divorce. You may be able to ease the lack of a prenuptial agreement by creating a trust for your child in your estate plan to keep those assets out of the marriage.
  5. A beneficiary has issues. Estate plans frequently leave money directly to a beneficiary. However, if that person has an addiction or credit issues, update your estate plan to include a trust that allows a trustee to only distribute funds under specific circumstances.  It is often a good idea to create such a trust anyway in case issues arise in the future.
  6. Your executor or a beneficiary die or are incapacitated. If your estate plan named individuals to manage your estate or receive any remaining funds, but they’re no longer alive or suffering bad health, you should update your entire estate plan (especially powers of attorney).
  7. Your child turns 18. Your current estate plan may designate your spouse or a parent as your executor, trustee or other fiduciary, but years later, these people may be gone or not suitable. Consider naming a younger family member to handle your estate affairs.
  8. A new tax or probate law is enacted. Congress may pass a bill that wrecks your estate plan. Review your plan with an experienced estate planning attorney every few years to see if there have been any new laws relevant to your estate planning.  It is also a good idea to keep reading blogs like this one as we try to address significant changes that might affect you.
  9. You receive a financial windfall or loss. If you finally get a big lottery win or inherit money from a distant relative, update your estate plan so you can address the right tax planning. You also may want to change when and the amount of money you leave to certain individuals or charities.  Similarly, a significant financial loss may mean you can jettison unnecessary tax planning and can simplify your plan.  I find many people change their minds on beneficiaries if they think they will leave less money as well.
  10. You can’t find your original estate plan. This happens more than people realize.  If you cannot find your original Will or other estate planning documents, you should consider executing a new one.  First, if you can’t find it that typically indicates it’s so old it needs updating anyway, but in the case of wills you should probate the original.  It is sometimes possible to probate a copy, but that isn’t a given and you should avoid that scenario.
  11. You purchase property in another country or move overseas. Some countries have treaties with the U.S. that permit reciprocity of wills, but how well that works is another matter.  Transferring property in one country may be delayed, if the will must be probated in the other country first. Ask your estate planning attorney about how to address property in multiple counties.
  12. You relocate to a new state.  Estate plans don’t always need to change when you relocate, but there are nuances to each state’s estate and tax laws, so you should consult with a local attorney after you move.  For example, Texas is a community property state that changes how property is owned going forward for married couples and has no estate tax.  A new resident coming from a common law property state with a state estate tax like New York might benefit from a new plan.
  13. Your feelings change for someone in your estate plan. If there’s animosity between people named in your estate plan, you may want to disinherit someone or change your estate plan. You might ask your estate planning attorney about a No Contest Clause that will disinherit the aggressive family member, if he or she attempts to question your intentions in the estate plan.
  14. You get married (or remarried).  One milestone I like to point out that a surprising number of people don’t consider, is updating your estate plan after you get married or in the event you remarry.  Many people assume that their spouse becomes an automatic beneficiary of their estate plan, which isn’t true, although all states give some rights to the new spouse.  It is far better, especially in a second marriage where step children are involved, to update your estate plan to exactly what you want for you and your loved ones.
  15. Your own bad health.  One milestone I’m particularly sensitive to is your own bad health, especially cognitive health such as dementia or Alzheimer’s.  Many clients prepare plans when they are young that aren’t considering long term care, Medicaid or other planning, so that should be complete before incapacity prevents it.

Reference: Kiplinger (May 26, 2020) “12 Different Times When You Should Update Your Will”

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How to Avoid Family Fighting in My Estate?

Many clients are eager to avoid family fighting in their estates, here is a three part process to help avoid any problems.

It’s not uncommon for parents to modify their first estate plans when their children become adults. At that point, many parents’ estate plans are designed to help efficiently transfer assets to the surviving spouse and ultimately to the adult children. However, at this stage clients are frequently eager to avoid family fighting in estates.  However, like all plans we make, sometimes things don’t go the way we want them to.

Forbes’ recent article entitled “Three Steps To Estate Planning Without The Family Friction” explains that there are a number of reasons for sibling animosity in the inheritance process. The article says that frequently there are issues that stem from a lack of communication between siblings, which causes doubts or suspicion as to how things are being done. In addition, siblings may not agree if and how property should be sold and maintained.  This is exacerbated with blended families, so see here for ideas on estate planning post divorce.  https://www.galliganmanning.com/estate-planning-after-divorce/

To help avoid these problems, consider using this three-step process for estate planning.  Not everyone will be comfortable with all three steps, but these processes can help prevent family in-fighting in your estate.

Work with an experienced estate planning attorney. Hire an estate attorney who has many years of working in this practice area. This will mean that they’ve seen—and more importantly—resolved every type of family conflict and problem that can arise in the estate planning process.  Such an attorney can anticipate such conflicts and plan for them in the estate planning documents. That’s the know-how that you’re really paying for, in addition to his or her legal expertise in wills and trusts.

Create a financial overview. A financial overview is another part of the process to avoid family fighting in the estate.  This will help your beneficiaries see what you own and avoid suspicions between family.  A financial overview can simplify the inheritance process, and it can help to serve as the foundation for you and your executor to frankly communicate with future beneficiaries to reduce any lingering doubts or questions that they may have, when they’re not in the loop. Your inventory should at least include the following items:

  • A list of all assets, liabilities and insurance policies you have and their beneficiaries
  • Contact information for all financial, insurance and legal professionals with whom you work; and
  • Access information for any websites your beneficiaries may need for your online accounts.

As an aside, it is a really good idea to have this information gathered for your executor just to make their job easier, regardless of the potential for conflict.  You may also consider preparing a a legacy letter that discusses non-financial items for your children.

Hold a family meeting. Next, conduct a family meeting that includes the parents and the children who will be inheriting assets. Some topics for this meeting include:

  • The basics of your estate intentions (and make SURE your current estate plan reflects this)
  • Verify that a trusted person knows the location of your important estate documents
  • State who your executor and other involved people will be and your rationale
  • Make certain that all parties value communication and transparency during this process; and
  • Discuss non-financial legacy items that are important for you to give to your children.

This three-step process can help keep your children’s relationships intact after you are gone. Hiring an experienced estate planning attorney, creating a clear financial overview and communicating what’s important to you are critical steps in helping to keep your family together.

Reference: Forbes (July 2, 2020) “Three Steps To Estate Planning Without The Family Friction”

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