Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

A Member of the Law Professor Blogs Network

Tuesday, September 16, 2014

Planning With A Bypass Trust


The bypass trust is a common estate-planning tool for marital estates where the couple’s potential combined taxable estates exceeds the exemption equivalent for one of the spouses. 

Utilizing the bypass trust involves balancing the estates in terms of value pre-death and then each spouse having a will that mirrors the other spouse’s will.  The wills then divide each spouse’s property into two shares.  One share is tied to the size of the applicable exclusion and the other is left outright to the surviving spouse and qualifies in the first spouse’s estate for the marital deduction.   This strategy zeroes out the estate tax in the first spouse’s estate and minimizes the tax in the survivor’s estate. 

While the bypass trust is an effective strategy, it may not be best for you or your client.  There are several things to look for that may make utilization of portability and a simple will a better approach.  If the children are all adults and can handle large bequests, a trust may not be necessary.  Moreover, portability may be the way to go if the parents reside in a state that does not have an estate or inheritance tax.

See Roger A. McEowen, Should a Bypass Trust be Used as Estate Planning Tool? Agriview, Sept. 5, 2014.

September 16, 2014 in Estate Administration, Estate Planning - Generally, Estate Tax, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Article on Frank Aragona Trust v. Commissioner

TrustDana M. Foley & William I. Sanderson recently published an article entitled, Frank Aragona Trust v. Commissioner: A Road Map to What Really Matters for Material Participation of Trusts, 28 Probate & Property No. 5 (Sept. & Oct. 2014).  Provided below is an excerpt from the introduction of the article:

Just weeks before the first income tax returns were filed, reporting income subject to the new 3.8% net investment income tax (the “NII Tax”), the Tax Court issued the much anticipated decision in Frank Aragona Trust v. Commissioner, 142 T.C. No. 9 (Mar. 27, 2014) (“Aragona Trust”). This regular published opinion followed a trial before the Hon. Richard T. Morrison and was issued 15 months after the NII Tax came into effect under IRC § 1411.

September 16, 2014 in Articles, Estate Planning - Generally, Income Tax, New Cases, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Monday, September 15, 2014

Common Estate Planning Mistakes


While creating an estate plan is not at the top of everyone’s to-do list, it is important.  Yet, oftentimes when people do get around to making their after-death arrangements, there are a multitude of ways they can stumble.  Below are some classic estate planning mistakes people tend to make, so you will know what not to do when it comes to your own plan.

  1. Assuming Estate Plans Are Only for Wealthy.  Estate planning is for anyone who wants to know what will happen to their end-of-life medical care, assets, children or private affairs if they become incapacitated or die.  In other words, this includes all of us.  “Absolutely everyone, 18 and older, needs an estate plan, no matter his or her net worth.”
  2. Thinking Your Finances Are Too Simple for an Estate Plan. No one’s life is as simple as it may seem, and even if it is, you should still consider putting protections in place to help ensure your wishes are known.
  3. Procrastinating on Your Estate Plan.  For peace of mind, it is best to start the process earlier.  It is a great way to reduce familial stress when you are no longer in a position to make decisions.
  4. Neglecting Digital Assets.  Do not forget to tell your loved ones about your digital assets.  This may include making arrangements to transfer passwords and digital copies of important documents.
  5. Forgetting About Your Pets. Your pets are personal property so you should take the time to spell out who will be responsible for them.  Pet trusts can help you set aside money to outline how you will pay for their care. 

See Sheryl Nance-Nash, 7 Common Estate-Planning Blunders Not to Make, Forbes, Sept. 15, 2014. 

September 15, 2014 in Estate Administration, Estate Planning - Generally, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Sunday, September 14, 2014

Importance of Preserving Wealth for Future Generations


In a recent case from the United States Bankruptcy Court, we are reminded why an individual should consider keeping assets in trust for his or her beneficiaries in addition to the importance of wealth preservation for future generations.  In In Re: Castellano, 2014 WL 3881338 (Bankr. N.D. Ill. Aug. 6, 2014), the debtor was the beneficiary for a trust established by her mother.  The terms of the trust provided that upon the settlor’s death, the trust assets would be split equally among the settlor’s four children, one of whom was the debtor.  However, the trust contained a spendthrift clause, stating that if, “all or any part of the income or principal of the Trust might fail to be enjoyed by a beneficiary or might vest in or be enjoyed by some other person, then the interest of that beneficiary shall immediately terminate.” 

During the administration of the Settlor’s estate, the debtor filed for bankruptcy and sent a letter advising the Trustee of their obligation to invoke the spendthrift provision.  The Trustee agreed and held the debtor’s share in trust rather than making an outright distribution. 

The Bankruptcy Court held that the debtor effectively transferred the assets into a self-settled trust in an attempt to shield the debtor’s assets from creditors.  Consequently, the Bankruptcy Court brought the trust assets into the debtor’s bankruptcy estate, therefore eradicating most of the debtor’s inheritance. 

See Joshua Goldglantz, A Bankrupt Inheritance, Berger Singerman, Sept. 10, 2014.

September 14, 2014 in Estate Administration, Estate Planning - Generally, New Cases, Trusts | Permalink | Comments (0) | TrackBack (0)

Saturday, September 13, 2014

Estate Planning for Unmarried Couples

Couple doing paperwork

Estate planning is a must for everyone.  The benefits are palpable including tax savings, efficient disposition of assets, end-of-life decisions, financial security for heirs and general peace of mind. 

For unmarried couples, the issues concerning financial and estate planning can be complex and the rules burdensome.  Below are some key planning strategies unmarried couples should keep in mind to protect both partners:

  • Account and Property Titling. Legal ownership of property or accounts can affect how they are distributed in the event of a legal owner’s death.  Partners can utilize trusts, tenancies in common, and joint tenancies with the right of survivorship to own property.
  • Retirement Plans. Unmarried couples must make sure that the correct person receives retirement benefits and that they are not subject to avoidable taxes. To ensure your partner receives the assets from your retirement accounts you must fill out a beneficiary form. 
  • Wills, Healthcare and Power of Attorney. Wills allow unmarried partners to provide for loved ones.  A durable power of attorney for healthcare will specify the individual who can make healthcare decisions for you if you cannot make them for yourself.  Furthermore, you should have a financial power of attorney so your partner can make financial decisions on your behalf. 

See Cathy Pareto, Estate Planning Must-Haves For Unmarried Couples, Investopedia.

September 13, 2014 in Estate Planning - Generally, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Article on Trusts and Estates: Implementing Freedom of Disposition

Robert SitkoffRobert H. Sitkoff (Harvard) recently published an article entitled, Trusts and Estates: Implementing Freedom of Disposition , 58 St. Louis U. L.J. 643 (2014). Provided below is an excerpt from the article: 

The Trusts and Estates course is about the law of gratuitous transfer at death, that is, the law of succession.1 Lately such courses have come to cover both probate succession by will and intestacy, and nonprobate succession by inter vivos trust, pay-on-death contract, and other such will substitutes. The organizing principle of the American law of succession, both probate and nonprobate, is freedom of disposition. My suggestion in this Essay, which I have implemented in my Trusts and Estates class and in the casebook for which I am the surviving coauthor,2 is that the Trusts and Estates course can likewise be organized around this principle. The Trusts and Estates course is perhaps best conceptualized as a survey of the law and policy of implementing freedom of disposition.3


The American law of succession embraces freedom of disposition, authorizing dead hand control, to an extent that is unique among modern legal systems.4 Within the American legal tradition, a property owner may exclude his or her blood relations and subject his or her dispositions to ongoing conditions, as in the classic teaching case of Shapira v. Union National Bank.5 The right of a property owner to dispose of his or her property on terms that he or she chooses has come to be recognized as a separate stick in the bundle of rights called property.6

There are, of course, some limits on freedom of disposition. The law protects a decedent’s creditors and surviving spouse, and it imposes a handful of other policy limitations, such as the Rule Against Perpetuities. Gratuitous transfer of property, whether during life or at death, is also subject to wealth transfer taxes.7 For the most part, however, the American law of succession facilitates, rather than regulates, the carrying out of the decedent’s intent. Most of the law of succession is concerned with enabling posthumous enforcement of the actual intent of the decedent or, failing this, giving effect to the decedent’s probable intent.8

Notice the emphasis on the donor rather than the donee. The interest protected by the law of succession is the donor’s right to freedom of disposition. The interest of a prospective donee, being derivative of the donor’s freedom of disposition, does not harden into a cognizable legal right until the donor’s death. Until then, a prospective beneficiary has a mere expectancy that is subject to defeasance at the donor’s whim. Consequently, the justification for freedom of disposition must be found in the balance of the “proper rewards and socially valuable incentives to the donor”9 against the risk of perpetuating inequality and concentrating economic and political power.

Along with the nature and function of freedom of disposition, it is convenient at the outset of the Trusts and Estates course to consider the professional responsibility of lawyers in succession matters. Doing so alerts students to the ethical perils in trusts and estates practice,10 and it invites consideration of the role of the trusts and estates lawyer as family counselor. Because the exercise of freedom of disposition at death is the decedent’s final expressive act, the Trusts and Estates course is fundamentally about people and their most intimate relationships. Each case is a drama in human relationships and a cautionary tale.

September 13, 2014 in Articles, Estate Planning - Generally, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Friday, September 12, 2014

Joan Rivers' Lessons on Pet Planning

Joan rivers dog 2

Joan Rivers’ death has left millions of fans mourning her loss as she represented a huge step forward for women in comedy. 

When it came to ensuring her loved ones were provided for upon her death, Rivers’ did an A List job.  Rivers leaves behind a valuable estate-planning lesson that many could learn from, which would be how to make sure your pets are cared for after you are gone.

Rivers had a simple estate plan as she left the bulk of her estate to her daughter, Melissa, by way of a family trust.  Additionally, Rivers made sure her four dogs would be taken care of, “She loved her dogs dearly, and they meant so much to her . . . dogs have become accepted as much essential family members that providing for them well in life, and after death, is considered quite normal.” 

Although trust laws vary from state to state, traditional pet trusts are effective everywhere.  Such trusts allow you to make very specific arrangements about the type of care you want your pets to receive and how the money you use to fund the trust will be managed and used over the pets’ lifetimes.  Traditional pet trusts allow you to go into as much detail as you desire about how exactly your pets should be treated. 

See Dan Caplinger, What Joan Rivers Just Taught Pet Lovers About Estate Planning, Daily Finance, Sept. 11, 2014.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

September 12, 2014 in Elder Law, Estate Administration, Estate Planning - Generally, Trusts | Permalink | Comments (0) | TrackBack (0)

Keeping Private Estate Planning Documents Private


As I have previously discussed, Robin Williams’ decision to rely on trusts rather than a will for his estate planning protected the privacy of his estate and family. Despite his efforts to keep his estate matters private, some information regarding a no longer effective insurance trust was found by media outlets due to the instrument's involvement in previous litigation. Here are three tips for planning professionals to keep their clients private documents private:

  1. Avoid including any personal information in documents that is not necessary for the validity or use.
  2. Limit the number of full copies of testamentary documents and use redacted copies when possible.
  3. Be mindful when transmitting documents and use web security if possible.

See Kim Kamin, Protecting Client’s Privacy, Wealth Management, Sept. 5, 2014.

September 12, 2014 in Estate Administration, Estate Planning - Generally, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Thursday, September 11, 2014

Planning for Your Special Needs Child

Special needs 2

According to the Census Bureau, more than 56 million Americans have some type of disability.  For parents who have a child with a disability, the fear is, “What happens when we’re gone?”  One answer is to set up a trust for the child. 

While the idea seems simple, only 21 percent of parents with special-needs kids say they are familiar with the planning steps, many families avoiding the process altogether.  Yet once parents start planning they feel much more relieved, “The parents feel a lot more confident with the day-to-day challenges, knowing that they have this.” 

One significant aspect of a special-needs trust is that it allows families to prepare funds for children with a disability while maintaining eligibility for government benefits as Supplemental Security Income and Medicaid.  Leaving money outright or naming children as the beneficiary of insurance policies can disqualify them from receiving benefits. 

See Cherice Chen, Protecting Special Needs Kids Financially, USA Today, Aug. 23, 2014.

September 11, 2014 in Disability Planning - Health Care, Estate Planning - Generally, Trusts | Permalink | Comments (0) | TrackBack (0)

Article on the Trust for Manumissions


Jessica Lee Thompson (UNC Chapel Hill School of Law) recently published an article entitled, ‘Toward Freedom for All’: North Carolina Quaker Legal Theory on the Trust for Manumissions (April 30, 2014).  Provided below is the abstract from SSRN:

The Perquimans event was the spark to one of the greatest legal debates in North Carolina’s history as Quakers directly challenged the state supported institution of slavery and conceptions of property through the use of trusts as a technology of law in conjunction with the exercise of their religious liberty. That is, they used the trust as a way for members of the local Meeting to hold slaves for the "benefit" of the Meeting and thus comply with the requirements of the North Carolina law that slaves have owners. Yet, the trustees, apparently following the wishes of the Meeting, allowed the slaves they "owned" substantial freedom, which in essence circumvented the North Carolina statute’s requirement that the slaves have owners. The Quakers’ challenges to the institution of slavery went beyond their defiance of acts passed by the General Assembly, which specifically contemplated the "Quaker issue." The debate over Quaker slaves held in trusts would largely unfold in the North Carolina courts. The legal theories the Quakers advanced challenged the common law and divided members of the State’s highest court on questions of morality. The Quakers use of trusts and natural law principles to accomplish a moral objective run’s counter to Morton Horwitz’s instrumental conception of law, and proposes an alternative theory, namely that those in power were more motivated by their fears or concern for security and stability.

This paper traces the debate over the legality of Quaker manumission efforts in North Carolina through an examination of three major cases presented before the North Carolina Supreme Court between 1827 and 1851. It combines research in the Quaker archives with an examination of the trial records and the record in the Supreme Court, as well as the published opinions. Thus, this paper moves beyond the previous work that has either looked only at the Quaker records and not the legal records or the North Carolina Supreme Court’s published opinions without telling the full story of the record below. A central question for this paper is how dissenters turned to the neutral technology of law to achieve a result that was at least partially at odds with the established policy of the state? That raises subsidiary questions about the ways that one renowned North Carolina lawyer, William Gaston, sought to defend his use of the innovative strategy and how North Carolina jurists responded to this challenge to state policy. This paper, thus, lies at the intersection of a series of questions about religious freedom, legal innovation, policy, and stare decisis.

September 11, 2014 in Articles, Estate Planning - Generally, Religion, Trusts | Permalink | Comments (0) | TrackBack (0)