Wills, Trusts & Estates Prof Blog

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

A Member of the Law Professor Blogs Network

Wednesday, October 22, 2014

Avoid These Estate Planning Errors


While many people fail to plan for death, even those who make the effort to plan their estates often neglect to follow through or update their plans as changes occur in their lives.  So that your estate plan may remain a valuable asset for you and your heirs, avoid these common mistakes:

  • Thinking the state will handle everything. It is a common misconception to think that trusts are for the wealthy and you have covered your bases with a will.  However, with a will, your estate may have to go through a public probate process and can be expensive.  If you have a trust, it eliminates the probate process for assets and ensures privacy.
  • Your work is done after a trust is created. Many people forget to fund their revocable trust.  The trust does not exist unless it holds assets. 
  • Settling and forgetting. This means that clients will often set up their estate planning documents and rarely look at them again.  Life changes and your needs, as well as your children’s, may be different.  Thus, updating a will is crucial.
  • Your assets will follow your trust or will. Beneficiary forms govern retirement accounts and insurance policies; the assets do not flow through your trust or will.  Whomever you designated as your beneficiary will get the money when you die.
  • Not considering your children’s needs. Each child can be different, and there may be times to treat them differently when it comes to disbursing their inheritance.

See Barry Glassman, Trust Bust: Steer Clear of the 8 Biggest Estate-Planning Mistakes, CNBC, Oct. 22, 2014.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

October 22, 2014 in Estate Administration, Estate Planning - Generally, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Paying For Elder Care

Medicare tax

The federal health insurance program for Americans over the age of 65 does not cover everything.  For example, long-term custodial care to assist with “activities of daily living,” which might include bathing, dressing, and eating, is not covered.

As many older people will eventually need such care, their families must find a way to pay for it.  Unfortunately, it is not cheap.  Privately purchased long-term care insurance is one way to handle some of these costs, though it is expensive.  Another solution is applying for Medicaid, a joint federal and state program.  In order to qualify, an elderly person must have total “countable assets” under a certain amount.  There are legal strategies that can help older people qualify for Medicaid, and below are a few options to look into:

  • Asset Protection Trusts. A properly established irrevocable trust is one way to shelter assets so they do not affect Medicare eligibility. 
  • Private Annuities. If a person needs to apply for Medicaid before the five-year look-back period expires, it is possible to preserve a portion of assets using a properly drafted private annuity or promissory note.
  • Personal Care Agreements. A lump sum paid to a caregiver for future services can do a number of things including: reduce the size of the estate so the person will be eligible for Medicaid, and purchase care beyond what Medicare provides. 
  • Spousal Refusal. Transferring assets from one spouse to another is not penalized under Medicaid.  However, the well spouse is legally obligated to provide for the other spouse’s care, and their collective assets will be considered for Medicaid eligibility purposes.  If the well spouse signs a spousal refusal, they effectively renounce that responsibility, making the other spouse immediately eligible for Medicaid.

See Greg Daugherty, Top 5 Strategies to Pay for Elder Care, Investopedia, Oct. 21, 2014.

October 22, 2014 in Elder Law, Estate Planning - Generally, Trusts | Permalink | Comments (0) | TrackBack (0)

Benefits of a Gun Trust

GunsThe National Firearms Act of 1934 (NFA) regulates the transfer and ownership of some categories of firearms. Even if state law allows for ownership or use of a firearm that's covered by the NFA, the process for getting approval is complicated and the requirement of a certification letter from local law enforcement can make it nearly impossible to get approval to purchase a heavily regulated gun that falls within the scope of the NFA. One possible solution is a gun trust. The requirements for a gun trust holding a NFA regulated firearm are very different and may be easier to meet. Thus, a gun trust may assist with purchase and ownership, compliance with relevant laws, and aiding in the process of passing a firearm through the generations.

See Matthew W. Thompson, What in the World is a 'Gun Trust' and Why Might I Want One?, WRAL Tech Wire, Oct. 15, 2014.

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

October 22, 2014 in Estate Planning - Generally, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 21, 2014

Minor Beneficiary May Disclaim Without Gift Tax

 TaxesIn a recent Private Letter Ruling, a taxpayer who is a beneficiary of two trust that were created prior to taxpayer's birth may severe her interest in discretionary payments and contingent beneficial interest. The minor beneficiary intended to to disclaim any right to beneficial interest within nine months of the age of majority, and the IRS concluded in Private Letter Ruling 2014400071 that as long as all other applicable laws are followed the disclaimer may successfully be made without creating federal gift tax liability.

See Debra Doyle, Disclaimers of Distribution Rights Aren't Transfer to Gift Tax, Wealth Management, Oct. 10, 2014.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

October 21, 2014 in Estate Planning - Generally, Gift Tax, New Cases, Trusts | Permalink | Comments (0) | TrackBack (0)

Saturday, October 18, 2014

New Case: In re Theresa Houlahan Trust

TrustLimitations does not begin to run even though trust property consists only of a claim against the trustee. The Supreme Court of New Hampshire reversed the grant of summary judgment for a successor trustee in an action alleging that the predecessor trustee violated his fiduciary duty by transferring all of the property of Trust 1 of which he was a trustee to Trust 2 of which he was settlor and trustee. The trial court granted the successor trustee’s motion for summary judgment on the ground that the action was barred by the statute of limitations which requires actions against a trustee for breach of trust be brought within three years of the termination of the beneficiary’s interest in the trust.

In re Theresa Houlahan Trust, citing Restatement (Third) of Trusts § 2, comment i and the Reporter’s Notes, the court held that Trust 1 did not cease to exist when all of its property was transferred to Trust 2 because Trust 1 held a chose in action against the trustee. The court remanded the case for trial on the remaining issues of both fact and law.

Special thanks to William LaPiana (Professor of Law, New York Law School) for bringing this case to my attention.

October 18, 2014 in Estate Planning - Generally, New Cases, Non-Probate Assets, Trusts | Permalink | Comments (1) | TrackBack (0)

Friday, October 17, 2014

Warring Over Wills


Leo Tolstoy once wrote, “Happy families are all alike; every unhappy family is unhappy in its own way.”  Yet when it comes to wills and estates, the woes may echo one another. 

Although these battles are the exception rather than the rule, how do you avoid family warring?  Some experts say there is no “one-size-fits all approach” that will ensure harmony when you die.  “Things like family trusts, putting business assets in different companies and having an up-to-date will are very important because if you don’t do those things you can leave a real mess behind which can be very expensive to sort out and money can go to people who you may not have wanted to benefit.”

If property has been gifted before death, it cannot be the subject of dispute.  Thus, when sizeable assets are at stake, a lot of planning is needed.  A discretionary trust may be an ideal mechanism to facilitate this change if it is set up properly. In establishing a trust, one must anticipate where control of the business will lie, and put that in a letter of wishes.  “This generally isn’t a legally binding document, it’s generally informal … in conjunction with a well structured trust, a letter of wishes can be a very useful thing to guide all those who are involved, including family members.”  This may not be a remedy to keep relatives from going head to head, however, consulting your family and communicating your wishes to them before you die can help forestall any problems. 

See Hamish Fletcher, Families at War: When Wills Go Sour, The New Zealand Herald, Oct. 17, 2014.

October 17, 2014 in Estate Administration, Estate Planning - Generally, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Trustee Ratifying Invalid Action Not Enough

AntiA co-trustee cannot ratify an action by the other co-trustee that violates terms of the trust. Beneficiary was co-trustee of a trust with a corporate co-trustee and the trust terms required that no trustee who was also a beneficiary may exercise any powers of the trustees for his or her own direct or indirect benefit, and whenever “participating in income or principal of a beneficiary who is also a trustee is being considered” decisions must be made solely by the corporate co-trustee. The individual co-trustee entered into a 1031 like-kind exchange with himself. The corporate co-trustee ratified the transaction. Another beneficiary brought an action alleging that the individual co-trustee had violated his fiduciary duties by engaging in the 1031 exchange. After a bench trial, the court found that the co-trustee had not violated his fiduciary duty.

In re Estate of Foiles, on appeal, the Colorado intermediate appellate court reversed and remanded, holding that in the absence of a trust term allowing a co-trustee to ratify otherwise invalid actions of a trustee, ratification can come only from all of the beneficiaries.

Special thanks to William LaPiana (Professor of Law, New York Law School) for bringing this case to my attention.

October 17, 2014 in Estate Planning - Generally, New Cases, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Thursday, October 16, 2014

Asset Protection Through Foreign Trusts

Asset protection

Foreign trusts can be powerful and legitimate asset protection tools against creditors when created and maintained legally.  Like ordinary trusts, foreign trusts transfer control of one person’s assets onto someone else, helping keep money out of creditor’s hands.  When trusts are outside of the United States and jurisdiction of American courts, anyone wishing to get the money must go to greater lengths to navigate other countries’ legal and banking systems, creating a powerful incentive to settle.  “Once creditors realize the huge Mount Everests they would have to climb, and there are multiple Mount Everests, it’s just easier to settle for some minuscule amount.” 

The key to establishing any trust for protection from creditors is that it must be created well before a specific creditor or lawsuit enters the picture.  Otherwise, it will be a fraudulent transfer.  It is vital that planners discuss asset protection issues with clients at the same time they discuss estate planning or insurance.  “Clients don’t think about this on their own . . . [planners] need to raise awareness that there are strategies for clients to insulate themselves from risk.” 

Yet, foreign trusts are not for everyone.  They will not work to shield assets such as property or business equity.  “The burden of tax and other regulatory disclosures is onerous,” and penalties for errors are enormous.    

See Paul Hechinger, Foreign Trusts Can Increase Asset Protection Power for Clients, Financial Planning, Oct. 10, 2014.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

October 16, 2014 in Estate Planning - Generally, Trusts | Permalink | Comments (0) | TrackBack (0)

Now's the Time for a Charitable Lead Trust

Charity 2

Wealthy families who wish to give to charity while minimizing gift and estate taxes should consider a charitable lead trust (CLT).  These trusts are very effective in a low-interest-rate environment, and although interest rates have gone up in recent years, they still remain very low.

A CLT provides a regular income stream to one or more charities during the trust term, after which the remaining assets pass to your children or other noncharitable beneficiaries.  If your beneficiaries are able to wait for several years before receiving their inheritance, a CLT is a great planning tool.  This is because the charity’s upfront interest in the trust reduces the value of your beneficiaries’ interest for gift or estate tax purposes.

There are two types of CLTs: the first is a charitable lead annuity trust (CLAT), which makes annual payments to charity equal to a fixed dollar amount or a fixed percentage of the trust assets’ initial value.  The second is a charitable lead unitrust (CLUT), which pays out a set percentage of the trust assets’ value, recalculated annually.  CLATs are most effective when interest rates are low because when you fund a CLAT, you make a taxable gift equal to the initial value of the asset you contribute to the trust, less the value of all charitable interests.  If a CLAT is appealing, the sooner you act, the better.

See E. Hans Lundsten and Joseph Marion, III, Now’s the Time for a Charitable Lead Trust, JD Supra.   

October 16, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Webinar on Domestic Asset Protection Trusts

CLEWealthManagement.com is presenting a webinar entitled, Attacking, Defending and Fortifying Domestic Asset Protection Trusts: A Trustee's Perspective, Wednesday, October 22, 2014, at 2 pm Eastern. Provided below is a description of this webinar:

This session will discuss the critical building blocks and the best ways to structure DAPTs from a trustee's perspective for maximum protection based upon previous cases and existing statutes. The Huber case, along with various other recent cases, will be analyzed and provide for how not to do DAPT planning

The following will also be examined as potential challenges to DAPT planning:

  • Improperly drafted trust
  • Improper titling of trust property
  • Fraudulent conveyances
  • Exception creditors
  • Lack of strong discretionary interest protection
  • Insufficient sites:
    • "Straw man" trustee
    • Jurisdiction issues
  • Privacy issues
  • Trust→Sham/alter ego of settlor
  • Possible constitutional issues
  • Super creditors
  • Bankruptcy

If properly established and maintained, the glass is half full!

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

October 16, 2014 in Conferences & CLE, Trusts | Permalink | Comments (0) | TrackBack (0)