Wills, Trusts & Estates Prof Blog

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

A Member of the Law Professor Blogs Network

Tuesday, July 29, 2014

Funding GRATs With Bitcoins

BitcoinAs I have previously discussed, the IRS issued a notice in March that announced that for tax purposes bitcoins and other virtual currency will be treated as property. This notice created more certainty for using bitcoins for financial planning purposes, but many details are still unclear. Since bitcoin value can increase greatly and rapidly, some grantors wish to fund grantor retained annuity trusts (GRATs) with bitcoins. However, this same value fluctuation that can result in spikes in value, also makes funding trusts with bitcoins risky. Bitcoins are also an attractive funding source because administration of bitcoin GRATs are relatively low maintenance since transfers are simple and inexpensive.

See Ivan Taback & Nathaniel Birdsall, The Bitcoin GRAT, Wealth Management, July 2, 2014.

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

July 29, 2014 in Estate Planning - Generally, Non-Probate Assets, Trusts, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Monday, July 28, 2014

Planning For Your Kids

Children2It is important to have a plan in place for your children in the event of your death.  Who will be your child’s guardian and who will be the guardian of your estate?  While these difficult decisions may not have one right answer, there are several important considerations to take into account when you are making your will and planning your child’s future.

Although you are allowed to designate someone as the guardian of your child, in most states the court has the final decision as to who will be the most appropriate caregiver.  “It’s at the discretion of the court as to what’s in the best interest of the child.”   When drafting your will, it is important to take into consideration that your money and your child can go in opposite directions.  Two types of guardians can be specified in your will—the guardian of the child, and the guardian of the property of the estate.  Though they can be the same person, that is not a requirement.  “Naturally, the answer is different for everyone and depends on what you want for your child as well as his or her caregiver . . . The person who looks after and cares for your child may not be the same person you’d want handling his or her financial life, as they may require a different skill set.  To control risk, some people decide to keep the roles separate.” 

The best way to do this is by creating a trust.  In establishing a trust, you can be explicit about how those funds are to be used for the care and education of the child.  When thinking about the appropriate dollar amount to leave for your child’s care, remember that children are expensive.

See Kathryn Tuggle, How to Give Away Your Kids, The Street, July 28, 2014.

July 28, 2014 in Estate Planning - Generally, Guardianship, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Top 5 Myths About Trusts

Seymour hoffmanRecently, Philip Seymour Hoffman declined to take the advice of his attorney who advised him to create a trust.  Hoffman said he did not want his three children to be “trust fund kids.”  Because of Hoffman’s aversion to proper estate planning, his 34 million dollar estate faces a huge tax bill and other problems that could have been avoided if he listened to the legal and financial advice he was given.  Similarly, Sting expressed a similar sentiment and did not want his children to have a trust fund. 

While Sting and Hoffman may have good intentions, their beliefs highlight the myths surrounding trusts, especially revocable living trusts.  Provided below are the most common myths:

  1. Trust Funds = Spoiled Children. While a large trust fund can lead to spoiled children, it doesn’t have to.  Trusts can help the creator do the opposite.  A person who sets up a trust with an attorney can craft language to tie the distributions to conditions or events, based on that person’s values and goals, this way money can be passed based on how grantor’s see fit. 
  2. Trusts are for the Rich. Trusts are for anyone who wants their heirs to avoid the expense, hassle and stress of probate court.  A living trust also helps by setting up one or more people to manage their assets during their life if they become incapable.
  3. Losing Control. In the case of a revocable trust, it can be changed, amended, or canceled altogether.  Trusts also foster control even after someone passes away.
  4. I Have a Will. Wills, unlike trusts, have to pass through probate court to work.  This means they are public record, more expensive, and difficult to administer.  They can also lead to family fighting.  With trusts, there are tax benefits with which wills and joint bank accounts cannot achieve.
  5. I Must Leave All My Money to My Kids. Anyone can set up a trust and name whomever they want to receive their money, including charities, other family members, close friends, trusted employees, etc.

See Danielle and Andy Mayoras, Philip Seymour Hoffman and Sting Highlight Five Myths About Trusts, Forbes, July 28, 2014.

July 28, 2014 in Estate Planning - Generally, Income Tax, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Wyly Brothers Facing Huge Penalties After Found Guilty of Fraud

Money PileAs I have previously discussed, a jury found brothers Samuel Wyly and Charles Wyly guilty of fraud in May. The offshore trusts brought in $550 million in profits for the brothers. Now the SEC is asking the judge to assess $1.4 billion in damages when the case continues in August. An executor of Charles Wyly’s estate took the place of Charles as a defendant in 2011 after Charles’ death.

See Nate Raymond and Joseph Ax Reuters, SEC Seeks $1.4 billion from Texas Wyly Brothers After Fraud Verdict, Sun Sentinel, July 26, 2014.

July 28, 2014 in Trusts | Permalink | Comments (0) | TrackBack (0)

Friday, July 25, 2014

Estate Planning Lessons From Three Famous Estates

Movie Star2Many famous estates are full of drama, family feuds, and numerous opportunities to learn from others’ estate planning mistakes. Here are three that provide helpful lessons:

  1. Walt Disney: The trust created by Walt Disney teaches the importance of choosing trustees wisely. The trustees for the trust have allegedly used their discretion to withhold principal distributions from some of Disney’s grandchildren, because they would not keep the funds with the financial firm of one of the trustees.
  2.  Johnny Unitas: Unitas’ story teaches how important it is to choose the right executor. Unitas’ son had to endure a lengthy court battle to be able to buy a company he shared with his father, due to his father’s second wife refusing to sell to him.
  3. Casey Kasem: Kasem’s tale of his wife moving him away from his children and now both sides feuding over the will, highlights the importance making smart choices with who gets powers of attorney.

See Bob Carlson, Key Estate Planning Mistakes You Need to Avoid, Investing Daily, July 24, 2014.

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

July 25, 2014 in Disability Planning - Health Care, Estate Administration, Estate Planning - Generally, Trusts, Wills | Permalink | Comments (1) | TrackBack (0)

Article Review: Diversity Jurisdiction and Trusts

TrustTurney P. Berry has written a review on Jonathan J. Ossip’s article entitled, Diversity Jurisdiction and Trusts. Provided below is an introduction to the review:

Surely we’ve all heard this maxim, and in a forthcoming article, Jonathan J. Ossip reminds us that when federal diversity for trusts is concerned, the key word is “you.” In Navarro Savings Association v. Lee, the federal district court dismissed an action filed by the trustees of a Massachusetts business trust on their own behalf, holding that a business trust is a citizen of every state where its shareholders reside (which, on the facts, destroyed diversity). The U.S. Supreme Court reversed and held that the trustees were the real parties to the controversy because as trustees, they had exclusive power over the trust assets, as if they were sole owners of the trust assets individually. Subsequent to Navarro, the article argues, the federal courts have largely made a hash out of determining trust citizenship, particularly that of business trusts. To bring some order to the jurisprudence, the author advocates applying different rules to traditional estate planning or gift trusts and business trusts.

For the rest of the review, see Turney P. Berry, Review of Reviews: "Diversity Jurisdiction and Trusts” N.Y.U. L. Rev. (forthcoming December 2014), Wealth Management, July 14, 2014. 

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

July 25, 2014 in Articles, Trusts | Permalink | Comments (0) | TrackBack (0)

Thursday, July 24, 2014

Understanding A Fiduciary's Obligations


A fiduciary holds a position of trust in relation to another person.  A common example of a fiduciary relationship is one between an estate trustee and the beneficiaries of an estate.  Because the estate trustee typically has significant discretion to manage the assets of the estate, they are in a position of trust in relation to the persons to whom the estate’s assets are to be distributed. 

Thus, an estate trustee must exercise their discretion in the best interests of the beneficiaries.  They must protect and earn money from estate property, and obtain investment advice towards these ends. 

In the event that a fiduciary duty has been breached, courts have equitable remedies at their disposal.  When exercising its discretion, a court will not only compensate the wronged party, but also seek to uphold the commitments of good faith and loyalty. 

Hence, a fiduciary who has misappropriated funds may be required to pay back the sum.  Where a fiduciary has engaged in self-dealing, yet subsequently paid the funds back, they may be required to pay any profit earned from the loan or interest that the sum would have accrued had it not been loaned. A court may also order a fiduciary to pay legal costs, as opposed to the funds being paid out of the estate assets, for example.

It is important fiduciaries understand their duties and obligations.  They may wish to retain a lawyer to ensure they are meeting their responsibilities.

See Suzana Popovic-Montag, Do You Trust Your Fiduciary, The Huffington Post, July 22, 2014.

July 24, 2014 in Estate Planning - Generally, Trusts | Permalink | Comments (0) | TrackBack (0)

Out With the Old, In With the New


As families reunite, it is a good time to review any trusts created during a family member’s lifetime or at death.  Because families can often have a variety of trusts, created at different stages during different stages of their lives, it is common that they have not updated them in awhile.

Accordingly, if estate planners do not stay on top of these changes, problems are bound to arise.  Many trusts are irrevocable, meaning that the grantor cannot modify their terms.  However, depending upon the trust’s provisions, the trustee’s powers and the state’s laws, there may be strategies to administer them more flexibly.  

Some common problems that occur when trusts are not updated are when distribution ages occur earlier than preferred and assets may appreciate more dramatically than anticipated.  In situations like this, one option is not to put any additional money into the trusts and instead create new trusts with extended distribution terms for any future transfers.  Another choice may be to rely on the terms of the trust and state law to enable the trustees to distribute the trust property to different trusts for the benefit of the beneficiaries with a stretched out distribution schedule.

Some of the issues that arise with old trusts can be evaded by making new trusts as flexible as possible.  “Trusts are live, dynamic documents and must be managed and reviewed as laws and family circumstances change.” 

See Judith Saxe, Old Trusts, New Problems, Private Wealth, July 23, 2014. 

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

July 24, 2014 in Estate Planning - Generally, Trusts | Permalink | Comments (0) | TrackBack (0)

How Casey Kasem’s Estate Could Have Avoided the Drama

Group HugThe drama caused by the combination of a large estate, second marriage, and conflict between the current spouse and children from a prior marriage is not unique to Casey Kasem or his estate. However, when there is a significant age gap between spouses which makes one spouse closer to the children’s ages then the deceased spouse, estate planning considerations are not completly typical. Leaving everything to the spouse can create tension between the younger spouse and the children. Here are some estate planning tools that can help ease the tension and reduce conflict:

  • A QTIP trusts that provides for the spouse during their life and then for the children can be useful, unless the age gap between the two is so close that the children outliving the new spouse is unlikely.        
  • A life insurance policy can be used to either divide inheritance or provide for the spouse and leave the remaining estate to the children.                              
  • Creating a revocable trust can help a complicated situation by keeping it flexible and avoiding the public eye.
  • A good old fashion family meeting can help prevent future conflict by making sure all parties have reasonable expectations for what will happen.

See Annika Ferris Cushnie, How Proper Plannign Can Avert a Casey Kasem-Type Drama, Market Watch, July, 23, 2014.

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

July 24, 2014 in Estate Planning - Generally, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Leaving a Death File Behind

BundleNot having the necessary paperwork in order when you die can cost your family time, court fees, and delays in receiving inheritance. The first step is making a list of all the documents and information your family will need to settle your affairs, and either putting it in an electronic file or in one physical location. The location needs to be easily accessible, labeled, and well organized. Items that need to be included in the document bundle include:

  • Your will, trust documents, and contact information for the drafting attorney and listed executor
  • A list of and the account information for all financial accounts and reoccurring bills
  • Policy information for all insurance and benefits plans

See Beth Pinsker, What Should be in Your ‘Death’ File, Reuters, July 15, 2014.

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

July 24, 2014 in Estate Administration, Estate Planning - Generally, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)