Wills, Trusts & Estates Prof Blog

Factors to Consider When Selecting a Trustee

When constructing your estate plan, one of the many important decisions to make is determining who will serve as the trustee.  Since a trustee will have control over your assets for a number of years, choosing the wrong trustee might impede your interests.  Below are three factors you should consider when selecting a trustee:

1. Naming your children may not be the best idea. While many people want to give their children positions of authority in their estate plan, this can actually be a disastrous consequence if the decision is made prematurely or without proper advice.  If you are planning on using your children, ensure they get along.  Often, “people [accuse] their siblings of stealing assets from a trust . . . siblings refuse to give each other required information . . . [and] it can be difficult for them to make decisions without creating bad feelings.”
2. Consider using a professional. Another option is to name a professional trustee.  This can be an institution or individual, such as an attorney.  Although this is a more expensive option, in many situations it is the best choice especially if there are family issues.  Even if this is not the case, when a large amount of assets exists, naming a professional trustee can help ensure better overall management. 
3. Include power of removal. It is important to know that you can give beneficiaries the power to remove and replace the trustee.  However, this power should be limited.  It should be available to help the beneficiary in bad situations, such as if a trustee is unreasonable restrictive with respect to distributions. 

See Tracy Craig, Selecting a Trustee? 3 Factors to Consider, Financial Planning, May 29, 2014. 

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

Donald Sterling Held to be Mentally Unfit

Former Los Angeles Clippers owner Donald Sterling has been deemed mentally unfit to make decisions relating to the family trust.  The Sterling Family Trust owns the team, with Donald and his estranged wife Shelly each owning a 50% share.  The trust specifies procedures related to the mental capacity of the trustees, and Donald Sterling did not meet the standard in a determination by experts, leaving his wife the decision making power for the trust. 

On Thursday, Shelly Sterling reached a deal with former Microsoft CEO Steve Ballmer to sell the Clippers for $2 billion.  A provision of the deal entails that Ballmer will get 100% of the team, while Shelly Sterling could still be involved in the franchise.  Shelly Sterling stated, “I am delighted that we are selling the team to Steve, who will be a terrific owner . . . We have worked for 33 years to build the Clippers into a premiere NBA franchise.  I am confident that Steve will take the team to new levels of success.”

See Brent Schrotenboer, Donald Sterling Ruled Mentally Unfit, Can’t Prevent Clippers Sale, USA Today, May 30, 2014. 

Special thanks to David S. Luber (Florida Probate Attorney) and Laura Galvan (Attorney, San Antonio, Texas) for bringing this article to my attention.

Florida Blind Trust Lawsuit

As I have previously discussed, blind trusts limit communications between trustees and beneficiaries and are typically used by politicians and business executives.  A lawsuit started in Florida this week that challenges a state law that allows public officials to use blind trust when they take office.

See, Circuit Judge to Begin Discussions in Blind Trust Lawsuit, Saint Peters Blog, May 28, 2014.

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

Dealing with Creditors After the Death of a Loved One

Amidst the emotional time that occurs after the death of a close relative, creditors may begin to contact family members to get general information, contact info of other family members, or discuss the debt. The debt usually belongs to the estate of the deceased family member and not other family members, unless for example they cosigned on a loan. Generally creditors may contact the executor or administrator of the estate to discuss the debt. If the info collection turns into harassment though, the person should tell the debt collector to no longer contact them by sending a letter or contact the state attorney general's office.

See Margaret S. Barr, ‘Til Death Do Them Part: Creditor Rights, McBrayer, May 16, 2014.

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

Tenth Circuit Holds Arbitration Agreement Unconscionable

A nursing home resident entered into an agreement with THI, a nursing home operator, that required arbitrations of all claims except guardianship proceedings, collection and eviction actions, and claims under $2,500.  Upon the resident’s death, his estate sued THI for negligence and misrepresentation.  THI subsequently sought to compel arbitration. 

Initially, the New Mexico District Court ordered arbitration.  Yet, they reversed their decision upon reexamination of Figueroa v. THI, where the New Mexico Court of Appeals held an identical arbitration agreement to be unconscionable.  In so ruling, the district court held the Federal Arbitration Act (FAA) did not preempt Figueroa because that decision was based on the generally applicable common law rule that grossly one-sided contracts were unconscionable and, thus, unenforceable.  THI appealed to the Tenth Circuit. 

According to the Tenth Circuit, finding such an arrangement unconscionable was premised on “assuming the inferiority of arbitration to litigation,” which is an assumption the FAA prohibits.  The Tenth Circuit reasoned that a court’s finding of unconscionability must be examined to ensure that those reasons are not “based on policy hostile to arbitration.”  Accordingly, the Tenth Circuit reversed the district court and ordered it to compel arbitration.  THI of New Mexico, LLC v. Patton, No. 13-2012 (10^th Cir. Jan. 28, 2014).

See Baker & McKenzie, Arbitration. Unconscionable Agreement. Tenth Circuit Reverses District Court’s Holding That A Nursing-Home Arbitration Agreement Is Unconscionable, International Litigation & Arbitration, May 2014. 

Tampa Bay Buccaneers Remain a Family Affair

Malcolm Glazer, owner of Buccaneers and Manchester United, passed away at age 85 on Wednesday.  Careful succession planning by the Buccaneers ensures ownership of the team will remain within the Glazer family for generations to come, although it is unclear who will be controlling what. 

If history has proven anything, transfer of wealth among sports magnates is never simple.  When Washington Redskins owner Jack Cooke died, he left ten percent of his estate to his son, stipulating the club be sold with the proceeds being used to start a foundation.  Generally, the surviving spouse inherits the bulk of an estate to avoid federal taxes imposed when assets are passed on to the next generation.  It is usually not until the death of the remaining spouse that any estate issues surface. 

With soaring media deals and a dramatic increase in the value of sports teams, some owners have created complex succession plans, allowing them to shield their heirs from hefty estate tax bills that could force them to sell.  “Typically there are trust agreements drafted and tweaked over time that will dictate how this gets passed on…They key is the work done prior to his death.” 

See Jeff Harrington, Careful Estate Planning Likely Ensures Tampa Bay Bucs Stay With Glazer Family, Tampa Bay Times, May 28, 2014.

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

Start A 529 Savings Today

In a new survey by Edward Jones, 70 percent of respondents had never heard of a 529 plan.  While many can understand, others may be surprised to learn the rest of the nation has not discovered the magic of compound interest that comes with a 529 college savings plan.  Introduced in 1996, 529s are savings plans where earnings are tax-free as long as they are used for college expenses. 

May 29 is designated “529 Day” and aimed at raising awareness about the importance of saving for university and the many benefits of a 529 plan.  “Parents hear about high costs of higher education and they freeze.  They’re not sure what to do, so they don’t do anything,” says Mary Anne Busse, a spokesperson for the College Savings Plan Network, a trade group for individual states’ 529 plans. 

This year efforts are focused around giving away money to help seed college savings plans amounts from $529 to $5,290.  There are other giveaways as well, such as ice cream, zoo and museum admissions, and piggy banks.  Also aimed at parents of young children is a new book on college savings, “Everybody Freaks Out! (But it’s going to be okay,” which is sponsored by The Education Trust of Alaska and the College Savings Plans of Maryland, with support from T. Rowe Price.  It is a color story book about parents who get scared when they see how much college will cost.  This book is aimed at getting parents to sign up for a 529 plan at the birth of their child.  T. Rowe Price’s senior financial planner, Stuart Ritter, says, “We get four times as many accounts open at birth than any other age.” 

Although there are no outright incentives, there is an online and radio campaign for private 529 plans centered around 529 day.  “What we consider the incentive is that tuition rates are about to increase.”  However, if you missed out, you will get another shot in September during National College Savings Month.

See Beth Pinsker, What Would Entice You To Sign Up For A 529 Plan? Reuters, May 28, 2014. 

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

Finance Fiascoes in Divorce

The end of a marriage can turn your finances upside down.  Thus, is becomes crucial to protect your financial security by untangling savings and investment accounts, real estate, and other assets you have accumulated during your marriage.  You must also update your estate plan and replace health insurance coverage that might be lost when you split from your spouse. 

Here are key questions to ask before, during, and after a divorce proceeding, so you may ensure your financial security:

1. Where is the money? Before you can divide marital property, you need to know what the property consists of.  Marital property is money you or your spouse earned during the marriage and the things you purchased with that money.  Collect tax returns, pay stubs, property deeds, vehicle registrations, insurance policies, account statements, and awards-program documents. 
2. What are the tax consequences? Alimony is taxable to the recipient, and tax-deductible for the payor.  If you are receiving alimony, you may want to have more money withheld from your paycheck.  Consider whether alimony may bump you up to a higher tax bracket or make your Social Security benefits taxable. 
3. How will we split retirement savings? Moving IRA assets between divorcing spouses is relatively simple.  The transfer is tax free if done under a divorce decree.  Make sure it is direct from the custodian of one IRA to the other.  On the other hand, dividing a 401(k) can be more complex, and you typically need a qualified domestic relations order.  In these situations, it can pay to find a lawyer specializing in estate planning to help guide you.
4. Should I keep the house? Oftentimes keeping the house can be the biggest mistake, especially if you give up other assets in exchange for the house.  Some planners suggest keeping the family home for a few years after the divorce to preserve the tax advantages of selling the home as a couple.
5. Will I be insured? Denial of health insurance is a looming fear of divorcees, however the Affordable Care Act should ease health-coverage concerns for many divorcing souses.  Under the new law, insurers can no longer deny coverage or charge people more based on preexisting conditions. 
6. How will my estate plan change? You should begin updating your estate plan as soon as you see a divorce in the future, otherwise it may be too late.  While some state laws aim to protect people from accidentally leaving property to an ex-spouse—such as by automatically removing an ex-spouse as beneficiary of a life insurance policy after a divorce—those protections generally kick in only when the divorce is final.  There is no protection if you are going through the process of divorce when you die, having not yet updated your estate plan. 

See Eleanor Laise, Keep An Eye On Finances During A Divorce, Kiplinger Retirement Report, June 2014.

Three Tax Tips for Charitable Contributions

To maximize tax benefits for charitable contributions, here are three helpful tips to keep in mind for next year’s tax season:

1. Donate rather than sale appreciated property
2. Be careful when deducting tickets to charitable fundraisers
3. Be aware of special requirements for donations of publicly traded partnerships

See Laura H. Peebles, Charitable Contribution Tips From Tax Filing Season, Wealth Management, May 21, 2014.

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

Using IDGTs in Estate Planning

With the goal of limiting as many taxable assets as possible from the estate in mind, Intentionally Defective Grantor Trusts may be a beneficial estate planning tool. This method allows Grantor Trust Rules to be invoked intentionally.

See Craig W. Smalley, Intentionally Defective Grantor Trusts, Advisor Voices, May 23, 2014.

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