Estate Planning

Please review the articles below for more information on the common elements of Estate Planning. These articles are not a substitute for qualified legal advice. Please review your particular situation with your attorney.

What is a Trustee?

A Trustee is a person who is appointed to manage the assets of a trust. The trustee owns the trust assets. The assets must be managed in accordance with the trust provisions for the benefit of the trust beneficiaries.

What are the Trustee’s Duties?

Here is a general list of trustee duties:

1. Duty of Loyalty – The trustee must be loyal to the beneficiaries, without taking advantage of the position for personal gain or engage in any self-dealing.

2. Duty of Impartiality – the trustee must be fair and impartial to all beneficiaries and adhere to the provisions of the trust.

3. Duty to Inform and Account – The trustee must keep the beneficiaries informed of trust matters. Generally, an annual accounting to the beneficiaries is sufficient.

4. Duty to Marshall and Protect Trust Assets – The trustee must take possession of the trust assets and manage those assets according to the trust terms, including transferring assets under a will or bringing a lawsuit to collect assets.

5. Duty to Identify and Not to Commingle – The trustee must own trust assets in the name of the trust, not personally. The trustee must separate trust assets from the trustee’s personal assets.

6. Duty Not to Delegate – Unless the trust states otherwise, the trustee may not delegate his responsibilities.

These duties can be modified by the trust document, the laws of the state where the trust is located, case law, and common law.

Co-Trustees

Sometimes, a trust document will appoint co-trustees. In this situation, it is important that both Trustees act together for the benefit of the trust beneficiaries. One co-trustee cannot allow the other co-trustee to do all the work. A Co-Trustee’s failure to attend to his duties as trustee makes him liable for the actions of the co-trustee. If one co-trustee steals from the trust, the other co-trustee is liable, too.

Why do I need a Power of Attorney?

A Power of Attorney (POA) is a written document. The Principal is a competent adult who appoints another competent adult, called the “attorney-in-fact”, to act on the principal’s behalf. An attorney-in-fact can perform any task that the principal can perform. The POA can be effective immediately or only upon disability.

Some POA forms are “durable”. A durable POA remains in force for the lifetime of the principal, even if the principal becomes mentally incapacitated. A principal may cancel a POA at any time. Powers granted in a POA can be specific to a particular transaction. For example, you are moving to another state for work. Your spouse, armed with a power of attorney, signs all the paperwork to purchase your new home while you remain at work at your old job. Or, the power granted can be very broad. For example, you are told you must have surgery. You grant a broad POA to your son so that he can handle your finances until you are fully recovered from the surgery.

Who will manage your everyday affairs, such as paying the bills, if you cannot do so? In cases of illness or injury, many people assume that a spouse or child can take over for them. Unfortunately, this is not the case. When an individual is stricken with a severe illness or an injury leaving him unable to make decisions, a POA allows a trusted friend or family member to take over and manage your financial  needs.

All states have legal procedures for guardianships or conservatorships. These procedures allow a court to appoint a person to oversee the affairs of an incapacitated person. These proceedings are expensive and involve lawyers and doctors. If a trusted family member is not available to serve as the guardian or conservator, a stranger may be appointed to manage your affairs.

A POA can avoid the expense of legal proceedings. A Power of Attorney may contain some or all of the following powers:

1. To collect money due; institute lawsuits to collect money, and handle business affairs.

2. To hire attorneys to prosecute or to defend or to assert any right in your name.

3. To settle or compromise any claim or demand existing against you.

4. To negotiate, to make, and to execute any contract in your name, including contracts either to buy or to sell, or to lease or to mortgage, or to repair, or to operate, any real or personal property.

5. To borrow money for you and to execute for you any note, and to pledge or mortgage any personal or real property to secure the same.

6. To execute in your name and deliver any bill of sale or deed of conveyance, or other instrument, conveying property, real or personal, upon any terms whatsoever.

7. To enter any lock box rented in your name in any bank.

8. To sign your name to any check upon any checking account standing in your name in any bank, and to withdraw from such account funds now on deposit.

9. To endorse in your name any check, draft, note or other negotiable instrument.

10. To file income tax returns and to represent you in all tax matter before any office of the Internal Revenue Service or State Tax Commission.

How to Properly Fund Your Trust

To properly fund your living trust, you must transfer your assets into the trust’s name. The following items all represent trust assets:

Bank Accounts: Checking and savings accounts are transferred to your trust by closing your present accounts and opening new ones in the name of your trust.

Money Market Certificates: Money market certificates should be transferred to your trust on their maturity dates. If you put a money market certificate into a trust before the maturity date, penalties may be incurred for premature cashing of the certificates.

Publicly Held Stocks and Registered Bonds: In order to transfer publicly held stocks or registered bonds to your trust, the securities must be re-registered in the name of your trust. If your certificates are held in a brokerage account, ask your broker to re-registered your account in the name of your trust.

Partnership Interests: Partnership interests must be assigned and transferred to your trust. This transfer of ownership is completed in the same manner as if your partnership interest were being transferred to a third person.

United States Savings Bonds: United States Savings Bonds are transferred to your trust by having the registration on each bond revised to show that the trust is the new owner. This process is accomplished by completing United States Treasury Form PD 1851. The form is available either from your bank or the Federal Reserve Bank. If the bonds are registered in joint ownership, it is necessary that both parties sign Form PD1851. Furthermore, with respect to traditional Series E or H bonds, a “POD” (Payable on Death) beneficiary must also sign Form PD1851. With respect to EE and/or HH Bonds, a POD beneficiary need not sign the form, although a joint owner must do so. The bonds do not have to be signed. You should be careful to follow the above procedures in transferring bonds to your trust. Otherwise, you may inadvertently redeemed or cash the bonds, thereby causing any accrued interest on E Bonds or EE Bonds will become due and payable in full.

Real Estate: Real property is transferred to your trust by the execution of a deed.

Land Contracts: The seller’s interest in a land contract is transferred to your trust by the execution of a deed (generally a quit claim deed is used) and an assignment of seller’s interest in the land contract. Both documents are required. Typically, the copy of the assignment of the seller’s interest in a land contract is given to the purchaser so that future land contract payments will be made directly to your trust. If the deed and assignment of seller’s interest are not to be recorded, they should be kept in a safe place where they can be readily found in the event of your death or disability.

In addition, it is prudent to add the name of your trust as an additional insured party on any insurance policy maintained with respect to any land contract. You should also list yourself individually as an insured party as well.

Leases: If property being transferred to your trust includes a lease, the lease should also be transferred to your trust. Again, the name of your trust should be added as an additional insured party to any insurance policy maintained with respect to the lease. You should continue to show yourself individually as an insured party as well.

Life Insurance Benefits: Your Trust must be named as beneficiary in order to receive any monies paid with respect to insurance policies following your death.

Pension: Profit Sharing and IRA Benefits. In order to have death benefits paid from your pension, profit sharing or IRA plans to your trust, it is necessary that new beneficiary designations be completed. The coordinating of beneficiaries with respect to retirement benefits, however, must be done only after taking into account income tax ramifications. If applicable, the change of beneficiary designations should be completed only after review with tax advisors.

Generally, you should name your spouse the primary beneficiary of your IRA and retirement plan benefits, and your trust as the contingent beneficiary. This is because a spouse can “roll over” IRA and retirement plan death benefits to continue the income tax deferral. A trust does not have this option, and thus must pay income tax on the benefits.

Unregistered Assets: Many people have unregistered assets which they would like to transfer to their trust. Assets of this type include, for example, coupon bonds which are not registered in the name of any individual, Jewelry, cash, antiques, household goods, etc. A General Assignment, signed by you, witnessed and notarized can be used to transfer these items to your trust. Keep the original with your estate documents.

Social Security Benefits: Social security benefits should be deposited directly by the government into your Trust checking or savings account instead of being forwarded to you in the form of monthly checks, that you must then deposit yourself. As part of the process of transferring your checking or savings account to your trust, you might want to take the opportunity to arrange for the direct depositing of your social security benefits into one of your new trust accounts.

Assets Acquired in the Future: It is very important that you remember to title new assets in the name of your trust.

A Pet Trust - Protecting Your Pets After You're Gone

Do you want to ensure that your pets are cared for after you are gone? One way to do so is with a Pet Trust.

The Uniform Probate Code allows for the formation of a trust for the care of a pet if the owner is incapacitated or dead. If the owner does not state his wishes for the care of a pet, the pet may not be cared for, may be given up for adoption or euthanized.

There are two vehicles for caring for pets. The first is to leave a sum of money in a will to a family member or friend with the stipulation that that person will care for the pet. Unless a specific person is named to care for the pet, the pet is treated as personal property and the pet’s ownership passes to the person receiving the pet owner’s personal belongings, such as a car or household furniture. The problem with this scenario is what happens to the money if the pet dies prematurely? Generally, the funds are given to a person, so that person keeps the funds. Is this an incentive to dispose of the pet?

The second vehicle for caring for a pet is a trust. In the trust, the grantor/pet owner designates a trustee. In addition, the grantor/pet owner appoints a caregiver. The trustee has a duty to compel the appointed caregiver to care for the pet as define in the trust. The pet owner’s desires are memorialized, binding on the trustee and caregiver, and thus enforceable under the law. The trust can become effective upon death or upon execution. A trust that becomes effective upon execution provides for the pet’s care if the pet owner is disabled. Questions to ask yourself:

1. Who should I appoint as trustee and successor trustee who will make sure the caregiver is providing the level of care as define in the trust?

2. Who should I appoint as the caregiver of my pet. Who should I appoint as the successor caregiver of my pet?

3. What standard of care do I want for my pet? Consider food, shelter, medical care, grooming, walks, socialization, and boarding.

4. Do you want your pet buried or cremated? What factors do you want the caregiver and trustee to consider before allowing a pet to die or be euthanized?

5. How much do I want to pay my trustee and caregiver for their services?

6. How will the trustee identify my pet? Provide your pet’s microchip number, photographs or registration papers.

7. Who will receive any funds remaining in the trust once my pet has died? You may wish to leave remaining funds to family members, or charitable organizations. The caretaker should not receive any left-over funds in the trust after your pet dies.