During any period when a trust holder is incapacitated, there are numerous important tasks which cannot be performed by a successor trustee. Signing personal income tax returns and controlling distributions from retirement plans are just two examples.
Obtain a list of what a successor trustee cannot do! Next, review your other legal documents to determine if they are sufficient to cover the trustee "power gaps."
Thousands of dollars in attorneys' fees is often the "price tag" for settling disputes between family members serving together as successor trustees! Also, the incapacitation of a trust holder could require years of service on the part of successor trustees.
Before naming siblings (or any other family members) to serve together as successor trustees, you should (1) honestly evaluate (this is tough!) the personal relationships that exist between them and (2) consider the distance each one would have to travel to perform trustee duties.
Normally, married couples are simply told that, upon the death of either spouse, his or her "pour-over" will can be used to transfer any assets that are left out of their family trust.
The provisions in each spouse's "pour-over" will should be examined and thoroughly understood before a death occurs! These documents can have a negative effect (other than probate court) on certain community property assets, such as individual retirement accounts, which cannot be transferred into a family trust while both spouses are living.
To avoid "conflict of interest" problems with their clients, most attorneys who prepare trusts have obtained little or no experience as trustees! This is one of the main reasons why so many trusts are not "user friendly" for trustees.
Especially seek trust attorneys who have served as trustees or have been employed by bank trust departments.
Seniors nearly always prefer home health care as compared to nursing home confinement. However, many seniors are not aware that professional home health care is usually much more expensive. Some children view any extra cost as a reduction in their future inheritance.
Review your trust for a statement that clearly indicates your desires regarding health care and related expenses. Without such a statement, your designated successor trustee could find himself or herself in a heated battle (over cost-cutting issues) with anxious beneficiaries!
When a lawyer prepares a trust for spouses in a second marriage, it is a common practice to provide that (1) the surviving spouse will become the "income" beneficiary of the deceased spouse's assets and (2) the deceased spouse's children will later become the "remainder" beneficiaries after the death of the surviving spouse. This practice has resulted in some of the longest and most costly trust disputes on record!
Seriously consider an alternate trust design which, upon the death of either spouse, will require that the decedent's assets be immediately and completely divided between his or her children and the nonrelated surviving spouse.
For various reasons, many trust holders have companions or adult children residing with them.
Look for language in your trust that will allow the successor trustee to continue making support payments for (or gifts to) a companion or adult child if you should become incapacitated. Be aware that a successor trustee can become financially liable if he or she makes such distributions without being authorized to do so in the trust.
During their joint lifetimes, most spouses do not realize the restrictions (oh, yes!) or administrative costs that will result when a deceased spouse's assets are transferred into a "credit shelter" subtrust (commonly part of a family trust). Surviving spouses often complain that they would never have signed the family trust if the postmortem (after-death) facts were known at the time!
Explore the possibility of a "wait and see" type of trust that will allow (instead of require) the surviving spouse to determine if the "credit shelter" subtrust should be funded with the deceased spouse's assets.
Annually, millions of dollars in life insurance proceeds are unnecessarily lost to estate taxes because policy ownership (this is the key!) is vested in the insureds or their revocable trusts when death occurs. Many insureds make the costly mistake of naming their children as beneficiaries without changing ownership from themselves or their revocable trusts.
Ownership transfers involving life insurance policies can have numerous effects and, therefore, should not be attempted unless expert legal and tax advice is obtained! However, if done properly and timely, the estate tax savings could be substantial.
Surviving spouses are especially noted for committing costly trust management errors, including the type which, after an Internal Revenue Service audit, cause a family "credit shelter" subtrust to lose its estate tax exemption.
Burying a beloved spouse is devastating, and the immediate postmortem (after-death) administration of certain family trusts is critical! Adult children and advisors should tactfully assist and guide the surviving spouse. Waiting until he or she "feels better" (which may never occur!) could result in the surviving spouse unknowingly committing serious errors.
A large percentage of existing trusts do not contain the necessary instructions, options or powers which successor trustees need to resolve the various situations or problems often encountered! This is why many successor trustees have had to use a probate court "petition for instructions" to obtain a judge's decision. By using this court procedure, trustees protect themselves against future lawsuits from trust beneficiaries.
Obtain a list of common situations or problems encountered by successor trustees. Next, review your trust to determine if its provisions are adequate to deal with these potential events. Keep in mind that a "petition for instructions" is expensive (attorney's fees, court costs, etc.) and exposes the trust to public review!
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Note: The contents of this page is not intended to be legal or tax advice.