Dear Liza: My parents have a revocable Trust that is very outdated and we want to make amendments to it. I understand most of the Trust but am having trouble with the Survivors Trust. I was surprised to see that upon the death of one spouse a Survivors Trust may be established. Is this really a necessary part of a Trust. Isn’t being the Co Trustee basically the same thing? A Survivor’s Trust is often created for tax planning. It’s common. Many living trusts, especially those drafted prior to 2012 (when tax laws changed) are designed to minimize the estate tax at the second death. Trusts like that typically divide the trust estate into two trusts when the first spouse dies: one trust holds the decedent’s assets and is often called the Bypass Trust (or the Credit Trust); the other trust holds the survivor’s assets, and is called the Survivor’s Trust. Usually, the survivor can use assets in both trusts, but, to the extent that they don’t use up all the money in the Bypass Trust, that money passes estate tax free to the beneficiaries. If your parents don’t have more than $10 million (like MOST people), their trust can most likely be simplified to just hold all of the assets in one, revocable trust after the first death. This trust is still often called the Survivor’s Trust. But this is all completely separate from who manages the trust, whatever it is called. That person is the successor Trustee, or, if appointed during your parents’ lifetimes, a co-Trustee. If you are helping your parents take care of their finances, and they’d like to help them manage their affairs, they can appoint you to serve with them now as a co-Trustee, or even resign, and let you take over as sole Trustee now.
Category Archives: Estate Planning Basics
Dear Liza: I’ve just completed my estate planning documents using the latest edition of WillMaker Plus, including the will, health care documents, power of attorney, final arrangements, etc. I think all totaled it comes to over 65 pages. I’d like to leave all the documents well-organized so they’re not just a pile of papers that would overwhelm the executor. I’d like to put the documents in a three-ring binder with a table of contents and tabbed for the different sections. Is it legal to hole-punch these documents, either before or after they’re singed and notarized? Would that vary by state? I have never heard of any law that would invalidate documents that were otherwise valid because there are physical holes in the paper. Sometimes my clients make a copy of their documents, hole punch those, and put the copy in a binder, then put the originals in a safe deposit box or safe in their house. It’s great that you are trying to make things easier on your loved ones. Here’s a few other things you could put in the binder: a list of your passwords to online accounts; a list of your accounts, life insurance policies, and other assets; contact information for your heirs and beneficiaries; and a list of people that you work with, if any, such as tax preparers and financial advisors.
I love it when someone asks me a question with a clear answer! Here, the answer is probably not. Your son receives Social Security Disability Insurance (SSDI), which is a benefit that he receives because he was able to work and pay into the Social Security system. This is not a needs-based program like Supplemental Security Income (SSI), which people receive when they are permanently and severely disabled and qualify for this assistance because their resources are limited. Medicare is an age-based health insurance program, so it’s not needs based either.
Special Needs Trusts are designed to allow parents (and others) to create a trust for the benefit of someone on SSI that can be used to supplement this government benefit without disqualifying someone from the program (and from Medicaid programs, which offer health insurance to those who qualify for SSI). If your son is not going to need SSI in the future, and will continue to receive SSDI and Medicare, then a Special Needs Trust won’t be necessary to protect his ability to continue to receive those benefits. That being said, of course, it still sounds like you need to leave him assets in a trust, with a Trustee who can manage resources for his benefit. This trust, however, does not need to meet the stringent requirements of a Special Needs Trust.
To read more about Special Needs Trusts and the differences between SSDI and SSI, take a look at Special Needs Trusts (Nolo, 5th edition).
Dear Liza My father wants to leave some of his assets to my brother and sister, however neither of them is particularly adept at handling money and he doesn’t want to hand them a large, lump sum. Can a Will stipulate that they receive payments on a predetermined basis, almost like an allowance? If not, can this be accomplished through another vehicle?
Your father isn’t the only parent worried about leaving money outright to kids. He has a few options. Your father can leave money in his Will to a trust for the benefit of your brother and sister, and specify how the money is to be distributed to them. The trust itself is a part of the Will. Leaving money in a trust by way of a Will is called a “testamentary trust,” because the trust is established after your father dies. This will require a probate proceeding in most states.
Alternatively, your father can create a trust now, and in that trust he can distribute assets to trusts for your siblings as well. This will accomplish the same result, but avoid a probate proceeding at your father’s death. Lastly, your father could, in a Will or a trust, instruct the executor or Trustee to purchase an annuity for your siblings upon his death, that pays out a certain amount of money over a certain period of time, or, he could purchase an annuity like that during his lifetime, to be paid upon his death.
Dear Liza, my parents do not have a living trust in place. I need to help them set one up. My father and mother are 91 and 83 respectively. My father has a form of dementia that prevents him from making decision about his property. My Mother is fully capable. Does my Mother have the right to make decisions about a living trust for both of them? Does my father have to sign anything? I’m sorry that your father is no longer capable of making decisions about his property. Because your father lacks the capacity to understand the nature and consequences of his decisions, he can no longer do any estate planning on his own, even if he’s physically capable of signing his name.
Here’s my short answer as what kind of estate planning options are available now: your mother can only create an estate plan that includes your father’s property if your father already has a Durable Power of Attorney in place that authorizes her, as his Agent, to create a living trust on his behalf. Not all Durable Powers of Attorney authorize that power, many authorize an Agent to transfer assets into a trust that’s already been created, but not to create a new one.
If your father didn’t sign a Durable Power of Attorney authorizing the creation of a trust, then your mother has two choices:
1) She can create a living trust that holds her 1/2 of the community property. She can leave your father’s property out of that trust. If he dies first, she can have his property transferred to her via a Spousal Property Petition (this is a very simple probate procedure that a surviving spouse can do), and put his property into her trust at that point. This isn’t a perfect solution, because if your mother dies first, your father has no estate plan in place.
2) She can go to court and have herself named as your father’s conservator — this is a court procedure that, essentially, strips your father of the ability to make legal decisions and allows someone else, a conservator, to do so for his benefit under the supervision of the court. This is expensive, public, and potentially adversarial, but it’s the only way to create a Will or a trust, for someone who now lacks the legal capacity to make their own decisions.
Sorry that I can’t offer you better news, or more options. Good luck.
Dear Liza: My husband and I both have a will that states we are each other’s beneficiaries and executor’s and our son as 100% beneficiary of both of us died,. My husband has a daughter by a previous marriage. If my husband dies before me does she have rights to our assets? I often tell my clients the sad irony of estate planning: You can pretty much do whatever you want to do, you just have to die first. So, in your husband’s case, he is not legally required to leave any money to his daughter from a previous marriage. I am assuming that she is not a minor and he has no other obligations to provide for her via a divorce settlement or the like.
What he needs to do, though, is acknowledge his daughter as his child in the Will, and then to say, explicitly, that he is deliberately choosing NOT to leave her anything under his Will. That way, she (the excluded daughter) cannot make a claim that he simply forgot to include her and make a claim based on her relationship to him. Mind you, she may very well not be happy about this and she may try and challenge the Will as being invalid in some way, but that’s a pretty hard thing to prove: your husband would either have had to lack the legal capacity to understand what he was signing or have been placed under undue influence to execute that Will (i.e. forced to sign) .
But there’s no keeping unpleasant secrets forever. She’s going to know that she’s been excluded, when the time comes. Notice requirements vary state to state, but generally speaking, upon your husband’s death, she, as his daughter, will be entitled to notice of the probate proceeding and will be able to see a copy of the Will, even though she doesn’t inherit anything under the Will.
Dear Liza: I am the successor trustee of my parents trust. The have both passed and I was told before I disburse the assets I need to advertise a Notice to Creditors. How long and how many times do I need to advertise?
Since I don’t know which state you live in, I can only provide you with a very general answer. In most states, although not California, where I live and practice, if you are administering a trust, there’s no special creditor’s claim process that requires publication. Instead, creditors have a limited period of time in which to make a claim, and after that, it’s just too late. In California, again, that’s one year. In your state, it could be more, you’ll have to find out what the statute of limitations is after a death, you can try typing in “statute of limitations for claims against estate in _____” to your favorite web browser.
If there is a creditor’s claim process, that’s a way to accelerate the discovery and payment of creditors. Usually, that does involve publication that a person has died, and then there’s a specific number of days in which any creditors can make a claim against the trust’s assets (and this is less than the time allowed by that state’s statute of limitations). Once that claim is made, the Trustee has a certain number of days to either pay, or deny that claim. If a creditor fails to make a claim within the required time period, they are then barred, forever after, from making a claim. This is similar to how creditor’s claims are handled in probate — a notice is given, a time limit runs, there’s a process for paying or contesting a claim, and then a creditor is barred. This is all an attempt to have some finality after a death, so beneficiaries can inherit without the fear of lurking liabilities out there.
As a general matter, you do need to pay the creditors that you know about, so all of the bills that have come due since your parents have died should be paid before you distribute anything from the trust to other beneficiaries. Also, please make sure to pay the taxes first, before any other creditors. You should also know that secured debts, like a mortgage, do pass with the property that they are secured by. So, for example, if Sam inherits the house, and there’s a mortgage on that house, Sam is going to have to either pay that mortgage off, or get the lender to let him assume that mortgage himself (And that’s up to the lender…sometimes they will do it, sometimes they won’t. That depends on Sam and also on the terms of the mortgage.)
Finally, although you should, of course, pay outstanding credit card bills, you should know that the trust’s beneficiaries are NOT personally liable for such unsecured debts if the estate/trust has insufficient assets to pay those bills. I share this with you because bill collectors often neglect to make it clear that unsecured debts, like credit card debts, do not pass to the beneficiaries.
Dear Liza: After dealing with an unexpected death of my spouse my head is still spinning.. My spouse was very private after a divorce and we kept our affairs separate. Now the Will, of which I was unaware, allows me to stay in our home and if I choose to leave or pass it goes to her children. The attorney who handled the will said I have control of what happens;
1) I can stay in house till death and take 20% of non probate
2) I can take 1/3 of elective share and no house
3) Or I can select make children offer to buy house based on actuarial tables and 20% of non probate.
How do I get that info to make a good decision? Will says to maintain house in good repair, so does that mean I have to put another $20K for a new roof? I’m sorry that you have to make such important choices and were taken by surprise by them, on top of the grief that comes with losing a spouse. Here’s my advice: hire an attorney to represent you, as the beneficiary under the Will. You need someone who can advise you on your options and explain to you what the Will means — not just in regard to what “good repair” means, but also as to what your elective share rights are, for a start (these are determined by state law).
Please ask that attorney how a Will can offer you twenty-percent of “non-probate” assets, as these generally are assets that pass by beneficiary and are not controlled by a Will at all. If your spouse named you as the beneficiary of her retirement assets or if you owned property with her as a joint tenant, these assets would pass to you by virtue of that, not by the Will at all.
Dear Liza: We live in Nebraska. I own a ranch with my brother. Part of it we inherited and a small part we purchased from family members. The total value of the ranch is $2.7 million. We have a buy sell agreement between us. We have estate questions and aren’t sure where to go. We each have other assets of approximately $2 million and $4 million respectively. We have considered a trust; however I have two children and my brother has a second wife and four children. We do not want our offspring to have to deal with each other.
So, that’s a REALLY interesting question, and one that involves trusts, but only tangentially, really. The thing is, regardless of whether your estate plan consists of a Will or a trust, your families are most certainly going to have to deal with each other upon the death of you and your brother. You wrote that you own the ranch together….usually, siblings would own a ranch like that as tenants in common, which means that you each own one-half of it and are free to leave it to whomever you’d like to leave it to upon your death. (The less usual alternative, for siblings, would be as joint tenants, which would mean that the survivor would own the entire property at the death of one of you.)
Assuming you each own your half and can leave it at death to others, how on earth are you going to avoid each family having to work something out? Even a buy-sell agreement will require, at a minimum, that one family buys and the others sells, right? Placing your property into a trust will avoid having to go through probate, and gives you the opportunity to try and plan for reducing conflict down the road. You can each place your interests in different trusts, and specify how each half should be managed upon your deaths.
If you don’t do a trust, then your estate will go through probate, and that in no way reduces the possibility of inter-family conflicts–in fact, it almost invites it, because probate is public, and all interested parties are required to get proper notice and have an opportunity to object to the proposed distribution. With a multi-million property on the table, I would advise you and your brother to hire a good estate planning attorney now to do what you can to anticipate problems and structure the management of the property down the road.