Category Archives: Trusts

What Happens if We All Die? The God-Forbid Clause

Dear Liza: I set up a living trust and back up will naming my 3 minor children as beneficiaries.  What if one day, me, my husband and all children die at the same time in an accident? 
Both my parents and in-laws do not live in US.  If none of me, my husband and children survives, I want our estate to pass to our families in Asia.  What is the best way to set this up in my will and living trust? Here’s what you do: put in a section that says that if you, your husband, and all of your children (and their issue–your grandchildren, great grandchildren, and so on…) don’t survive you, that you want your estate split equally between your husband’s surviving parents and siblings and your surviving parents and siblings. I call this the “God Forbid Clause” since it covers an unexpected, but not impossible, scenario.  You can leave your estate to anyone you choose to of course–family, friends, charities.  The important thing is to be specific if you have specific people that you want to benefit. If you don’t really know who to leave your assets to at this point, you  could be more lawyerly and less specific and say “your legal heirs” and this would then be determined under the laws of the state in which you executed your estate planning documents.  If you name specific people you would say where they presently live. And you would let your Trustee and Executor know how to find them by giving them a list of where your parents/siblings live and how to reach them. If your family lives abroad, the tax treatment of their inheritance will depend upon the laws in that jurisdiction.

Joint Checking Accounts and Trusts

Dear Liza: My Mother passed in Feb of this year.  She opened a joint account with my Sister, so, should she become incapacitated, my sister could write checks on her behalf and it was opened with the understanding, that should something happen to my mother, the joint checking account should be split with her six other brother’s and sisters.  My sister is claiming the money is now hers to do with what she wants, who is right? This is one of those estate planning situations that come up a lot, and it’s also one where the law is clear, the moral obligations murky. Aged parents often put one child on an account like that, to make it easier to let them take care of their finances. But in making your sister the joint owner of the account, your mother also made her the legal owner of the money now because she is the surviving joint owner.  If your mother had wanted to make absolutely bullet-proof sure that any money in that account was to be split equally among all seven of you, she should have put that account into the trust (assuming that the trust splits everything seven equal ways) or named all seven of you as pay-on-death beneficiaries. But, of course, that’s no solace now. If your sister wants to honor your mother’s wishes, she could do that, but she’s not legally obligated to do so.

Leaving Gold Coins, Jewelery, and other tangible personal property

Dear Liza: I collect estate jewelry, and ancient and antique coins.  As I am inventorying my belongings to determine what should be left to whom, I wonder if this all needs to be spelled out in the document, or if I can maintain an inventory spreadsheet with pictures of the items.  Or would I need to go ahead and spell out every single item in the will itself, updating the will every year or two? So, estate jewelry, and coins, and the like are what’s called “tangible personal property” in estate planning. These are items that you own, but that don’t have a title document (like a deed, or a pink slip). Often, a Will will leave all such tangibles to a spouse or to children. Sometimes, a Will will say that the testator (that’s the person making the Will) may leave a separate, signed list, with gifts to specific people of specific objects. That might work best for you. That way, you can update that list periodically, without the expense of having to update your Will. If your collection is really valuable, you might want to transfer it to a living trust, to avoid a probate proceeding upon your death–but that’s pretty unusual and only appropriate if the value of those tangible items are high, such as with a Steinway piano, or vauable jewelery.

Naming Kids as Beneficiaries

Dear Liza: Do you have any recommendations on naming children as secondary beneficiaries for life insurance/investments? Why, as a matter of fact, I do! If your children are minors (under 18 in most states), your estate plan should establish some way of managing money for them until they are old enough to handle money responsibly. This is usually accomplished by creating a trust for them until a certain age, say twenty-seven. Until then, you would name a trustee to manage and distribute the child’s assets for them; after that, the money’s theirs to manage and invest. If you have created a living trust, you would name that trust as the beneficiary for your life insurance and the secondary beneficiary for your retirement accounts — that way, the money will be available to your children, but be managed by your trustee.

You can instead use a Will as your main estate planning document and your Will can set up exactly the same structure of a trust for children managed by a trustee until the children reach a certain age. However, if you use a Will, your estate will go through probate BEFORE the trust for the kids can be funded (don’t worry, the kids will have access to your estate during the probate process). Think of this as two roads to the same place — one road (the living trust)  just gets you there faster.

If, however, you name minor children directly as beneficiaries on those forms, and you die while they are still minors, a guardian of the estate will have to appointed to manage these assets, and, when a child reaches the age of 18, they money will be all theirs.

If your children are adults, you can and should name them directly. It makes it easier for them to deal with these assets after your death and there are special advantages to doing this with respect to retirement accounts.

When to Fire Your Lawyer: Excessive Fees

Dear Liza, my brother and I are in the process of distributing the personal/real property of our recently departed mother’s estate/trust according to her wishes. The attorney for her estate initially included his fee of $17,000+ as part of one document. When questioned, he stated because of the divisive and hostile relation between my brother and me, he was going to charge fees in anticipation of the estate having to be probated, instead of treating it as an dissolution of an estate.  Can he do that? Yikes! $17,000 is A LOT of money to settle a living trust. Here’s my advice–fire that lawyer. Remember, you are the client and if a lawyer isn’t serving your needs (or is charging way too much), get yourselves a new one. Most attorney’s charge an hourly rate for trust administration services. At a rate of $200/hour (which is sort of low), you are being charged for EIGHTY FIVE hours of time. Most estates take only a fraction of that. As for his decision to submit the estate to probate–that’s your decision, not his. Probate can be an effective forum for resolving disputes, but in a trust administration that would be an unusual step. If the estate goes to probate, he can charge you a statutory fee equal to a percentage of the value of the assets in the estate, and $17,000 may actually be about right. But, he’s not entitled to bill you for services he hasn’t provided. Ask for a detailed billing statement outlining exactly how he is spending his time on your matter. If he can’t, or won’t, provide it, fire him and report him to the state bar. I have found that just mentioning your intention to report a lawyer to the state bar can result in an amazing reduction in an excessive bill. Also, ask for your client file on the way out–legally that’s yours, not his.

Estate Planning for Almost Here Babies

Hi Liza,
I am about to create my Will and Living Trust.  My son has two sons and his wife is pregnant with twin girls.  I would like to know if I can name the twins in my Will/Trust now although they are not due to be born until December? I’ve written Wills that name children soon-to-be born. You could say that you want to benefit all of your son’s children, including the twins girls due in December. Or you could just say all of the children of your son that are alive at your death (which, unless you die before December would certainly include the new twins). Good luck!

Trusts: Revocable v. Irrevocable

Hi Liza,  Please explain/define the differences between trusts. Specifically, what is a living trust, a revocable trust, and an irrevocable trust. Advantages? Disadvantages?  Here’s my answer for you: a LIVING trust and a REVOCABLE trust are almost always the same thing. Both are ways to describe a trust that holds assets during the lifetime of the person who established the trust ( the “Grantor”)  for that person’s lifetime benefit (the Grantor is also the trust “Beneficiary”). It’s a  living’ trust because it is established during the Grantor’s lifetime. It is revocable because during the Grantor’s lifetime they can revoke it any time they want to. A revocable living trust’s purpose is simply to avoid a probate of the trust’s assets after the Grantor dies. Instead of having to go through a court supervised probate proceeding (which costs money and takes time), the person named to manage the trust after the Grantor (the “Successor Trustee”) simply settles the estate as the trust directs (this also can cost money and certainly takes time, but usually less of both).

An IRREVOCABLE trust is a trust that can’t be amended or revoked once it is established. These are usually used when a person wants to give away money or other assets to another person, subject to certain terms that they don’t want to be changed. Once the gift is made to the trust, that person no longer owns those assets, which can be a tax advantage.  But such a trust can’t be changed without going to court and they can’t get the gift back, ever. Sorry to get long-winded on you, but my answer wouldn’t be complete without letting you know that after the Grantor of a revocable trust dies, that trust then becomes an irrevocable trust, because no one can change it’s terms after the Grantor’s death.

How Much Should A Living Trust Cost?

Dear Liza: What is a reasonable amount to pay for a lawyer to do a living trust? Here’s my rule of thumb: you should probably start by assuming that the whole process will take about 10 hours of an attorney’s time. This should include a face-to-face initial meeting to thoroughly discuss your goals, your family situation, and your finanicial assets.  The lawyer should then draft your documents, you should review them, and there should be some back-and-forth over the drafts. Some lawyers do this in a second meeting, some do it by phone or by email. Ultimately, though, you should finalize the language and get back together to sign the documents. Included in my estimate, by the way, is that the attorney will also be preparing a Will, a Durable Power of Attorney for finance, a Health Care Directive, and assist you in transferring your real property into the trust. If you are single, you can reduce the estimate to 8 hours. Since lawyer’s rates vary a lot around the country, just take my ten hours and translate that into the going rate where you live: in Northern California, where I practice, you can spend between $3000 and $5000, but in other parts of the country in could be much less.

Of course, that’s my estimate for something rather straight forward. If you need to do any planning for a child with special needs, or for parents, or have a second marriage, or have complicated assets, it can take longer.

Do IRA’s go through probate?

Dear Liza: My sister has an IRA naming her three children as beneficiaries. They are all adults. My sister is quite ill and she doesn’t have a living trust. Will her IRA have to go through probate before it can be transferred to her children? That is such a great question–for two reasons. First, it’s so important: for many people, a retirement account is the largest asset that they will be leaving to their children. Second, I have a really clear answer, not one of those, “well-it’s-complicated” kind of blog posts. NO, IRA’S DO NOT GO THROUGH PROBATE IF THEY HAVE NAMED BENEFICIARIES. NEITHER DO LIFE INSURANCE PROCEEDS.  Probate was invented in merry old England to avoid fraud after a person died. Way back when, if the lord died, the evil nephew could easily steal the castle because no one was really looking out for the interest of the dead lord. Probate is about freezing the estate until the Will is proven valid, heirs are identified and contacted, debts are paid, and conflicts resolved.  At the end of the process, the assets are give to those named in the Will. But IRA’s, and other retirement accounts (such as Roth IRA’s, 401-K’s, 403-B’s, and the like) have named beneficiaries. The companies who administer these assets are contractually bound to give these assets to the named beneficiaries on those contracts. No possiblity of fraud; no probate.   If evil nephew Fred asks Vanguard to give him the IRA, Vanguard won’t, unless Fred is the named beneficiary for that account. One caveat: if you named ‘my estate’ as the beneficiary, that would require a probate of retirement assets, so don’t do that.

Surgery and Procrastination

So, I have a weird job in that I, literally, talk to people about getting their estate plans up to date many times a week. And I’ve done this for TEN YEARS. Over and over, people tell me that they’ve been procrastinating and feel badly that they haven’t gotten things taken care of. And I listen. In fact, my first question is almost always what prompted my clients to finally make the appointment and get the job done. It’s almost always one of these four things:

  • An upcoming trip.
  • A scary diagnosis or test.
  • A death in the family or a death of a friend.
  • The birth of a child.

Let’s face it, these are the things that get our attention in a deep way. They make mortality real and make us want to do what we can to get things in order. Until something like this grabs us, there are always 200 other ‘important’ things to capture our time and energy.

And here’s my confession: despite my professional focus on estate planning, my family’s estate plan has been out of date for at least four years! Really. Our guardian got divorced; her kids grew up to not get along with mine; our financial situation changed drastically. Every single thing about the plan wouldn’t work.

And guess what? Do you know what made me fix it? It certainly wasn’t because I knew we should. It was reasons one and two on the above list. Not only had we planned our first family trip that required airplane travel to a distant and slightly tropical local, but the week we got back my husband faced major spine surgery. Nothing like filling out hospital admittance papers to get those mortality juices flowing.

So, we redid our plan. We changed our guardians. We simplified our trust for tax planning. We updated our Durable Powers of Attorney and our Advance Health Care Directives. And it felt GREAT to finally fix it. Next up: the earthquake kit, also woefully out of date.

Believe me, I get it if you can’t focus on estate planning right this second. But, please, next time life reaches out and grabs your attention, jump on it. You’ll feel better, I can almost promise.