In this video, Cindy discusses the pros and cons of naming a family member, such as an adult child, as your successor trustee of your revocable living trust.
So, you’ve been asked to be the Trustee of a family member’s special needs trust (SNT). Of course, you said yes. But do you really have any idea what your responsibilities will be?
Acting as a trustee of a plain vanilla revocable living trust is pretty easy – you handle bank and investment accounts, sell real estate, and distribute income property to the people named in the document just as you would do in your normal life. There are no special rules or taxes you have to worry about.
But when you’re the trustee of a special needs trust, you have complete responsibility to know Social Security laws inside and out, and you could be held legally and financially responsible if you make a distribution that causes the beneficiary to be kicked off a needs-based government program, such as Medicaid or SSI. If the beneficiary’s medications, without Medicaid, cost $30,000/month, even losing one month of coverage could be financially devastating.
So, are you wondering what you, as a SNT Trustee, can and can’t do? Well, as Trustee, you must control every single cent in the SNT. You mustn’t give the beneficiary of the SNT any money to make purchases for him or herself. Payments for goods and services should be made by you directly to the vendor or provider. A non-refundable, prepaid gift card is permitted as it allows the beneficiary the right to obtain goods or services. In keeping with this principle, a non-refundable airline ticket, or a non-refundable ticket to a show or sporting event would also be permitted. You, as Trustee, may purchase a specific service for the beneficiary, since the service is not easily convertible to cash. For example, payment for any special therapy or training is acceptable.
But an SSI and/or Medicaid recipient may use funds in the SNT to pay for household emergencies such as the repair of a roof or payment of a telephone bill. The Trustee should purchase any household goods or items in the name of the trust and not in the name of the beneficiary. This avoids the possibility that the beneficiary could have control over the goods or items; the appearance of such control could result in a loss of benefits. If a beneficiary receives ownership or control of an asset as the result of the Trustee paying the bill for said asset, this could be deemed as income to the beneficiary, which may disqualify him or her from benefits in the months received.
Here are some types of purchases that can be made by the Trustee of an SNT for the beneficiary and how they would affect the beneficiary’s eligibility for Medicaid and/or SSI:
(a) The purchase of a home, by the Trustee of the SNT, for the beneficiary will not affect his or her benefits if the title to the house is held in the name of the trust. The house will not be deemed a resource of the beneficiary, and would not affect his or her eligibility for benefits. The beneficiary is treated as if he or she is residing in his or her home, and not deemed to be receiving shelter, which would impact eligibility for benefits.
Payments made by the Trustee for the expenses associated with the real property, such as taxes, rent, heat, gas, water, electricity, mortgage, garbage removal and sewer would affect the beneficiary’s eligibility for benefits as they would be considered income to the beneficiary. So, the beneficiary should be able to afford those expenses with his or her other income; consider that when purchasing a home. However, home improvements or renovations are not considered income, and would not affect the beneficiary’s eligibility for benefits;
(b) The Trustee’s purchase of cable TV or satellite TV services, cell or home telephone service, internet service, newspaper and other news related magazines and periodicals will not impact the beneficiary’s eligibility for benefits. The Trustees purchase of computers, computer software and any upgrades for the computer are also permissible expenditures;
(c) The purchase of an automobile for the beneficiary of the SNT will not impact his or her eligibility for benefits. Additionally, the expenses for the automobile insurance, maintenance and fuel are permitted. However, the purchase of fuel for the automobile can be problematic depending on how payment of the fuel is made. It is recommended that Trustee open a gas company credit card in the name of the SNT that can only be used by the beneficiary for gas purchases;
(d) The Trustee can make unlimited expenditures for the travel and entertainment expenses of the beneficiary. If the beneficiary is unable to travel alone, distributions from the SNT for a travel companion are permitted. However, the payment of a beneficiary’s hotel expenses can be problematic as the argument could be made that they are shelter expenses. However, the argument can be countered if the beneficiary maintains a home;
(e) Household furnishings and furniture, and personal effects can be purchased by the trust; there is no bright-line limit. If the beneficiary wants leather furniture, a 110″ Ultra HDTV, and a surround sound system, the Trustee can purchase those;
(f) Pre-Paid funeral and burial arrangements can be owned by the trust for the benefit of the beneficiary. The arrangements should not be owned by the beneficiary as it could impact SSI benefits;
(g) Legal and Accounting Fees can be paid by the Trustee without impacting the beneficiary’s eligibility for benefits;
(h) The Trustee can purchase clothing for the beneficiary without effecting the beneficiary’s eligibility for benefits. Again, there’s no monetary limit – clothing can be purchased at Goodwill or Saks Fifth Avenue;
(i) The Trustee, without any limitations, can purchase and make payment of durable medical equipment, therapy, medication, alternative treatments, tuition, books, tutoring, and care management – as long as no government program would provide those particular things.
(j) The Trustee can pay the beneficiary’s taxes.
This is NOT a detailed and all-inclusive list; the Trustee is completely responsible for researching Social Security rules and/or hiring professionals or a corporate co-trustee to make sure all the t’s are crossed and i’s dotted. But this should provide you with a better understanding of what the Trustee of a SNT is generally permitted and not permitted to do without affecting the beneficiary’s eligibility for Medicaid and/or SSI as part of the day to day administrator of a SNT.
Being the Trustee of a SNT is a challenging and complicated task; be sure you’re up to it before you agree to serve. If this isn’t for you, make sure the person naming you knows now so he or she can appoint another family member or, better yet, a corporate trustee that handles these SNTs all the time.
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Everyone dies with one of three estate plans. Some die with a Last Will and Testament (Will), others die with a fully funded revocable living trust (RLT), while still others die with neither a Will nor a RLT. The purpose of this brief article is to introduce each of these three estate planning approaches – not to serve as an in-depth treatise on the benefits and drawbacks of each.
When a loved one dies, you need to go through his or her papers as soon as possible to look for a Will. Why? This traditional estate planning legal document often contains critical instructions regarding any “final wishes” of the decedent. For example, some people include funeral and burial instructions in their Wills. Time is of the essence when it comes to those decisions.
Assuming that you’ve found the Will, the first thing you should do is read it and determine who is appointed as its executor/personal representative. If you are the executor, you need to know who the beneficiaries of the Will are, what they are to receive, and when. You also need to determine whether the Will identifies anyone else as a co-executor. For example, a parent might name her two adult children as co-executors of her Will. All co-executors must be involved in the probate process unless they formally decline the appointment. Read the Will to see if it creates any “testamentary trusts” to administer the inheritance. Parents often provide that the inheritance of a minor child shall be held in trust and distributed according to its terms, instead of being distributed outright in a lump sum.
Without delay, contact the attorney who prepared the Will. That attorney is likely the person who knows the “testamentary intent” of the decedent, along with the nature and location of all estate assets.
Proving the Will
The first responsibility of the probate court is to “prove” the Will. In other words, is the Will presented truly the “Last Will” and not the “second to the last Will”? If the judge determines that the Will presented is the “Last Will” and is otherwise legal in all technical respects, the judge will issue “letters testamentary” or “letters of administration,” giving you legal authority to act as executor on behalf of the estate. You can use this key document when dealing with the decedent’s banks, brokerage firms and insurance companies, and fulfilling the many responsibilities that come with being the executor of the estate.
With a valid Will and letters of administration in hand, the duties of the executor regarding probate administration may vary from state to state, but generally the executor follows these fundamental steps:
- Collects, protects, values and insures (if needed) the assets of the estate,
- Files an inventory with the court listing the assets subject to probate,
- Provides actual notice to known creditors and notice by publication to potential creditors,
- Pays the final expenses, taxes and legitimate debts of the decedent,
- Files appropriate state and federal tax returns for the decedent and the estate,
- Distributes the assets according to the Will (with the approval of the judge, if needed),
- Follows any additional specific instructions under the Will (with the approval of the judge, if needed), and
- Closes the estate and receives formal discharge by the probate judge.
- Note: the executor is often appointed to serve as the trustee for any “testamentary trusts” created over the inheritance. While your services as executor may end with the closing of probate, it may only be beginning, if appointed as trustee.
Revocable Trust-based Planning
If the decedent left a trust agreement, the estate will be distributed according to the terms of the trust document, with little if any involvement by the probate court. In many states, the trust agreement itself is not filed with the court unless there’s a contest or dispute. As a result, there’s no need for the court to declare whether the trust agreement is valid and appoint a trustee. This lack of probate is one of the chief advantages of a RLT-based estate plan. However, probate would still be necessary to approve of any guardian nominated to serve as the backup parent for an orphaned minor child.
In contrast to probate administration under the supervision of an impartial judge, the trustee is responsible for the complete stewardship over the trust assets and fulfilling its terms. This responsibility includes paying final expenses, taxes and legitimate debts of the decedent, managing assets, paying the debts and expenses, filing the tax returns and distributing the trust assets according to the terms of the trust agreement. As with a “testamentary trust” created under a Will, these distributions may be made in an immediate lump sum, staggered over years, or continue over multiple generations.
No Will or Trust
Every state has “intestate succession” laws governing what happens when a person dies without a valid Will or RLT. As described above, it’s even possible to have a Will declared invalid, resulting in the estate going through intestacy. One of the greatest drawbacks to “dying intestate” is the complete lack of input that the decedent has when it comes to who serves as executor and how the inheritance is distributed. For example, in many states, if the decedent was married and had minor children, then the surviving spouse doesn’t inherit the entire estate. The surviving spouse may be responsible for managing the share allotted to the children until each child reaches age 18. Upon reaching that age, the inheritance for each child must be paid over in one lump sum, even if the child has special needs or suffers from addictions.
Your life, loved ones, and estate are all unique. In turn, your estate planning should reflect your goals to protect everyone you love and everything you have.
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It’s not known just how much Walt Disney’s heirs are worth. GOBankingRates estimated the company’s net worth to be roughly $130 billion. Roy O.’s grandson, Roy P., said at one point that the family owns less than 3% of the company. Even so, that would put their fortune around $3.9 billion (not counting any investments in addition to Disney holdings).
Wealth Advisor’s recent article entitled “Disney Family Feud As Heirs Battle For $400 Million Trust Fund” says that in 1925, Walt married Lillian Bounds, a studio inker. Eight years later, she gave birth to Diane, and the couple later adopted their daughter Sharon as a baby.
Walt is said to have adored his 10 grandchildren. When he died in 1966 of lung cancer, he left numerous trusts and family foundations for his family.
Walt’s younger daughter, Sharon, adopted one child, Victoria, with her first husband, Robert Brown. She then had twins, Brad and Michelle, with her second husband, Bill Lund. She died from breast cancer in 1993 at age 56. Michelle has never had a job and owns three homes, spending a lot of time in Newport Beach, CA according to Gardner.
Victoria reportedly lived an extravagant lifestyle that included $5,000-a-night suites at the Royal Palms in Las Vegas. One report notes that she once went on a Disney cruise ship and destroyed her suite to such a degree that Michael Eisner, then-CEO of the company, had to ask the trustees to pay for the damages. Her share of the family fortune was added to Brad’s and Michelle’s after she died in 2002 from health complications. However, Sharon’s twins later became embattled in a years-long feud over their $400 million trust fund. That inheritance was supposed to be distributed in annual payments and lump sums at five-year intervals at ages 35, 40, and 45. However, the trustees dispersed the payments to Michelle and withheld Brad’s.
Michelle and the trustees argued that Brad wasn’t able to take care of his share because of a “chronic cognitive disability” and that Bill, their father, was taking advantage of this to gain money, according to NBC News.
Bill said that the trustees were manipulating his daughter Michelle. Bill was previously a trustee but resigned after an allegation that he used trust money to gain more than $3 million in kickbacks from a real-estate deal. He reportedly agreed to an annual settlement of $500,000.
Moral of the story? Money can’t buy happy families. Enjoy yours while you’re alive, and protect them when you’re not.
Reference: Wealth Advisor (Feb. 11, 2020) “Disney Family Feud As Heirs Battle For $400 Million Trust Fund”
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Being asked to be a Trustee is a question that deserves serious consideration. Because there are so many different types of Trusts and Trustees, the answers to the question posed above will vary greatly, says The Mercury in a recent article that asks “Should you be a trustee?”
At the very simplest level is a revocable living trust. The person who creates the Trust during his lifetime is called the Grantor, The Grantor appoints a Trustee when the trust is established. The Grantor may name himself – or someone else – as the Trustee of the Trust. The Grantor’s assets are retitled in the name of the trust and are now possessed by the Trustee. The Grantor continues to file the same income tax returns, using his Social Security number, and the income from the Trust assets are treated as his income.
In this instance, the Trustee duties are pretty easy. Instead of wearing your “Mr. Jones” hat, you are just wearing your “Mr. Jones, Trustee of the John Jones Trust” hat.
In most cases, the Trust document names at least one successor Trustee. Those persons are typically adult children, although it could also be a lawyer, accountant, or a financial institution. If the Grantor becomes disabled or incapacitated, the successor Trustee is responsible for managing the Trust assets – dealing with banks, financial institutions and others on behalf of the Grantor.
After the Grantor dies, the successor Trustee would continue in that role, and details of their responsibilities should be outlined clearly in the Trust document.
Another type of Trust is called a testamentary Trust. It’s generally a very simple Trust that’s created pursuant to a Will. It’s often created to provide support for a minor beneficiary who might inherit assets. Usually parents or the surviving parent of a minor beneficiary or the executor of the Will is named as the Trustee for the child’s funds until the child reaches a certain age.
All Trustees, regardless of what type of Trust is involved, have a fiduciary responsibility, meaning that they are held to a high legal standard of accountability and must always put the needs of the Trust before their own. The Trustee is required to maintain accurate documents and cannot take funds for their own use. A Trustee can be paid a reasonable fee, unless the Trust documents have other directions.
In most cases, the Trust document gives the Trustee the right to hire other people, such as attorneys, accountants, or financial advisors, to help fulfill their responsibilities. Sometimes those responsibilities may be as simple as setting up a bank account, but other times it may be much more complicated.
When do you stop being a Trustee? It is usually when the Trust document says the Trust is to end, which might be at a certain date, or when the beneficiaries reach a certain age, or when the Trust fund is empty. Or it may be when a Court terminates the Trust.
For more complicated Trusts, the Trustee may need the help of an estate planning attorney, also known as a Trusts and Estates attorney. One complicated type of Trust is called a Special Needs Trusts (SNT). An SNT is created for an individual with special needs who receives help from needs-based government programs like Supplemental Security Income (SSI) or Medicaid. There are different kinds of SNTs, depending on the needs of the individual and their family.
Other more complicated Trusts include: irrevocable income only Trusts, intentionally defective grantor Trusts, non-grantor Trusts, qualified personal residence Trusts and many, many others.
So, before you accept the responsibility of being a Trustee, make sure you have some understanding of what you’re agreeing to do.
Reference: The Mercury (July 17, 2019) “Should you be a trustee?”
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Debra Turner, the longtime live-in partner of San Diego developer and philanthropist Conrad Prebys, has tried to sue the directors of the Conrad Prebys Foundation for their decision to give $15 million to Prebys’ son, Eric, who had been left nothing by Prebys in his estate planning documents.
The San Diego Union-Tribune reported in the article “Court fight continues over control of $1 billion Prebys estate,” that in January, a San Diego Superior Court judge dismissed Turner’s suit, holding that she had no legal standing to bring it. She then filed an amended complaint. However, recently the judge dismissed her lawsuit.
The legal fight has kept the estate money from going to the charities favored by Conrad Prebys. During his lifetime, he donated more than $350 million to various organizations – most of them in the San Diego area.
Turner says the issue arises from the foundation board’s decision to disregard Prebys’ wishes and give money to his only child, a physicist at UC Davis, who had been written out of the legal documents in 2014.
“When Conrad made a decision, it was done, and he was adamant about revoking Eric’s gift,” Turner told The San Diego Union-Tribune in 2017.
Prebys died in 2016, and his trust left gifts to twelve individuals and institutions. The bulk of his assets were left to to his foundation to “support performing arts, medical research and treatment, visual arts, and other charitable purposes” consistent with the causes he cared about when he was alive. However, a few months after his death, the foundation directors – five unpaid volunteers handpicked by Prebys – met to consider the next steps. The directors included Turner and Laurie Anne Victoria, a longtime executive with Prebys’ real-estate company. Victoria is also the trustee of the Prebys estate.
According to Turner’s lawsuit, a foundation attorney had warned the directors that Eric might contest the will, and if he won, he could “get it all.” Several weeks later, Eric’s attorney indeed sent a letter to the board, raising questions about Conrad’s mental competency at the time that the trust was amended. Eric also believed that Turner had exerted undue influence on his father’s decisions. Turner denied the allegations. But in December 2016, the other directors authorized a settlement. Eric got $9 million, plus $6 million to cover the estate taxes.
Turner then sued the board members on behalf of the foundation, alleging they had breached their duties to protect the estate’s assets.
Victoria defended the settlement as “the only reasonable decision” to avoid the uncertainty, expense and publicity of litigation with Eric and to begin fulfilling Conrad’s charitable wishes. She said the money represented less than 1% of the overall estate.
Turner is no longer on the board, and in dismissing her suit, Superior Court Judge Kenneth Medel said that, under corporate law, Turner can’t sue on behalf of the foundation because she’s no longer a director and, thus, lacks standing. Although she was a director when she filed the suit, the law requires her to maintain board membership throughout the litigation, according to the decision.
Reference: The San Diego Union-Tribune (March 29, 2019) “Court fight continues over control of $1 billion Prebys estate”
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So, you’re creating or changing a revocable living trust, and you tell your estate planning attorney that you wish to name your child as Successor Trustee.
Your Successor Trustee is the person who will step in to handle your trust assets when you become incapacitated or die. You have three children who all get along famously. Should you name one of them as your Successor Trustee?
Okay, maybe that’s an overly-simplified answer. I’ll change it to “probably not.” Naming one of your children as Successor Trustee almost always results in conflict and may end up tearing your family apart.
One child as Successor Trustee
There are occasions when putting one child in charge of the money and property that their siblings will receive works out well and everyone stays friendly. Generally, in these cases the siblings
- were all the product of the same long-term marriage,
- were all very close before their parent’s death,
- were all aware of the parent’s estate plan before the death,
- were all similarly situated financially before the inheritance,
- lived close enough to each other to split any sentimental items among themselves while all siblings were present,
- pretty much equally shared the burden of care-taking for the deceased parent,
- had no addiction or gambling problems in their families,
- didn’t allow their spouses or adult children to have a say in the probate or trust administration process, and
- the Successor Trustee’s only job was settling the estate and dividing up the assets equally for immediate outright distribution to all the siblings.
If this sounds like your situation, then naming your child as Successor Trustee may work out just fine.
Multiple children as Co-Successor Trustees
Some folks think naming all or a couple of their children as Co-Successor Trustees will prevent conflict. It won’t. In fact, it can even be worse than naming only one child as Successor Trustee because now two or more people have to agree on everything and sign all the necessary paperwork. Banks and financial institutions hate co-anythings because all it does is slow down any process and open the door for conflicts and lawsuits.
So what’s the solution?
Name a disinterested party. Someone who has no skin in the game. Someone who has no close personal relationships with any one child and will not be inheriting anything from you. It can be a friend, your sibling, your accountant or estate planning attorney, or other professional fiduciary. If your trust will last more than a few years, consider naming a bank or trust company.
What was that? You don’t want to pay someone to manage your trust? Seriously? You’d rather tear your family apart and have litigation attorneys receive the bulk of your children’s inheritance? You can certainly make that choice.
Whatever you decide to do, TALK TO YOUR FAMILY! Explain why you’re naming one child as Successor Trustee, or leaving more money to the caretaker child, or appointing a disinterested party, or disinheriting a child or grandchild. If you’re not comfortable doing it by yourself, ask your estate planning attorney to help you arrange a family meeting in person or by teleconference. It’s not an easy conversation, but it just may keep your family together after you’re gone.
Rocker Tom Petty was wise enough to execute a revocable living trust before his unexpected death in 2017, but his heirs are now arguing over some of the wording in the trust.
Tom Petty’s widow and sole successor trustee of his trust, Dana York Petty, planned to include unreleased tracks from her late husband’s celebrated 1994 solo album, Wildflowers, as part of a 25th anniversary edition box set.
However, Tom’s daughters Adria and Annakim, his children from a previous marriage, have blocked the release, according to iHeartRadio’s article, “Tom Petty’s Widow, Daughters Battling Over His Estate.”
Dana says the daughters are interfering with her ability to manage Tom’s legacy. She’s reportedly requested that a judge name a day-to-day manager for the estate.
Adria argues that she and her sister were promised an equal share of control in their father’s estate, according to his will. She says her father’s “artistic property” was supposed to be placed into a separate company to be jointly administered by the three women. However, Dana disagrees with Adria’s interpretation of the term “equal representation.”
Annakim seems to reference the battle in a recent Instagram post. She displayed a photo of her father with the caption, “We don’t sell out. No Vampires 2019.”
A subsequent reply in the comments section mentions Petty’s will.
Wildflowers was initially designed to be a double album, with Petty completing more than 25 songs in the initial sessions. However, he was convinced by his record label to take some some songs off for the final version.
Throughout the years, a few of the extra songs were released on various collections. However, Tom never relinquished his idea of releasing the set as a double LP.
Petty was reportedly planning a Wildflowers tour, before his death in October of 2017, to showcase all the leftover material.
Reference: iHeartRadio (April 3, 2019) “Tom Petty’s Widow, Daughters Battling Over His Estate”