Author Archives: Robert Mondo

When you are thinking about your estate planning process, you will want to establish an estate plan that not only meets your needs but also makes the most sense for you based on your current stage of life. As you think about what you want your estate to entail, it’s likely that you have heard about both wills and trusts.

Wills and trusts are distinctly different legal documents, but if you think that wills and trusts have a lot in common, you are correct! There is a lot of overlap between the two. For instance, they both identify the people who will receive your assets in your absence, but the documents do so in their own ways.

As an example, one main difference between wills and trusts is when they take effect. Wills are not implemented until after you die, whereas a trust goes into effect immediately upon being signed and funded.

If you were to become incapacitated to the point that you are unable to make your own decisions, a will cannot step in to provide any recourse or plan in response to your new circumstances.

Even so, wills can allow you to do the following:

• Name guardians for your children and your pets.
• Designate where your assets will go once you are gone.
• Specify the details of your final arrangements.

Wills offer a beautiful simplicity to the estate planning process, but wait — there are drawbacks as well.

Keep these details in mind:

• Wills offer limited control over the distribution of your assets.
• In most cases, wills require some sort of probate process.
• Wills are public documents, so if there is any information you would prefer to keep private, consider opting for a trust instead.
• Trusts are more complicated than wills, but how do they differ? Trusts, in particular:

• Provide control regarding not only how your assets will be distributed but when they will be distributed as well.
• Are available in more than one form.
• Help you minimize the chances of going to probate if not evading it altogether.
• Come with private distribution of assets.

So you could say that trusts are more complicated to set up than wills are, but if avoiding probate is your goal, setting up a trust is wise.

Having it both ways

Is it possible to have it both ways? Can you draw up both a will and a trust? The answer is yes. While trusts are designed to establish what will happen to your assets, wills give you the opportunity to denote people to serve as guardians for your children, appoint a trustworthy executor for the management of your estate and define your final wishes.

Trusts also differ from wills because while trusts are primarily crafted for the sake of taking care of your estate after you have died, they can also be influential when you are still alive. Alternatively, wills are only put into effect posthumously. But what about how these documents can be contested?

For starters, wills are more likely to be challenged because they can become outdated. They can also be combatted with the claim that the will was made at a point in time when you were not fully of sound mind.

Another possibility is that wills could be contested under the assumption that they were created while you were under the influence of someone else. On the other hand, trusts are far less likely to be contested due to their lack of an expiration date.

Another detail that differentiates wills and trusts is that wills do not offer anyone protections from creditors nor do they come with tax benefits. Dissimilarly, an irrevocable trust is a type of trust that cannot be changed, and it serves the purpose of removing assets from your estate, meaning irrevocable trusts offer both protection from creditors and benefits in a financial sense.

Despite their numerous discrepancies, wills and trusts are both legal instruments that focus on making sure that your assets are allocated to your heirs and according to your wishes. Trusts require more paperwork to establish than wills do, and trusts are typically more expensive to prepare than wills.

Where should you go from here?

Establishing clear expectations and documenting them in written form will significantly benefit your loved ones in your absence. Both trusts and wills are avenues that you can make use of when outlining what you would like to have happen regarding your end-of-life wishes.

Ultimately, the main difference between wills and trusts has to do with the work involved with establishing them. For instance, wills are regarded as lower maintenance than trusts, as they are usually in need of updates every three to five years. On the other hand, trusts must be updated every time a major life event takes place, such as marriage or the birth of a child.

So what’s the takeaway here? As always, talk to me and to financial advisers who can assist you as you figure out which instruments are best for you and your situation. That way, with a personalized approach to your estate planning process, you can ensure that your long-term goals are met.

I remember the shock I felt in 2008 when I learned that my bank, Washington Mutual, collapsed after a 9-day bank run. Thankfully, J.P. Morgan Chase bought the banking subsidiaries and most depositors continued with the new bank as though nothing had happened. Fifteen years later, not one, but three, banks have failed in one week’s time. Leaders are working hard to differentiate the events of the last week from those in 2008, but similarities exist.

Trouble started when Silvergate, a California-based bank that loaned funds to cryptocurrency companies, announced that it would liquidate its assets and cease operations. Concern grew when a few days later the Federal Deposit Insurance Company (“FDIC”) took over Silicon Valley Bank, taking almost $175 billion in customer deposits under its control. A large number of uninsured deposits, many held by small businesses, only exacerbated that concern sending shockwaves through the banking industry over the weekend when banks are typically closed. That fear lead to a Sunday night announcement that yet another bank, Signature Bank, shuttered its doors. The Federal Reserve, Treasury, and FDIC gave a joint statement that “depositors will have access to all of their money starting Monday, March 13” to calm investors and prevent panic from reverberating throughout the banking industry. If investors feared for the safety of their deposits in other banks and began to withdraw their money that could prompt a system-wide failure. The aggressive move of covering all deposits, even those that exceed the FDIC insured amount, means that the regulators have decided the risk to the banking system merits invoking an exception to the rule that the FDIC covers the failure by the least expensive means. The Deposit Insurance Fund will cover the funds not covered by the FDIC through the fees it collects from the banking industry.

Interesting, no doubt, but what does all of this have to do with Estate Planning? A great deal, it turns out. I have fielded many a question from a client regarding how much of their funds will be insured by the FDIC, especially when the plan involves one or more trusts. Last year, the FDIC issued updated rules regarding insured accounts designed to simplify the system.

Under the current rules, which remain in place until April 1, 2024, the FDIC insures deposits up to $250,000 per depositor, per ownership category, per institution. Assume that Johnny has $250,000 in BigBank and no other accounts anywhere. Should BigBank fail, the FDIC covers the entire amount. The same holds true if instead, Johnny titled his account in his revocable trust. Things change a bit if Johnny dies. Upon Johnny’s death, the assets in trust will pass to his daughter, Lyla. In that situation, the FDIC would insure up to $250,000 per institution, per trust beneficiary, up to a maximum of 5 beneficiaries for a total of $1,250,000. The rules look to the primary beneficiaries of the trust, which the FDIC defines as those individuals who would take upon the death of the grantor of the trust. The rules do not count contingent beneficiaries and more remote beneficiaries. In the above example, one beneficiary means that the FDIC protects the entire $250,000.

If Johnny had $500,000 in the account with BigBank, the FDIC would protect only $250,000. He could, however, transfer $250,000 to HugeBank thereby doubling the protected amount because it’s at a different institution. If Johnny had 5 children, all of whom were the beneficiaries of his revocable trust upon his death, then the FCID would insure $1,250,000 (5 x $250,000). If he had funds in excess of that $1,250,000, then he should transfer the overage to a new bank, keeping in mind that the FDIC insures no more than $250,000, per institution, per beneficiary, up to a maximum of $1,250,000 regardless of additional beneficiaries or funds. If Johnny were married and had a joint revocable trust, assuming that five beneficiaries took upon the death of both grantors, then the FDIC would cover up to $2,500,000 at any one institution.

Now assume that Johnny created an irrevocable trust. FDIC insurance works the same for all identified non-contingent beneficiaries as it does for a revocable trust covering up to $250,000 per institution, per trust beneficiary, up to a maximum of 5 beneficiaries for a total of $1,250,000. If the trust names contingent beneficiaries, however, then the rules add those contingent interests together and insure up to a maximum of $250,000, regardless of the number of beneficiaries or the allocation of the funds among the beneficiaries. To demonstrate, let’s assume that Johnny has 5 children, 4 of whom hold contingent interests in the trust making Lyla’s interest the only non-contingent interest. If Johnny has $600,000 in BigBank, the FDIC will cover only $500,000, $250,000 for Lyla, and $250,000 for the collective contingent interests, even though there are 4 beneficiaries.

Note that if the funds in an account represent both contingent and non-contingent interests, then the FDIC would separate those interests and apply the rules as described above. It’s easy to see how multiple trusts complicate these rules. Interestingly, according to the FDIC, it receives more inquiries related to insurance coverage for trusts than all other types of deposits combined. As noted earlier, to simplify the rules, the FDIC issued new rules on January 21, 2022, with a delayed effective date of April 1, 2024.

The new rules merge the categories for revocable and irrevocable trusts and use a simpler, more consistent approach to determine coverage. Now, each grantor’s trust deposits will be insured up to the standard maximum amount of $250,000, multiplied by the number of beneficiaries of the trust, not to exceed five. It no longer matters whether the trust is revocable or irrevocable or whether the interests are contingent or fixed. These rules effectively limit coverage for a grantor’s deposits at each institution to $1,250,000 for a single grantor trust and $2,500,000 for a joint trust, assuming that there are five beneficiaries of such trusts. The streamlined rules provide depositors and bankers guidance that’s easy to understand and will facilitate the prompt payment of deposit insurance, when necessary.

While depositors in Silicon Valley Bank were covered in excess of FDIC coverage, there’s no guarantee the FDIC will cover depositors in excess of the insurance coverage next time. If you are concerned about FDIC coverage for trust accounts, or in general, let me know. I can help you understand current coverage levels and advise you regarding any moves that you should make now or in the future to receive maximum FDIC insurance coverage.

A recent National Public Radio (“NPR”) article discussed one family’s experience with the Medicaid estate recovery program, something many elderly Americans and their families face. When the matriarch of the family received a diagnosis of Lewy body dementia, a case manager from the Area Agency on Aging suggested that the family explore the state’s “Elderly Waiver” program to help pay expenses not otherwise covered by Medicare or the family’s health insurance. The family completed the necessary paperwork without understanding that the program was a branch of Medicaid because the forms indicated that the program was designed to help “keep people at home and not in a nursing home.” Imagine the family’s shock when they received a letter shortly after the matriarch’s death that the state would seek reimbursement for the funds spent on her care. At first, the family thought it was fake, but they soon found out that it was real and that the agency was seeking reimbursement as required by federal law. Some of the funds that the family received were paid to the daughter as income for her mother’s care. She paid income taxes on those funds and now needs to help her dad figure out how to pay them back. Their biggest asset, the family home, is worth approximately one-third of the total amount sought for recovery. Of course, the agency can only recover half the total value of the home because the decedent owned it jointly with her surviving spouse. Further, the agency cannot seek reimbursement for any of the funds it expended until after the surviving spouse’s death. This scenario resonates deeply with many families.

Most folks understand that Medicaid is a partnership between the federal government and each individual state designed to provide medical benefit assistance to those over the age of 65 who have a financial need. The program defines financial need as income and assets below a certain amount. Most states require the Medicaid applicant to have an income of no more than $2,742/month. Thankfully, states impose no such limitation on the spouse of the applicant, thus the non-applicant spouse could have $15,000 in income without disqualifying their applicant spouse. Further, if the well or “community” spouse does not have enough in their own income, then a portion of the applicant spouse’s income may be allocated to the community spouse. This protection, called the Minimum Monthly Maintenance Needs Allowance (“MMMNA”), helps shield the well spouse from impoverishment. In most states, the maximum amount of income that can be allocated from the Medicaid applicant spouse to the well spouse is $3,715.50/month. Note that the income of the non-applicant spouse when combined with the spousal income allowance cannot exceed that amount.

Determining whether an applicant meets the asset test requires more analysis. First, states divide assets into countable assets and exempt assets. Exempt assets usually include things like the home, household furnishings, retirement accounts, life insurance, and the car used for medical transport. Available resources mean everything else. Second, if the applicant is married, then all assets, regardless of whose name the assets are held, count for purposes of determining eligibility for Medicaid. Generally, an individual needs to have less than $2,000 in “available” resources. Like under the income requirements, the non-applicant spouse has additional protection called the Community Spouse Resource Allowance (“CSRA”). Each state determines which assets will count as “available” within federal guidelines and which assets to exclude as well as the amount of the CSRA. The federal government sets the minimum ($29,724) and maximum ($148,620) amount and states (Illinois is $123,600.00 for a married couple) decide which number in that range they want to use. If the assets cannot be used for an applicant’s benefit, such as assets in an irrevocable trust, then those assets generally don’t count as an available resource.

There are several ways that an individual may lower their countable assets. Many people seeking to avail themselves of Medicaid assistance establish irrevocable trusts to hold their assets to keep those assets from being counted. The trust principal cannot benefit the Grantor, if it does, then it’s considered an available resource. The trustee of the trust invests the principal. Sometimes the Grantor retains the right to income generated from the trust, but the Trustee has discretion to distribute the principal to other individuals, such as the Grantor’s children. Upon the Grantor’s death, the trust agreement dictates the division and distribution of the assets in the trust. A Medicaid trust is by no means the answer to every problem, but it’s a great solution for many families. Some families fail to consider undertaking this planning until it’s too late. If they create a trust too close in time to when they apply for Medicaid, then they will be subject to a “penalty period” during which time they will need to cover their medical expenses.

Qualifying for Medicaid alone does not end a family’s concerns. Once they have an individual qualified, they need to worry about repayment. The federal government requires each state to seek recovery of funds spent through the Medicaid Estate Recovery Program (“MERP” or “MER”). Each state must seek repayment from the decedent’s probate estate, but the state has the option to attempt recovery from assets outside the probate estate as well. As part of the recovery process, Medicaid can place a lien on the Medicaid recipient’s home in some states and some circumstances. A qualified Estate Planning attorney can help a family work through what assets will be subject to reimbursement and how to plan for it.

Medicaid planning requires an understanding of the concepts explained above as well as Estate Planning generally. Due to a five-year lookback on uncompensated transfers, setting up a Medicaid trust far in advance of needing the care is a great way to give you and your family peace of mind.

America’s favorite tough guy, Bruce Willis, recently received a diagnosis of Frontotemporal Dementia or FTD which destroys the brain’s frontal or temporal lobes. The condition strikes individuals between ages 45 and 64 and is the most common form of dementia for those under 60. His diagnosis brings into sharp focus the importance of planning for incapacity. Unfortunately, incapacity planning often takes a backseat to planning for what happens upon death because death is certain, but incapacity is not. Its uncertain nature, however, makes planning for that possibility all the more important.

Incapacity, much like death, doesn’t care about your age, your health, or your family. It strikes without rhyme or reason and often, without warning. When incapacity occurs unexpectedly, it leaves loved ones scrambling for solutions. If the incapacitated individual failed to plan properly for incapacity, the family may be forced to undertake a guardianship proceeding to have the individual declared incompetent and a guardian appointed. Guardianship proceedings are sometimes referred to as “living probate” because the proceeding involves many of the same issues of probate only with incapacity the loved one is alive, not dead.

Let’s look at an example. John decided that he wanted to move closer to his elderly parents. He listed his home for sale and on his way back from a meeting with the realtor, was involved in an automobile accident and rendered unable to manage his affairs. One of John’s neighbors knew of John’s desire to sell his home and thought it would be a perfect place for his sister who was looking to relocate. The neighbor’s sister made an offer over asking price; however, because John was incapacitated and had not created a plan to deal with incapacity, no one had the legal authority to accept the offer. His family petitioned the court to have him declared incapacitated and someone appointed as his legal guardian. The process was difficult because John’s family disagreed about who should be appointed guardian. The disagreement played out in the courtroom and unflattering information about John and his family emerged. Unfortunately, by the time a guardian was appointed, the neighbor’s sister withdrew her offer. Shortly thereafter, home values began falling and John’s family waited several months before another buyer made an offer for significantly less than the previous offer and even less than the asking price.

While the example above seems extreme, it isn’t. Situations like this occur every day. What are some of the things that John should have done to prevent this result?

First, John should have created a Property Power of Attorney. A Property Power of Attorney allows the principal (John) to designate an “Agent” and one or more successors to make decisions inherent to the Principal on their behalf during life. The Property Power of Attorney may give the Agent immediate power to make these decisions, even if the Principal is not incapacitated when the Agent is making the decision. Most states also give the Principal the option to make the Property Power of Attorney “springing,” meaning that the Agent’s powers “spring” into action only upon incapacity of the Principal. If anyone refers to the Property Power of Attorney as “durable” that means the Property Power of Attorney continues to be effective notwithstanding the Principal’s incapacity. Any Property Power of Attorney that is not durable prohibits the Agent from acting during the Principal’s incapacity.

In addition to the Property Power of Attorney, John should have prepared a Healthcare Power of Attorney. The Healthcare Power of Attorney allows the Principal to appoint an Agent to make medical decisions if the Principal is unable to make those decisions; however, the Agent cannot veto any medical decision of the Principal. In conjunction with the Healthcare Power of Attorney, John should have signed a HIPAA Authorization which allows one or more designated individuals to receive information that the Health Insurance Portability and Accountability Act of 1996 mandates be kept confidential. While it’s important to keep healthcare information confidential, people acting on behalf of others need access to this information and the HIPAA Authorization provides that.

Finally, John should have created a Revocable Trust. A Revocable Trust serves as a Will substitute, maintains the Trustor’s privacy, requires little or no court oversight, and provides significant flexibility. If John had transferred his home to a Revocable Trust, then upon his incapacity, the successor Trustee would have stepped into John’s shoes to manage the property. The successor Trustee would have had the legal authority to accept the offer on John’s home, conclude the sale, and then use the proceeds for John’s continued care. This would have added a layer of protection and smoothed the way for a sale of John’s home. Often, financial institutions hesitate to rely upon a Property Power of Attorney for real estate due to fraud, especially if the Property Power of Attorney was executed more than 2 years prior. The Revocable Trust sidesteps the issue altogether.

Regardless of the duration of incapacity, it’s important to include incapacity planning as part of a comprehensive Estate Plan. Statistics estimate that over 7 million people aged 65 and older have dementia. This statistic alone should scare all of us into undertaking incapacity planning. While planning for disposition of your estate upon your death is important, planning for the management of your assets and health during periods of incapacity is even more critical. As our life expectancies increase, so do the chances that we or someone we love will experience incapacity. Incapacity takes an emotional and physical toll both on the incapacitated individual and their loved ones. A seamless Estate Plan eases those burdens and the resulting emotional strain and allows everyone involved to focus on recovery and the next steps.

On December 14, 2022, President Biden signed the Respect for Marriage Act (the “Act”) repealing the Defense of Marriage Act (“DOMA”). The Act mandates that all states, United States territories and possessions, the District of Columbia, the Commonwealth of Puerto Rico, and the federal government (hereinafter “States” or “State”) must recognize as valid any marriage between two individuals if such marriage was valid in the State where such marriage occurred. Pursuant to the Act, no person, acting under color of State law may deny the laws of any other State pertaining to an act, record, judicial proceeding, right, or claim, arising from a marriage between two individuals based upon the sex, race, ethnicity, or national origin of those individuals. Further, the Act contains provisions allowing for enforcement of these civil rights by the United States Attorney General or a private person harmed by a violation of the Act. The Act does not require recognition of polygamous marriages, nor does it require religious organizations to solemnize or celebrate marriages that violate their principles.

It’s important to understand the history and evolution of Estate Planning for same-sex couples. When President Clinton signed DOMA into law in 1996, that legislation denied federal recognition of same-sex marriage by limiting the definition of marriage to the union of one man and one woman. That allowed states to refuse to honor same-sex marriages even when those marriages occurred in states that permitted same-sex marriage. Thus, if a couple married in a state that permitted same-sex marriage, then moved to another that did not, the couple needed to restructure their estate plan as though they were unmarried after moving into the new state. Further, DOMA prohibited recognition of same-sex marriages on a federal level depriving same-sex spouses of several benefits including receipt of social security survivor benefits, filing joint tax returns, and preventing gift and estate tax-free transfers between spouses. Under DOMA if a spouse wanted to give their estate to their same-sex spouse, that transfer would be subject to federal estate tax if the amount of the gift exceeded the decedent spouse’s remaining applicable exclusion amount. The applicable exclusion amount in 1996 was $600,000. Thus, anytime a spouse of the same sex as their spouse gifted that spouse more than $600,000 either during life or at death, the transfer was subject to gift or estate tax.

That did not change until the 2013 decision of United States v. Windsor, 570 U.S. 744 (2013) which held that DOMA violated the Due Process Clause and therefore was unconstitutional to the extent it denied federal recognition of same-sex marriage. Obergefell v. Hodges, 576 U.S. 644 (2015) went a step further when it required states to license and recognize same-sex marriage. After Windsor, the federal government had to give a same-sex couple the same benefits as a heterosexual couple. After Obergefell, any same-sex couple could marry in any state and could relocate without jeopardizing their marriage and their Estate Planning based upon it. Between Windsor and Obergefell, it seemed that DOMA had been gutted, and same-sex married couples had the same rights and benefits afforded to heterosexual married couples. The most significant being the ability to make unlimited gifts to a spouse during life or at death without gift or estate tax liability. Those benefits continued without question until the Supreme Court decided Dobbs v. Jackson Women’s Health Organization, 142 S. Ct. 2228 (2022).

When the Supreme Court decided Dobbs, it did so on the basis that the rights at issue were not fundamental because the rights had no basis in the Constitution or our country’s history. Many questioned whether other rights not explicitly granted in the Constitution, such as same-sex marriage, could be in jeopardy. Although the majority opinion in Dobbs indicated that the holding applied only to Dobbs, when Justice Clarence Thomas wrote “because any substantive due process decision is ‘demonstrably erroneous’ we have a duty to ‘correct the error’ established by those precedents” in his concurring opinion in Dobbs, many took note and thought that signaled a possible future reversal of Windsor and Obergefell and wondered if Estate Planning for same-sex couples needed to revert to pre-2013 planning. The Act makes clear that it does not. Marriage is marriage under state and federal law.

Former President Jimmy Carter revealed on February 18 that he is going home from the hospital to live out the rest of his 98-year life on hospice. Back in 2015, when President Carter was diagnosed with metastatic skin cancer, I wrote a post encouraging him to set an example and go on hospice care. He instead pursued an experimental treatment that gave him eight more years of life. And that’s okay – good for him!

The news coverage over the weekend make it sound as if by going on hospice, he’s already dead. No wonder people are afraid of hospice. The problem is, most people wait too long to take advantage of the benefits of hospice. Too often, people go on hospice when they are literally at death’s door.

The guidelines for starting hospice care is a medical condition with a likelihood of causing the patient’s death within six months. Curiously, old age is not a valid diagnosis for hospice care.

Hospice is a specialized form of medical care that aims to provide comfort, support, and dignity to people who are in the final stages of a terminal illness. The primary goal of hospice care is to alleviate the physical, emotional, and spiritual pain and suffering of patients, as well as to provide support to their families and loved ones.

Hospice care can be provided in various settings, including the patient’s home, a hospice facility, a hospital, or a nursing home. Hospice care teams are typically interdisciplinary, including medical professionals, nurses, social workers, chaplains, and volunteers who work together to provide a holistic approach to care.

Care often involves managing pain and symptoms, providing emotional and spiritual support, and assisting with practical needs such as daily activities and end-of-life planning. The focus of hospice care is on the quality of life rather than the length of life, and the care is tailored to the individual needs and wishes of the patient and their family.

There’s a meme making the rounds on social media with a quote from Carter: “I have one life and one chance to make it count for something… My faith demands that I do whatever I can, wherever I am, whenever I can, for as long as I can, with whatever I have to try to make a difference.”

I hope Jimmy Carter’s choice of hospice at this point provides a teachable moment for society at large.

Elvis Presley was dubbed the King of Rock ‘n’ Roll because of his undeniable musical talent and by all accounts he was a humble, kind, and generous man who died far too young. It’s ironic that as Elvis’s life and career returned to the spotlight, his only daughter, Lisa Marie Presley, died. Lisa Marie died earlier this year from cardiac arrest at the age of 54 and left behind a tragic legacy, rivaling that of her famous father. Elvis died when Lisa Marie was just 9 years old leaving his entire estate, including his famous home, Graceland, to her. The estate was held in trust for Lisa until she attained the age of 25 in 1993. In 2004, Lisa sold 85% of Elvis Presley Enterprises for over $100 million and transferred the remaining 15% to the Promenade Trust.

Lisa Marie’s mother, Priscilla Presley, and former business manager, Barry Siegel, served as co-Trustees of the Promenade Trust for many years. Just weeks after her daughter’s death, Priscilla filed a petition challenging Lisa Marie’s Will and the “authenticity and validity” of a 2016 document. The 2016 document purports to remove Priscilla and Barry as co-Trustees of the Promenade Trust and replace them with Lisa’s daughter, Riley Keough, and Lisa’s predeceased son, Benjamin Keough, upon Lisa Marie’s death. Priscilla alleges that she never received the document changing the trustees, as required by the terms of the Promenade Trust. In addition, Priscilla’s petition alleges that the amendment misspelled Priscilla’s name and contains a signature that was inconsistent with Lisa Marie’s “usual and customary” signature. Finally, the document was neither witnessed nor notarized and the signature page was void of any of any substantive provisions of the document, which is customary.

While this case is fascinating on many levels, it’s instructive as well. The case contains several important lessons for clients regarding what an Estate Plan needs to do to protect the decedent and their loved ones. What lessons should we take from Lisa Marie? First, if privacy is important, consider using a Revocable Trust, rather than a Will, to control disposition of your estate. In most states, if the decedent used a Will to govern distribution of their estate, then the Will needs to be submitted to the court and go through a public process called probate. Usually, the probate process requires the involvement of an attorney and does not protect the privacy of the decedent, their wishes, or their loved ones. A Revocable Trust avoids probate by allowing a successor trustee to step into the shoes of the decedent trustee who is usually the trustor or grantor of the Trust and administer the Trust without court intervention or oversight.

Second, whenever you amend a Trust or exercise a power granted to you in a Trust or any other legal document, it’s vital to follow the terms of the instrument granting the power precisely. In Lisa Marie’s case, the Promenade Trust required that notice of the amendment be given to the then-acting trustees. Priscilla alleges that she never received that notice. While notice may seem trivial, it’s not. Lisa Marie’s failure to provide the required notice has led to grandmother, Priscilla, suing her granddaughter, Riley. It’s all the more heartbreaking when you consider that Lisa Marie died just a few weeks ago and the lawsuit has already been filed. It seems that the new trustees were to take over upon Lisa Marie’s death, but even that’s a bit unclear because the amendment names a now-deceased individual to serve as trustee.

This highlights the next lesson: review your plan regularly to ensure that it’s up-to-date. The amendment was purportedly executed in 2016 and named Riley and Benjamin to serve as trustees of the Promenade Trust. Benjamin died in 2020 and Lisa never updated the amendment to the trust. Had she done that, it would have allowed her to review and correct any deficiencies in the 2016 amendment. That didn’t happen and now Lisa Marie’s estate along with the Promenade Trust will end up in litigation for an unknown amount of time. Litigation will stall ultimate distribution of Lisa Marie’s estate and the Promenade Trust, cost thousands, if not hundreds of thousands, of dollars in attorneys’ fees, will be public, and will likely cause irreparable harm to the family.

Finally, consider inserting a no-contest or “in terrorem” clause in your Estate Plan. I always include an “in terrorem” or no contest clause to further evidence the testator or grantor’s intent. The use of an in terrorem clause in a Will or Trust protects the intentions of the testator or grantor from attack by a disgruntled beneficiary by completely disinheriting the beneficiary who challenges the terms of a Will or Trust. These clauses do not work the same in every state and some states impose additional requirements before disinheriting the beneficiary. It may not have mattered in this case because it seems that Priscilla is not listed as a beneficiary, but in many cases it prevents litigation.

While fascinating, it’s unfortunate, that this matter will play out on a public stage. The family is no stranger to the press, lawsuits, and negative publicity. Typically, when intrafamily litigation ensues, only the lawyers benefit. Litigation takes time and costs money during periods of significant grief. Lisa Marie’s case is even more distressing because she left behind two minor daughters. These public feuds provide great lessons about implementing safeguards against them but at a high cost to the families involved.

Happy Valentine’s Day! While Valentine’s Day typically focuses on celebrating romantic love, love comes in many forms and all should be celebrated. Everyone, regardless of their status or feeling about the holiday, should commemorate the holiday by creating (or updating) an Estate Plan! Estate Planning offers a practical and easy way to show your loved ones that you care.

Simply put, an Estate Plan serves as a set of instructions regarding how you want your assets to pass, to whom you want them to pass, and when you want them to pass. The plan sends a message to your loved ones that you care enough to leave your affairs in order and protect them. A basic Estate Plan consists of documents that provide instructions for what happens both during your life and at death. Those documents consist of a Living Trust, also known as a Revocable Trust (a “Trust”), a Will, a Property Power of Attorney, a Healthcare Power of Attorney, a Living Will, and a Health Insurance Portability and Accountability Act (“HIPAA”) Authorization.

Although we list the Trust first because it serves as the foundation for many Estate Plans, let us examine the Will first. Usually, a Will dictates distribution of your assets upon your death. In the Will, an individual nominates an executor or personal representative to liaise with the probate court, collect the decedent’s assets, pay the decedent’s debts, expenses, and taxes, and make disbursements of the remaining assets to the decedent’s beneficiaries. If the decedent had minor children at death, then a court would look to the Will for the individual nominated to serve as guardian of those children. If someone dies without a Will, then the state of that person’s residence has a set of laws, called “intestacy statutes” that govern the dispersal of that individual’s assets at death. The state’s distribution pattern fails to account for any beneficiary’s circumstances and usually diverges significantly from what the decedent would have wanted had they executed a Will. State intestacy laws may appoint a stranger as administrator or executor to handle these important tasks.

As noted above, the individual handling an estate needs to liaise with the court to transact the business of the estate. These tasks include selling real estate, paying attorney’s fees, or resolving a claim against the estate, some of which require prior court approval. Depending upon the laws of the domiciliary state, courts may not limit who can access these proceedings. Further, most states require engaging an attorney to complete the process which can take several months or longer. Additionally, the family needs to spend funds to pay any court fees along with attorney fees. For those desiring to avoid the foregoing, a Trust does that. A Trust serves as a Will substitute, maintains the decedent’s privacy, requires little or no court oversight, and provides significant flexibility. With a Trust, you transfer the assets to the Trust during your lifetime and manage them as the trustee. You avoid probate altogether because the Trust vests a successor Trustee with the power to make distributions upon your death without court oversight. Here, you demonstrate your love and concern by implementing a strategy designed to save your loved ones time and money, maintain their privacy, and leave a lasting legacy. The Trust also protects against incapacity by giving a successor trustee the power to make distributions from the Trust for your benefit in the event of your incapacity. Due to cases of fraud, institutions more readily recognize a successor trustee than an agent under a Property Power of Attorney.

The Property Power of Attorney allows the individual signing the document (the “Principal”) to appoint an “Agent” to act on their behalf concerning their financial affairs. The Property Power of Attorney allows the Principal to appoint one or more successor Agents to serve if the original Agent fails or ceases to act. The Property Power of Attorney gives the Agent the powers inherent to the Principal. The Property Power may give the Agent immediate power to make these decisions, even if the Principal is not incapacitated when the Agent is making the decision. Most states also give the Principal the option to make the Property Power of Attorney “springing,” meaning that the Agent’s powers “spring” into action only upon incapacity of the Principal. If anyone refers to the Property Power of Attorney as “durable” that means the Property Power of Attorney continues to be effective notwithstanding the Principal’s incapacity. Any Property Power of Attorney that is not durable prohibits the Agent from acting during the Principal’s incapacity.

A Healthcare Power of Attorney allows you to appoint an Agent to make medical decisions on your behalf if you are unable to make those decisions for yourself. If you can make these decisions, then your Agent cannot veto any medical decision you make. A Living Will sometimes called an “Advance Directive” expresses your wishes regarding end-of-life decisions. Without this document memorializing your wishes, doctors and medical professionals must keep you alive even if you have no reasonable chance of recovery notwithstanding that doing so only prolongs your suffering. Often the Living Will and Healthcare Power of Attorney are combined into one document. The Health Insurance Portability and Accountability Act of 1996 mandates that healthcare providers keep their patients’ protected healthcare information confidential. While most of us would agree that generally makes sense, sometimes you want others to have access to that information, especially the fiduciaries that you have nominated to act upon your incapacity. A HIPAA Authorization allows you to appoint one or more individuals to access or receive protected health information.

Creating an Estate Plan shows your loved ones how much you care. Thinking about the peace of mind that these documents provide gives me goosebumps. This Valentine’s Day consider the ultimate act of love and create or update your estate plan. If you already have a plan, review the documents to ensure that the individuals nominated as fiduciaries remain capable to serve in these roles. An Estate Plan provides comfort and peace of mind for both you and your loved ones upon incapacity or death. Now go enjoy those flowers and chocolates!

Estate Plans often incorporate revocable and irrevocable trusts. Regardless of the type of trust created or the reason for its creation, naming a suitable trustee to administer the trust requires careful consideration. After all, the trustee acts as the gatekeeper for the trust, doling out distributions pursuant to the terms of the trust agreement using their discretion. While some grantors name beneficiaries to serve as their own trustees, certain circumstances require a third party to act in that capacity. Beneficiaries of trusts with someone other than themselves as trustees need to understand their options when their relationship with the trustee sours.

As a quick recap, Part I explored asking the Trustee to resign, using provisions in the trust to remove the Trustee, employing Non-Judicial Settlement Agreements, and modifying by consent. If none of those options present a workable solution for the beneficiaries, then they may consider changing the situs of a trust to benefit from more favorable statutes in a new jurisdiction provided that the trust and its administration has sufficient contacts with the new jurisdiction. Failing that, decanting the trust to a new trust with a new trustee or reforming the trust to replace the undesirable trustee, may also prevent workable alternatives, but require cooperation of the trustee on some level. These options generally allow the beneficiaries and the trustee to remain out of court; however, sometimes the parties cannot avoid court.

If the beneficiaries find themselves in a situation in which the trustee refuses to cooperate, then the beneficiaries need to broaden their thinking to include court intervention. The beneficiaries may allege unanticipated circumstances. Modification because of unanticipated circumstances generally requires court approval and the modification needs to “further the purposes of the trust” which presents a significant hurdle to overcome.

Instead of trying to convince a judge that the removal of a trustee furthers the purpose of a trust, the beneficiaries may have better luck removing a trustee for lack of cooperation with co-trustees, if applicable, or for failure to administer the trust effectively. The Uniform Trust Code (“UTC”) contains several paths for removal under the umbrella of failure to administer the trust effectively, including substantial impairment of the administration of the trust, unfitness, unwillingness, or persistent failure to administer the trust effectively, or a substantial change in circumstances. These broad categories give beneficiaries several choices. The comments to the UTC underscore that the beneficiaries may demonstrate a trustee’s unwillingness by the trustee’s “pattern of indifference to some or all of the beneficiaries. As should be clear, though, the beneficiaries will have significant obstacles in pursuing this path and will likely incur significant expense as well.

Of course, if the beneficiaries have cause, for example, a breach of fiduciary duty by the trustee, then pursuing the matter in court may be their only option. This represents the most difficult, expensive, and time-consuming method for removing a trustee. Often, beneficiaries need to front these costs from sources outside the trust and the trustee may be permitted under state statute to utilize trust assets to fund their defense. This should be the last resort for removal.

These articles have demonstrated the difficulty that exists in trying to remove undesirable trustees. Well-designed Estate Plans last for years and should include provisions that allow the plan to evolve with changes in circumstances. Even if the plan lacks specific provisions regarding removal of a trustee, beneficiaries have options worth exploring when they want a new trustee. My trusts include provisions to protect the beneficiaries and allow them or a Trust Protector to remove an undesirable trustee.

Estate Plans use both revocable and irrevocable trusts for a myriad of reasons. Regardless of the type of trust created, naming a suitable trustee to administer the trust tops the list of important considerations. After all, the trustee acts as the gatekeeper for the trust, doling out distributions based upon the trust agreement using their own discretion. A beneficiary serving as trustee only works in certain circumstances. Sometimes it’s necessary to name a third party to act as trustee. If a third party serves as trustee, what happens when the beneficiaries, for whose benefit the trustee administers the trust do not trust said trustee? This is the first part of a two-part series exploring the various options that beneficiaries of a trust may use to rid themselves of a trustee.

As with most endeavors, it makes sense to start with the path of least resistance. In this context, that means asking the undesirable trustee to resign. While the conversation may be uncomfortable, the trustee may surprise the beneficiaries and agree to resign. After all, if the beneficiaries are unhappy with the trustee, they likely have let the trustee know that. Such a trustee may resign gladly, especially from a trust with disgruntled beneficiaries. The outgoing trustee may or may not have to prepare an accounting and likely would ask the beneficiaries to sign a waiver absolving the trustee of any wrongdoing now or discovered in the future.

If the trustee refuses to resign, then the beneficiaries need to explore other methods of removal. They should look to the trust agreement itself to see if the grantor gave them the power to remove the trustee. I can guide the beneficiaries through the removal process and ensure that they follow the terms of the trust instrument precisely in exercising the power. Even if the document fails to include a power to remove the trustee, I can help the beneficiaries use other trust provisions such as change of situs, or appointment of a trust protector as a backdoor way to accomplish the ultimate goal of removing the trustee. Again, the outgoing trustee may have to prepare an accounting and would want a waiver of liability.

If the trust contains no provisions allowing the beneficiaries to remove the trustee, then things become more complicated. Beneficiaries have several other options to pursue the removal of a trustee. For beneficiaries in states that follow the Uniform Trust Code (“UTC”), the UTC permits the use of a Non-Judicial Settlement Agreement (“NJSA”) for a matter, if the matter does not violate a material purpose of the trust. Use of the NJSA requires agreement by all interested parties. Determining which parties qualify as interested requires a Trusts and Estates practitioner familiar with the statutory definition to ensure all interested parties agree. The UTC lists several matters that the NJSA may address, although jurisdictions diverge on whether matters not listed may be resolved using the NJSA. Generally, statutes allowing the use of the NJSA do not require court approval, although obtaining court approval would certainly prevent future disagreements on the matter.

If the NJSA will not work, UTC states also allow modification of a noncharitable trust by consent. The comments to the UTC, state statutes, and one state court decision prohibit the removal of a trustee by consent, although the consent may be used to address other areas of contention between the beneficiary and trustee. Interestingly, even if the modification by consent violates a material purpose of the trust, if agreed upon by the grantor and all beneficiaries, it’s allowable. Some states require court approval, others do not. Modification by consent usually requires the consent of the grantor; however, if the grantor does not or cannot agree, modification may occur if such modification is not inconsistent with the material purpose of the trust. Here again, some states require court approval, while others do not.

This article has explored a few options available to beneficiaries desiring to remove a trustee. Well-designed Estate Plans last for years and include provisions that allow the plan to evolve with changes in circumstances. Even if the plan lacks specific provisions regarding the removal of a trustee, beneficiaries have options worth exploring. I can help the beneficiaries avail themselves of certain statutory provisions to oust the undesirable trustee.