Author Archives: Robert Mondo

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.

As part of the National Defense Authorization Act for the Fiscal Year 2021, Congress enacted the Corporate Transparency Act (the “Act”). Beginning on January 1, 2024, the Act and final regulations issued thereunder require any “Reporting Company” to provide certain information about its “Beneficial Owners” and “Company Applicants.” Failure to report this information may result in civil and criminal penalties. The Act imposes the duty to report to the Financial Crimes Enforcement Network (“FinCEN”) on any Reporting Company.

The Act contains several definitions to help determine which entities must report thereunder. The Act defines a Reporting Company as any entity formed by a filing with a secretary of state or any foreign entity that’s registered to do business in the United States by filing with a secretary of state. This intentionally broad definition means that any corporation, limited liability company, limited partnership, or limited liability limited partnership, along with any other entity formed by filing a document with a secretary of state, will be subject to the duty to report. General partnerships, sole proprietorships, and trusts do not file documents with a secretary of state upon creation and thus are exempt from reporting. The Act exempts twenty-three categories of organizations such as banks, credit unions, depositories, and securities brokers and dealers, all of which are already highly regulated. The Act exempts both tax-exempt entities and large operating companies from its reporting requirements. The Act defines tax-exempt entities as (1) any organization described in Internal Revenue Code (“IRC”) Section 501(c)(3) that’s exempt from tax under IRC Section 5012(a)(2); (2) a political organization described in IRC Section 527(e)(1); and (3) trusts described in IRC Section 4947(a)(1) or (2). The Act defines a large operating entity as any entity that employs more than twenty full-time employees.

Although the Act excludes many entities from its application, most privately-owned businesses will qualify as Reporting Companies and will have to disclose the required information timely or be subject to penalties. Every Reporting Company needs to report its legal name, any names under which it does business, a principal business address, the jurisdiction of formation, its taxpayer identification number, and its Beneficial Owners. If the Reporting Company is newly created, it also needs to report the individual who filed the formation or registration document for the Reporting Company, called the “Company Applicant” and, if different, the individual “primarily responsible for directing or controlling such filing.” The Reporting Company will need to disclose the name, date of birth, street address, a unique identifying number from a passport, driver’s license, or another such document, and a copy of that document of each Company Applicant, limited to two individuals, to FinCEN. The Act permits individuals who anticipate being Company Applicants to register for a FinCEN number that such individuals will provide to the Reporting Company instead of their personal information. The Act separates Beneficial Owners into two categories: (1) those who exercise substantial control over the Reporting Company; and (2) those who own at least 25% of the Reporting Company. For a Beneficial Owner to meet either definition, the Reporting Company needs to disclose the same information required for that of a Company Applicant.

If an individual serves as a senior officer of the Reporting Company, has authority over the removal of a senior officer or a majority of the board of directors, directs, determines, or has substantial influence over important decisions of the Reporting Company, or has any other form of substantial control over the Reporting Company, then such individual exercises substantial control. The Act defines a senior officer as anyone holding the position or exercising the authority of a president, chief executive, financial, or operating officer, general counsel, or any other officer who performs a similar function. Note that neither treasurer nor secretary is included as the Act views those roles as ministerial in nature. However, if an individual serving in a ministerial role otherwise exercises substantial control, then such individual will need to be reported as a substantial owner.

If an individual has an interest in equity, capital, profits, convertible instruments, or options, that equals 25% or more of the entity, then the Act considers that individual an owner thereunder. The Act includes both direct and indirect ownership. Trust and Estate attorneys need to advise clients that the Act considers a trustee who can dispose of trust assets that include a Reporting Company as a Beneficial Owner of that Reporting Company. Similarly, the Act includes the sole income and principal beneficiary of a trust owning an interest in a Reporting Company as a Beneficial Owner of such Reporting Company. Any beneficiary with the ability to withdraw substantially all of the assets of a trust containing an interest in a Reporting Company will also be a Beneficial Owner of such Reporting Company.

The Act has some complex provisions that have broad applicability. This provides only a brief synopsis of the most relevant provisions.

It might be appropriate to say that Christmas came early for retirement advisors and consumers in 2022 when Congress passed, and President Biden signed into law, the $1.7 trillion omnibus spending bill that included Setting Every Community Up for Retirement Enhancement (“SECURE”) Act 2.0 (the “Act”). President Trump enacted the original SECURE Act in December 2019, making radical changes to retirement planning by increasing the age at which a taxpayer could contribute to their Individual Retirement Account (“IRA”), creating a new class of beneficiary called the “Eligible Designated Beneficiary” (“EDB”), and eliminating the lifetime stretch for any beneficiary who is not an EDB and instead implementing the 10-year rule. For those needing a quick refresher, EDBs consist of surviving spouses, children who have not yet reached the age of majority, chronically ill or disabled individuals, and any other individual not more than ten years younger than the participant, or appropriately structured trusts for the benefit of those individuals. EDBs are the only beneficiaries exempt from the 10-year rule, which operated like the 5-year rule from pre-SECURE Act. Thus, under the 10-year rule, a non-EDB need not worry about Required Minimum Distributions (“RMDs”) and only needed to withdraw all funds by December 31^st of the year of the tenth anniversary of the participant’s death.

That changed when the United States Treasury released much-anticipated proposed regulations updating, among other things, the rules regarding RMDs from IRAs. The proposed regulations backtracked on some of the published guidance by adding the requirement of lifetime distributions to any non-EDB in years 1-9 after the participant’s death if the participant died after his or her Required Beginning Date (“RBD”). Now, any non-EDB needs to take annual distributions based upon the beneficiary’s life expectancy over the nine years following the participant’s death and exhaust the IRA by December 31^st of the year of the tenth anniversary of the participant’s death if the participant reached their RBD. Thankfully, the Internal Revenue Service realized that this represented a sharp departure from the advice that many advisors were giving their clients and promulgated Notice 2022-53 that confirmed waiver of any excise taxes resulting from failure to take RMDs in either 2021 or 2022 for those years. A taxpayer who fails to take the required RMD in 2023 will incur liability for the excise tax.

SECURE 2.0 continues to build on this foundation by extending, clarifying, and expanding provisions of the original SECURE Act. First, the Act increases the age at which the participant needs to begin taking RMDs to 73 beginning in 2023 and lasting until 2032, at which time the age increases to 75. Note that there seems to be an overlap for 2032 which likely will be resolved under technical corrections. These provisions affect anyone reaching age 72 after 2022. Individuals aged 50 and over may contribute an additional $1,000 to their IRAs. That amount will be indexed for inflation beginning in 2024. In addition, the Act boosts catch-up contributions for employer plans including 401(k), 403(b), 457(b), SIMPLE IRAs, and SIMPLE 401(k) plans, also indexing them for inflation. These provisions take effect in tax years beginning after December 31, 2024.

Interestingly, taxpayers will be able to use funds from Internal Revenue Code Section 529 Plans (“529 Plans”) for something other than qualified education expenses without income tax consequences. The Act allows taxpayers to convert up to $35,000 from a 529 Plan to an IRA. The Act imposes several restrictions on the 529 Plans allowed to take advantage of this rollover as follows: the Plan must have been maintained for 15 years prior to the rollover, the amount converted for a year cannot exceed the aggregate amount contributed to the 529 Plan in the 5 years prior to the rollover, the amount must move directly from the 529 Plan to the IRA, and the amount, when added to any other IRA contribution cannot exceed the contribution limit in effect for that year. This provision becomes effective for 529 Plan distributions after December 31, 2023.

The Act provided relief to taxpayers by changing the statute of limitations for two excise taxes, the excess contributions tax and the excess accumulations tax on an IRA. Under prior law, the statute for excess contributions or RMD failures started running on the date that the excise tax return was filed. Taxpayers were unaware of the requirement to file Form 5329 leading to an indefinite statute of limitation for the imposition of excise taxes. Under the Act, the new statute of limitations for RMD failures is three years and begins to run when the IRA owner files an income tax return for failure to take the required distributions. The new statute of limitations for excess contributions is six years and begins to run when the IRA owner files an income tax return. These new limitations periods became effective upon enactment of the Act.

As most readers know, owners of ROTH IRAs have no requirement to take distributions during lifetimes; however, participants in any of a ROTH 401(k), ROTH 403(b), or ROTH governmental 457(b) accounts all were required to take lifetime distributions. The Act repealed that requirement for distribution years beginning in 2024. This provides additional planning opportunities for taxpayers considering whether to keep assets in a designated ROTH account or to roll such accounts into their ROTH IRA. Now participants no longer need to consider RMDs during their lifetime and can focus on investment choices, expenses, and asset protection.

The Act allows a surviving spouse to elect to be treated as the deceased employee for purposes of the RMD rules, effective beginning in 2024. A surviving spouse making such an election would begin RMDs no earlier than the date the deceased participant would have reached their RBD.  If the surviving spouse made the election and dies prior to their RBD, the RMD rules apply as if the spouse beneficiary was the employee providing an avenue of additional deferral for beneficiaries of the surviving spouse.

Finally, section 337 of the Act allows an IRA owner to create a trust for a disabled or chronically ill beneficiary, which are otherwise EDBs, and name a charity as a remainder beneficiary without disqualifying the trust as an EDB. Now, the trust may pay out to public charity, other than a Donor-Advised Fund, upon the death of the disabled or chronically ill individual without negative impact. This provides additional planning opportunities for clients with disabled beneficiaries.

Of course, the foregoing article only highlights a few of the many changes ushered in with SECURE 2.0. More to follow . . .