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When I began practicing law, clients created irrevocable trusts with caution because the trust was then set in stone. Now, clients are creating irrevocable with more frequency and considerably less caution because changing irrevocable trusts became commonplace. Trusts and Estate practitioners have numerous options to consider if they want to change an irrevocable trust. The first part of this three-part series explored changes to irrevocable trusts using judicial or nonjudicial modification Are Irrevocable Trusts Really Irrevocable – Part I. This second part examines decanting, and the final part in the series reviews the use of a Trust Protector to modify an otherwise irrevocable trust.

Unlike judicial and nonjudicial modification or the use of a Trust Protector, decanting relies upon powers that already exist in the trust. When the Trustee decants, the Trustee exercises their power to distribute trust assets and moves the assets from the existing trust with unfavorable terms to a new trust containing more favorable terms, much like pouring wine from the bottle into a decanter brings better flavor to the wine.

State laws differ considerably in the changes permitted in the new Trust. The new trust could provide the opportunity to correct a drafting mistake, clarify ambiguities, correct and update trust provisions, remedy problems in administration, change trust situs, expand or limit trustee powers, restrict beneficiaries’ rights to information, provide asset protection, adjust trustee succession, appoint a trust protector, alter distributions, or adapt trust provisions to address changes in beneficiaries’ circumstances depending upon the laws of the state in which decanting occurs. Over half of all states have enacted statutes authorizing decanting. Each state’s statutes regarding decanting vary widely, although most recognize that if a trustee has discretionary power to distribute trust corpus to the beneficiaries, such power constitutes a special power of appointment enabling the trustee to appoint the trust corpus to a new trust for the benefit of those same beneficiaries. That’s not the end of the inquiry, though.

Even if your state statutes do not specifically authorize decanting, you may still have options. Some states recognize a common law right to decant. Others allow inclusion of the authority to decant in the terms of the trust itself. Finally, even if none of the foregoing apply, you could consider changing the situs of the trust. The trustee or another authorized party can utilize a change in situs provision to move administration of the trust to a state that allows decanting. Once the trustee changes situs, then the trustee can take advantage of the new state’s decanting statutes. Most states that allow decanting have adopted some form of the Uniform Trust Decanting Act. Note that experts tend to cite South Dakota as the state with the most favorable decanting statute.

This article begins to scratch the surface of the issues involved with decanting. Decanting adds another option to solve trust troubles, although it’s vital to consult with me regarding applicable statutes, trust provisions, both in the original trust and the new trust, tax implications, notice, consent, and Trustee powers and fiduciary duties. Note that if a Trustee occupies the dual role of Trustee and beneficiary, that complicates things.

Decanting provides a great estate planning opportunity in the current environment. Clients are encouraged to review their plans, especially irrevocable trusts created many years ago to confirm that those trusts accomplish the goals of the grantor and properly protect the needs of the beneficiaries. If the trust fails to properly address beneficiary needs or otherwise could use some tweaking, decanting provides a great opportunity to re-write the trust with more favorable terms.

The final article in this series will explore using a Trust Protector to remedy defects in an irrevocable trust or provide more favorable terms.

When I first began practicing law, I remember cautioning clients about the detriments of creating an irrevocable trust. The trust provided great benefits but came with a significant downside – irrevocability with no way to make changes should the need arise and you give up the constructive and legal ownership of the assets that you transfer to the trust. The landscape regarding planning with irrevocable trusts changed significantly. Often, I counseled that “irrevocable trusts aren’t really irrevocable” and meant it. Now, clients have numerous options to consider if they want to change an irrevocable trust. This first part of a three-part series explores changes to irrevocable trusts using judicial or nonjudicial modification. The second part examines decanting, and the final part in the series reviews the use of a Trust Protector to modify an otherwise irrevocable trust.

Clients often think that an irrevocable trust means that the terms of the trust have been set in stone and that there’s no room to modify, amend, or terminate the trust without spending a significant amount of money. That usually involved obtaining an order from a judge after having spent significant money on attorneys’ fees. While that may have been true years ago, that’s no longer the case. Anyone desiring to modify an irrevocable trust has several options to consider.

For the thirty-six states that have enacted the Uniform Trust Code (“UTC”), section 411(a) allows a trustee, beneficiary, or the grantor of the trust to bring an action to modify such trust if the grantor and all beneficiaries agree, even if the modification violates a purpose of the trust. This powerful provision allows the parties to re-write the trust if everyone approves. Section 411(b) of the UTC allows modification without the grantor’s consent which gives the beneficiaries the ability to override the wishes of the individual who created the trust if they can convince a judge that the modification is not inconsistent with a material purpose of the trust. That’s powerful. This means that even if the grantor has died, the beneficiaries may change the trust. Finally, Section 411(e) of the UTC allows modification over the objection of a beneficiary if such modification is not against a material purpose of the trust and if adequate protections exist for the objecting beneficiary.

Even in the fourteen states that have not enacted the UTC, it may be possible to bring an action to modify an irrevocable trust. Some non-UTC states have statutes like those of UTC states and allow modification if the objecting party has adequate protection. Further, even if the non-UTC state lacks a modification statute, that doesn’t preclude moving jurisdiction of the trust to utilize a statute in another state to commence modification. Of course, the trust either through the trustee or the beneficiaries needs to have sufficient connection with the new state to avail itself of that state’s statutes.

For those looking for a less expensive and faster way to modify trusts, section 111 of the UTC allows interested persons to enter a nonjudicial settlement agreement (“NJSA”) as to any matter involving a trust. The agreement cannot violate a material purpose of the trust and must include terms and conditions that a court could otherwise approve. The UTC limits the matters resolved by an NJSA; however, interested parties have broad latitude in the use of an NJSA to resolve trust matters. Some non-UTC states such as Delaware, Idaho, Illinois, and Washington have adopted statutes allowing use of NJSAs. Here again, motivated beneficiaries in states without NJSA provisions may move the trust to a state with such provisions provided sufficient contacts exist.

For UTC and non-UTC states alike, multiple options exist to modify an irrevocable trust. Given the current high exemption and potential changes to the tax code, now is a great time to review existing estate plans that include irrevocable trusts. Exploring nonjudicial modification can add flexibility to those trusts to account for changed circumstances. Experienced Estate Planning attorneys know how to review proper statutes, determine the necessary parties, and understand the permissible modifications. NJSAs provide just one of several methods to modify an irrevocable trust giving beneficiaries an opportunity to achieve tax benefits, provide asset protection, as well as other benefits.

The next article in this series will explore how decanting provides another nonjudicial remedy to defects in an irrevocable trust or provides better terms.

In 2024, there were 27 major disasters including hurricanes, floods, and wildfires. This year has begun in much the same way with wildfires ravaging parts of California. During any crisis, people tend to feel an increased sense of anxiety and a decreased sense of control. These normal reactions underscore the importance of planning for calamities in whatever form they take. This includes reviewing your Estate Plan to ensure accuracy and completeness. A basic Estate Plan mandates what happens both during your life and at death and consists 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. As part of the review, you can take certain ancillary acts that will provide the benefit of helping prepare for extremely unexpected events such as a fire, tornado, hurricane, or flood.

First, store the documents in a safe place. It may be a fireproof or waterproof safe, a trusted advisor’s office, or a portable safe deposit box. Utilizing one of these storage options safeguards the written expression of your wishes should a catastrophe occur by protecting the documents. Include other related documents such as copies of insurance policies, medical records, appraisals, birth certificates, marriage licenses, and passports which keep everything together should anyone need access, either to submit an insurance claim or in a worst-case scenario. In addition to keeping hard copies safe, create digital copies of these documents and store them in a secure password-protected cloud storage platform.  That allows for easy accessibility and backup should something happen to the hard copies.

Many trusted advisors, including me, ask clients to create a detailed asset list as part of their Estate Plan. When making the list, include real estate, vehicles, collectibles, artwork, jewelry, and electronics along with other valuable possessions. This list should provide the location of the item and the approximate value. Creating the list prior to disaster strikes helps facilitate submission of insurance claims afterward. Even in the absence of disaster, it’s a good idea to create and update this list often as it will help your fiduciaries understand the nature and extent of your assets upon your disability or death.

I often insist upon reviewing and updating beneficiaries of retirement accounts and life insurance policies to align with an Estate Plan. This planning provides assurance that should a loved one die during a disaster, the family can access these funds quickly. The funds help the family transition and the sooner the transition begins, the faster the healing starts.

Any Estate Plan that uses a Trust works only if the individual who created the Trust funds it. Funding a Trust means transferring title of assets to the Trust. If the trust holds title to real estate, it’s vital to alert the carrier of the homeowner’s insurance and title insurance to the change. List the Trust as an additional insured on the homeowner’s policy to avoid issues with claims, especially after a disaster. Often title insurance companies include provisions in the policies that extend coverage to transfers to a Trust, but if it does not, then consider purchasing a new policy, adding an “additional insured” endorsement to the original policy, if possible, or use a Deed in Trust, Warranty Deed, rather than a Quit Claim Deed to transfer the property. Even if disaster isn’t staring down your door, if you have a Trust as part of your Estate Plan, confirm that your insurance carriers know that your home has been transferred to the Trust. Further, Review and update your insurance policies to ensure adequate coverage for your home, health, and other assets in a disaster. Consider additional coverage specific to disasters common in your area, such as fire, flood or hurricane insurance.

In summary, preparing a complete Estate Plan involves both practical and legal steps that mitigate the stress that occurs during a natural disaster while facilitating a smooth transition to “normal” after. An Estate Plan serves as a set of instructions regarding your wishes, especially if you are unable to articulate them. Those instructions help guide loved ones. Many times, I play a crucial role in advising clients on how to protect their assets and loved ones during such unpredictable events. If 2025 has shown us anything in its first few weeks, it’s that proactive steps now can help ensure peace of mind when disaster strikes. Remember, an Estate Plan should be as resilient as you.

 recently received an e-mail soliciting feedback on Estate Planning and baseball. I discovered that Sheel Kamal Seidler (“Sheel”), the widow of San Diego Padres (“Padres”) owner, Peter Seidler (“Peter”), filed a lawsuit in Texas accusing her brothers-in-law, Robert Seidler (“Robert”) and Matthew Seidler (“Matthew”), of various misdeeds in handling Peter’s Estate and Trust. Peter had an interesting story. He was one of ten children born to Roland Seidler and Terry O’Malley Seidler. Peter’s mother was one of the few women who served as principal owner of a Major League Baseball team, inheriting half of the ownership interest in the Los Angeles Dodgers after her father, Walter O’Malley, died in 1979. In 1992, Peter founded Seidler Equity Partners (“SEP”) and eventually invited his brothers, Matthew and Robert, to join him in that endeavor. Peter married Sheel in 2008, and they remained married until his death on November 14, 2023. They had three children together. In 2012, Peter, his uncle, Peter O’Malley, and Ron Fowler formed the O’Malley group to purchase the Padres. Peter served as chairman of the Padres from 2020 until his death.

Peter, Sheel, and their children resided in the community property state of Texas. Peter created the Peter Seidler Revocable Trust on January 19, 2001 (“PS Trust”) naming himself as beneficiary and Trustee. He amended and restated the PS Trust on June 20, 2019, and again on July 18, 2021 (“2021 Amendment and Restatement”). He executed two amendments to the 2021 Amendment and Restatement, neither of which is at issue. Upon Peter’s death, Robert became Trustee of the PS Trust and Executor of Peter’s Estate. Robert resigned both fiduciary positions in May 2024 and Matthew began serving as Executor and Trustee. According to the complaint filed by Sheel, the PS Trust assets include “the largest single ownership block and explicit control rights of the Padres professional baseball team.” The block and control rights form the basis for Sheel’s complaint.

Upon Peter’s death, the PS Trust requires the Trustee to divide the Trust into an Exemption Trust and a Marital Trust. The Exemption Trust consists of an amount equal to Peter’s remaining generation-skipping transfer tax exemption and the remainder funds the Marital Trust. Both Trusts name Sheel as the sole income beneficiary during her lifetime and allow the Trustee to make distributions of principal to her for her health, education, maintenance and support in her accustomed standard of living as of Peter’s death. Upon Sheel’s death, the assets in both trusts pass to the Seidler 2012 Irrevocable Trust the provisions, beneficiaries, and Trustees of which are unknown.

Sheel filed suit in Travis County, Texas on January 6, 2025. The lawsuit contains nine counts and numerous allegations regarding the Trustee’s inaction and breach of fiduciary duties. First, Sheel alleges that since Peter’s death, the Trustee failed to fund either the Exemption Trust or the Marital Trust, disregarding the terms of Peter’s Will and Trust and “intentionally schemed to take for themselves the Estate and Seidler Trusts’ valuable rights and assets” by misleading and demeaning Sheel, engaging in self-dealing and using Trust assets to pay attorneys’ fees. Sheel’s complaint alleges that the Trustee used Trust assets improperly by paying personal obligations and suggesting that the Trusts owe Robert and Matthew money. The complaint also contains allegations that the Trustee has denied distributions, information, and other intangible benefits to Sheel, including naming her as the “Control Person” for the Padres. According to the complaint, the Control Person for a Major League Baseball Team wields significant power over the management and business affairs of the team and conveys the right to control the future of the franchise and ownership interests. Peter served as the Control Person of the Padres during his lifetime and left the ability to appoint the Control Person at the discretion of the Trustee of the PS Trust. Finally, the Complaint accuses Robert and Matthew of trying to erase Peter’s vision and legacy and insert themselves as Peter’s true heirs. Sheel’s lawsuit asks the court to remove Matthew as Trustee and to name her as Control Person among numerous other requests for relief.

Million-dollar estates that end up in litigation provide wonderful learning opportunities for Trust and Estate practitioners and their clients. First, exercise care when naming individuals as fiduciaries. Presumably, Peter believed that his brothers would divide the PS Trust and make distributions from the Trust to Sheel and their children. The documents make clear that Peter named his brothers as Trustees but also makes clear that the entire estate benefits Sheel and their children. Interestingly, the PS Trust requires all Trustees to be Independent Trustees thereby eliminating the possibility of Sheel serving as Trustee. Even more fascinating was that this was the first marriage for both Sheel and Peter and neither had any children other than the three they had together. Spouses in first marriages who share all the same children often name the other as successor Trustee or give them the right to veto certain Trustee decisions. That didn’t happen here and there’s nothing to indicate the underlying reasons.

Next, make sure that all of your documents clearly lay out your plans and address alternate scenarios. Sheel and Matthew have each asserted different individuals to serve as Control Person. The Complaint submitted by Sheel contains what she purports is Peter’s handwritten list of candidates to serve as Control Person after his death. Sheel was at the top of that list and Peter’s brothers were several spots down. Matthew counters that assertion in a letter penned to the Padres community and indicates that Peter always intended for one of his siblings to serve in that role. That letter further indicates that Sheel signed a document agreeing that she had no right to become or designate the Control Person and foregoing initiation of any legal proceeding seeking to become the Control Person upon Peter’s death. The court record contains no copies of those documents, but that may change as this case progresses.

The Defendants have yet to file any responsive pleading, although Matthew’s letter to the Padres’ community may give us a preview of the defense. Even if Peter intended for one of his brothers to serve as Control Person, it appears that few or none of the usual actions required by a successor Trustee after taking office have occurred since Peter’s death. While intriguing, it’s unfortunate that this matter will play out on a public stage. Typically, when litigation ensues, only the lawyers benefit as will no doubt be the case here. Litigation takes time and costs money during periods of significant grief. Given the complex nature of this case, we will no doubt have a front-row seat to watch the drama unfold.

Congress enacted the Corporate Transparency Act (the “Act”) for Fiscal Year 2021 as part of the National Defense Authorization Act with an effective date of January 1, 2024. The Act requires any “Reporting Company” to file a “Beneficial Ownership Information” (“BOI”) report with the Financial Crimes Enforcement Network (“FinCEN”) disclosing its “Beneficial Owners.” Every Reporting Company created on or after January 1, 2024, also needs to disclose its “Company Applicants.” Reporting Companies also need to report changes in Beneficial Owners as they occur. Failure to report the required information may result in civil penalties of up to $500/day until corrected or criminal penalties of 2 years imprisonment or a $10,000 fine. The penalties increase depending on the severity of the failure to report. For greater detail on the definitions of these words or the general provisions of the Act itself, refer to the earlier blogs.

The Act has created waves in the Estate Planning community because of its broad application, steep penalties, and complex provisions. Plaintiffs have challenged the Act in at least fourteen different federal court cases. Of those cases, National Small Business United, et al. v. Yellen, et al., United States District Court, Northern District of Alabama, Case No. 5:22-cv-01448-LCB seemed to have the most traction because the district court granted the plaintiff’s motion for summary judgment and ruled that the Act exceed Congress’ constitutional authority. The court enjoined the Treasury Department from enforcing the Act against the plaintiffs in that case. It was important because it was the first case to declare the Act unconstitutional, albeit with a narrow class of litigants. The Treasury Department appealed to the 11th Circuit Court of Appeals which heard oral arguments on September 27, 2024. As of this writing, the court has not issued an order, although many expect a remand to the lower court.

I have watched these cases closely and have advised clients regarding the need to file the BOI reports and tried to answer questions regarding who should file, the information required in the filing, and the deadline for disclosure. Countless resources have reminded everyone that as of January 1, 2025, every single Reporting Company, regardless of its date of creation, needs to file its initial BOI report. The holding of a recent case questions the obligation to file the report by that deadline, the imposition of penalties for failure to file, and the legality of the Act itself.

On December 3, 2024, Judge Amos L. Mazzant, III granted a preliminary injunction preventing the government from enforcing the terms of the Act in the United States District Court for the Eastern District of Texas, Sherman Division case, Texas Top Cop Shop, Inc., et. al. v. Merrick Garland, Attorney General of the United States (E.D. Tex., No. 4:24-cv-00478). For those interested in reading the opinion in full, you can find it at Bloomberg Law Court Dockets Case No. 4:24-cv-00478-ALM.

In the opinion, Judge Mazzant carefully considered the scope of the injunction and indicated that the Constitution vests district courts with the “judicial power of the United States” which gives the court power to issue a nationwide injunction. That power exists only insofar as necessary to provide complete relief to the plaintiff. The opinion continues that in this case, the plaintiffs find complete relief only with a nationwide ban because the plaintiffs were located nationwide; anything short of that would not work. Ultimately, the opinion concluded that the Act was unconstitutional because it exceeded Congress’ power. It reasoned that the reporting rule that implemented the Act was likewise unconstitutional and thus enjoined the government from enforcing the provisions of the Act.

Although the opinion in this case purported to invalidate the Act nationwide, that is not the end of the story. The Texas court issued only a preliminary injunction meaning that the court could reconsider it at any time. More likely, though, the government will appeal this decision to the United States Court of Appeals for the Fifth Circuit and depending on what happens there, the case may make its way to the Supreme Court. Unless and until that happens, or until another court dissolves the Texas Top Cop Shop injunction, Reporting Companies have no duty to comply with the Act reporting requirements but that does not necessarily mean that they should not comply. Failure to file a BOI report carries significant penalties. Arguably, if the Act does not apply, then neither do those penalties; however, if a court lifts that injunction or a higher court dissolves it, that could result in significant penalties for all Reporting Companies that failed to file their BOI reports. A Reporting Company can avoid penalties by filing its BOI report. Anything else leaves the Reporting Company, or rather the individuals running the company, vulnerable to imposition of penalties.

As this article demonstrates, the Act has faced significant scrutiny since its passage. Given the numerous challenges and this recent ruling, questions exist regarding the constitutionality of the Act. Ultimately, each Reporting Company needs to determine whether the benefits of filing when unnecessary and thereby avoiding any potential penalties outweigh the potential burden of filing and disclosing the requested information.

The election has concluded giving former President and now President-Elect Donald J. Trump control of the White House come January. The Republican Party will have a majority in the Senate. As of the writing of this blog, they have 53 seats with one race uncalled. The Republican Party also leads the Democratic Party in seats in the House of Representatives, now controlling 219 seats with 3 races uncalled. Given these numbers, the newly elected President will have the support of the Senate and the House for legislation he wants to pass. While campaigning, Donald Trump floated several tax policy ideas including extending the expiring Tax Cuts and Jobs Act of 2017 (“TCJA”) changes currently set to occur on January 1, 2026, restoring the unlimited deduction for State and Local Taxes (“SALT”), exempting various types of income from imposition of income tax, and imposing new tariffs on imported goods. Let’s investigate the potential implications for nation’s tax landscape.

If President-Elect Trump extends the expiring provisions of TCJA that will impact the Estate Planning world directly. Trusts and Estate Practitioners may find themselves doing considerably less work than they anticipated. After all, several of us have spent the last two years discussing what would happen should TJCA expire and making suggestions for techniques that those clients could implement in order to utilize the temporarily doubled Applicable Exclusion Amount (“AEA”). The AEA dictates the amount of assets that any individual can transfer during life or at his or her death without imposition of gift or estate tax. Extending or making permanent the provisions of TCJA means even higher AEAs as the years progress. Currently, each taxpayer can pass $13.61 million in assets to any non-spouse without imposition of tax. On January 1, 2025, that amount rises to $13.99 million. Spouses can pass an unlimited amount to their United States citizen spouse. Clients may ask Estate Planning attorneys to review and update plans designed to utilize the temporarily doubled AEA as they consider whether the plan continues to work for their circumstances in light of the increased AEA.

Interestingly, Donald J. Trump suggested that he would allow the $10,000 SALT limitation enacted under the TCJA to expire. The SALT deduction allows taxpayers who itemize their deductions to deduct certain income taxes paid at the state and local levels. TCJA capped the deduction at $10,000. This limitation will impact those living in states with high-income taxes. Residents of those states were unhappy with enactment of the cap, some even going so far as to move to other states to avoid paying income taxes without an offsetting deduction at the federal level. Removing that cap benefits those taxpayers living in high-income states. While this doesn’t directly impact Estate Planning, practitioners in states with high state income taxes may see more clients as former residents move back or as new residents arrive.

Finally, in addition to leaving the income tax brackets as they exist now, Donald J. Trump expressed a desire to exempt Social Security benefits, tips, and overtime pay from income taxation. He also suggested creating a loan for automobile loan interest and a tax credit for family caregivers. Finally, he suggested the enactment of tariffs on foreign goods. While the potential tax implications of each of those exceed the scope of this article, many of these income tax provisions have broad applications and affect more than just the wealthiest of individuals.

Obviously, the proposals that President-elect Donald J. Trump decides to enact will determine the impact on our tax planning landscape, possibly for years to come. At this moment, it’s hard to predict whether any of these proposals will come to fruition. It’s easy to make promises when campaigning, it isn’t always as easy to enact legislation keeping those promises. Sometimes other priorities appear or the incoming administration encounters roadblocks. In this case, Donald J. Trump enacted the original legislation on which he campaigned which might mean that it’s given higher priority than other issues. Further, he has the benefit of a House and Senate aligned politically which theoretically means fewer barriers to passage. No matter what happens in the coming months, count on me to keep you informed.

Charitable gifts offer a great opportunity to reduce income tax liability. When a taxpayer makes a charitable contribution, typically they get an offsetting charitable income tax deduction. Unfortunately, that offsetting deduction doesn’t always end up reducing the total tax burden. To take a charitable income tax deduction, the taxpayer needs to itemize their deductions. If the charitable contribution and other itemized deductions don’t exceed the standard deduction amount, then it makes sense to take the standard deduction and forego the itemized deductions.

Let’s look at an example. Assume that Charlie Charitable has taxable income of $100,000 each year. He files as a single taxpayer with a standard deduction of $14,600 (in 2024). He has $10,000 of state and local taxes (an itemized deduction and the most one could take as a deduction for such taxes under current law). In addition, he makes a charitable contribution each year of $2,500 to his alma mater. His itemized deductions would be $10,000 plus $2,500 = $12,500, i.e., less than the standard deduction amount of $14,600. It doesn’t make sense for Charlie to itemize his deductions since they would be less than the standard deduction he could take without itemizing.

If Charlie Charitable spoke with an advisor, he would discover that by making several years’ worth of charitable contributions in one year, he would increase his charitable deductions to an amount exceeding the standard deduction amount. Charlie could refrain from making charitable contributions in the “off” years and simply take the standard deduction amount. Charlie likes that idea and decides to make a charitable contribution of $10,000 in 2024. That raises his itemized deductions to $20,000. This saves him the tax on $20,000 (his itemized deductions) less $14,600 (the standard deduction) = $5,400. Assuming he’s in a combined state and federal bracket of 40%, that would result in savings of above $2,160. In the “off” years of 2025, 2026, and 2027, he’d take the standard deduction amount each year and the strategy would not impact his taxes in those years. In 2028, he could repeat the large charitable contribution for another itemized deduction.

Another way for Charlie to optimize his charitable deduction would be by using a Donor Advised Fund (“DAF”). Contributions to DAFs give an immediate income tax deduction to the donor while creating a reservoir of assets for distribution to charities in the future. In addition, DAFs provide an opportunity for donors to invest contributed funds and make suggestions regarding which charities should receive the distributions. Donors may change their recommendations regarding the charitable distributions allowing great flexibility coupled with immediate benefits. In our example above, that means that Charlie could continue to make charitable contributions to his alma mater, but Charlie could decide to switch to a different charity altogether. In the interim, Charlie could invest the funds as he determined was appropriate prior to their distribution to a charity.

Donors may combine DAFs with other strategies to produce even better results. For example, if a donor gave highly appreciated public stock to a DAF, the donor would receive an income tax deduction for the full value of the appreciated stock without ever paying tax on the gains. Going back to our Charlie example, assume that Charlie gave $10,000 worth of publicly traded stock in which he had a basis of $1,000 to the DAF. If Charlie had sold the stock, he would have had to pay tax on the $9,000 gain. Assuming a state and federal combined capital gain tax rate of 30%, he’d owe $2,700 on the gain. If he then contributed the proceeds to charity, he’d only have $7,300 to contribute to charity. By giving the appreciated publicly traded stock directly to the charity (or DAF), he increases the amount that he contributes to charity which increases the deduction he receives.

DAFs complement any charitable giving strategy already in effect and provide a great opportunity for those new to charitable giving to discover the benefits it provides. It allows one to maximize the tax benefit from charitable giving while retaining a say over the timing and distribution of the money. 

This blog often focuses on avoiding litigation; more than one blog has detailed ways to make an Estate Plan “litigation-proof” or at least as litigation-proof as possible. Sometimes, though, beneficiaries need to litigate in order to achieve the goals of the decedent. A recent California appellate case, Smith v. Myers (2024) 103 Cal.App.5th 586, highlights just that. Let’s explore a real-life example of how litigation helped ensure proper implementation of a decedent’s plan.

Ernest Myers’ first wife died in 1992 and at that time, he gifted a 45.8% interest in his ranch consisting of two parcels, to his daughter, Kathleen Smith. Seven years later, Ernest married his second wife, Emma. Shortly after marrying Emma, Ernest restated the “Ernest Wilbur Myers 1992 Family Trust” (hereinafter “Trust”). The restatement indicated that Ernest was leaving no further gifts to Kathleen because he had or would provide for her otherwise outside the terms of the trust. The restatement gifted the remaining 54.2% of the ranch to Emma upon his death. The restatement also named Emma to serve as successor Trustee upon Ernest’s death. Ernest later amended the Trust on July 19, 2016 (hereinafter “Amendment”) giving the remaining 52.4% of the ranch to Kathleen and her husband, Bruce, upon his death. According to the Amendment, Emma would continue to receive income from rental units located on the ranch and she would become successor Trustee of the Trust. Interestingly, Ernest died just about a month after executing the Amendment on August 22, 2016.

Nearly 4 years after Ernest’s death, on July 10, 2020, Kathleen and Bruce filed a petition for an order confirming the validity of the amendment and to remove Emma as Trustee of the Trust. Emma countered and argued that Kathleen and Bruce could not seek to confirm the validity of the Amendment because they failed to do so within one year of the decedent’s death and further that the Amendment was procured through undue influence. Emma argued that Kathleen and Bruce were seeking to enforce a promise or agreement with the decedent to distribute a portion of his estate or trust. The court reviewed the terms of the statute that Emma sought to use and determined that she was correct that the statute imposed a one-year statute of limitations on claims based upon a decedent’s declaration to undertake or refrain from undertaking an act when the decedent promised to arrange for the claimant to receive a distribution from an estate, trust or other instrument, but that this was not the case at issue.

The California appellate court affirmed a lower court’s decision that the one-year statute of limitations did not apply to Kathleen and Bruce’s petition. The appellate court examined the statute at issue and determined that the claim at issue was not based upon Ernest’s promise to make a distribution from his estate or trust to Kathleen and her husband. Rather, Kathleen and Bruce were alleging that the Amendment required that the Trustee (Emma) distribute the remainder of the ranch to them, that the Amendment was valid, and that they were entitled to the ranch under the Amendment. Kathleen and Bruce did not allege that Ernest promised to make a distribution or any other allegation that meant application of the statute Emma cited. Ultimately, the court decided that the Amendment posed no obligation on Ernest to distribute the property and made no obligation on the beneficiaries. The Amendment imposed an obligation upon the Trustee to distribute the ranch.

While the case doesn’t indicate whether Emma will continue as Trustee, it made clear that she was obligated to distribute the ranch in accordance with the terms of the decedent’s Trust. It’s a logical conclusion from the case that Emma intended to keep the ranch for herself despite Ernest’s Amendment. It’s unclear why Ernest ultimately changed his mind regarding distribution of the ranch, especially so close in time to his death and sixteen years after his documents gifted it to Emma. It may be that it was a case of undue influence, as Emma alleged, or it simply may be that Ernest changed his mind, which happens often. That’s the beauty of Estate Planning, the decedent may change his mind at any time up until death.  Regardless, this case demonstrates the importance of understanding an Estate Plan and how litigation sometimes becomes a necessary evil.

Finally, on a smaller scale, this case highlights the difference between an amendment to a trust and a promise or agreement by the decedent. It underscores the importance of filing an action timely, especially when enforcing provisions of a Revocable Trust. While I always work to avoid litigation, sometimes, like in this case, it produces the right result. In those situations, it’s good to understand the options that exist. If you have concerns about your rights under an Estate Plan, connect with me. While it’s less expensive and stressful to address the issues while everyone is alive, sometimes litigation is a necessary evil.

Recently, this blog examined the benefits of creating an Estate Plan and made the point that while many individuals think that they need only a “simple plan” because they don’t have significant assets or have few beneficiaries, that’s simply not true, see Estate Planning – There’s Something Here for Everyone Part I. This second part of the series will examine the most common mistakes that occur in an Estate Plan and how to avoid them.

Of course, any individual who fails to create an Estate Plan makes the biggest mistake of all. Failing to prioritize your Estate Plan or failing to ensure its completion leaves your affairs and your family in limbo both during life and after your death. As we learned in the first part of this series, without a proper Estate Plan, the state of your domicile controls distribution of your assets upon your death which has a snowball effect. Even if an individual undertakes Estate Planning, that alone does not guarantee a successful plan. Numerous opportunities exist for blunders to create chaos in an Estate Plan. For purposes of this article, I have divided those mistakes into four categories below.

The first type of mistake results when an individual seeks to shortcut the Estate Planning process in some way. Some individuals try to avoid creating an Estate Plan by retitling their assets jointly with another individual so that the asset passes to that individual automatically upon the death of the first individual. While doing this avoids probate, it creates other issues. For example, either joint tenant has the right to all the assets in the joint account, regardless of who supplied the funds. Further, joint tenants share legal worries. Property owned as joint tenants with rights of survivorship becomes vulnerable to the legal claims of each joint tenant, even if the other joint tenants had nothing to do with the legal issue. Revising the title to an asset may also raise gifting issues. This can be particularly troublesome for real estate because lenders will require the approval of every owner to refinance or sell the property.

Next, failing to account for the circumstances of a beneficiary results in mistakes in an Estate Plan. This could involve leaving assets outright to a minor, an individual with special needs, or a spendthrift. Any of these could have disastrous results. If an individual leaves assets outright to a minor, then most states require the establishment of a guardianship. Guardianship proceedings involve significant time, trouble, and expense, and often mean continuing court oversight. Usually leaving assets outright to a beneficiary with special needs results in loss of public benefits. Finally, beneficiaries known for spending money, battling addiction, facing legal woes, or dealing with creditors need the benefit of a trust holding their inheritance, rather than outright distribution. Mistakes in failing to account for beneficiary circumstances lead to disastrous results for the beneficiary.

The next category of mistakes are those plans that surprise the beneficiaries. As Trust and Estate litigators know, a beneficiary whose inheritance failed to meet their expectations makes a great client. Plenty of contentious battles begin because the grantor treated one beneficiary differently than another or one person decided something of which another disapproved. To prevent those surprises, this author suggests having a conversation with beneficiaries, no matter how uncomfortable so that they know what to expect. Clients may hesitate to discuss their plan because they worry that a beneficiary who knows that they will receive an inheritance will lose motivation to work hard. Others may worry that disclosing the information will cause current conflict or believe that the details of their plan should remain private until after their death. Still, others may have a hard time assessing family dynamics or the limitations of their intended beneficiaries. An experienced Estate Planning practitioner assists a client in working through these concerns and encourages an open dialog with the beneficiaries and fiduciaries to reduce conflict after death.

The final category of mistakes occurs because the individual fails to consider the Estate Plan holistically. An Estate Plan involves more than just the documents evidencing the plan. Effective estate planning requires an understanding of an individual’s assets and how the plan will work for those assets. It also involves knowing what assets the plan won’t cover. Under normal circumstances, any asset that passes pursuant to a beneficiary designation, such as a retirement plan, life insurance, or an annuity passes outside the Estate Plan. Sometimes, these assets make up the bulk of an individual’s wealth. Thus, coordinating beneficiary designations for those assets constitutes an integral part of comprehensive Estate Planning. In addition to considering assets that pass pursuant to beneficiary designation, it’s important to consider the overall impact that taxes will have on the plan as well as the beneficiaries themselves. An attorney creating the Estate Plan needs to understand whether the estate exceeds the Applicable Exclusion Amount ($13.61 million in 2024) which includes determining whether lifetime gifts reduced that amount. Further, if the estate will have an estate tax liability, then it’s important to consider which assets the estate will use to pay such liability. In a situation in which the client has children from a prior relationship, this matters a great deal. While assets passing to a surviving spouse do not incur an estate tax because of the unlimited marital deduction under Internal Revenue Code Section 2056, when those assets pass from the surviving spouse to the children of the first deceased spouse, a tax liability may occur and determining which party ultimately bears the taxes matters.

Finally, I can help every client understand potential income tax consequences of the plan. For example, if the client has designated a beneficiary on an Individual Retirement Account (“IRA”), that beneficiary will have to pay income taxes on the distributions from the IRA unless it’s a ROTH IRA. The income tax consequences of receiving these assets may influence the client to structure their plan another way. Perhaps they intended to make a charitable bequest and after discussing the income tax consequences of distributions from an IRA decide that using a portion of the IRA to fund that charitable bequest makes more sense for their plan. Of course, the practitioner advising the client needs to be aware of these issues. Retaining a competent me makes a world of difference in creating and implementing a comprehensive Estate Plan.

As this article has demonstrated, mistakes happen in many ways and lead to various unintended and potentially catastrophic consequences for the loved ones of those who fail to plan. These mistakes may make an impact during the life of the individual who failed to plan, and they certainly cause problems at death. Making matters worse, these mistakes may cause lasting trouble after an individual’s death either through an unnecessary (and possibly expensive or time-consuming) probate process or by improper planning for the intended beneficiary which takes numerous forms.

I often hear that someone didn’t or doesn’t need an Estate Plan, or needed only a “simple plan” because they didn’t have much in the way of assets, or they only had relatively few beneficiaries. Other potential clients indicated that they didn’t need a plan because they added a beneficiary to all their assets.  None of these circumstances means that an individual doesn’t need an Estate Plan.  In fact, individuals whose estates are modest, who have few beneficiaries, or who have added beneficiaries to assets may require more planning than they realize.  I make it my mission to disabuse potential clients of the notion that they need a large estate or multiple beneficiaries to create an Estate Plan.  Nothing could be further from the truth.  Let’s examine why in this first part of a two-part series.  Part II will examine the most common mistakes that occur in an Estate Plan and how to avoid them.

As a threshold matter, it’s a good idea for anyone aged 18 or older to have at least the basic Estate Planning documents that include a Will, or Will substitute also known as a Revocable Trust, a Property Power of Attorney, a Health Care Power of Attorney, an Advance Health Care Directive / Living Will, and a Health Insurance Portability and Accountability Act (“HIPAA”) Authorization.  These documents need to lay out who should make decisions if the adult cannot and who should have access to their protected health information.  These documents play an invaluable role both during life and at death.  For young adults headed off to college or living on their own for the first time, they establish clear boundaries and instructions regarding circumstances in which those individuals want their parents or another individual to have access to their financial or health information.  For older adults, it provides those same benefits plus many more.  During life, the plan gives directions regarding finances and medical care during incapacity or other periods when an individual cannot articulate their preferences.  At death, the Estate Plan provides a roadmap complete with instructions regarding who should distribute assets, in what manner, and to whom.

If an individual dies without a Will or Revocable Trust, that’s called dying “intestate.”  When a person dies intestate, the laws of intestacy in their state of domicile control what happens to their assets upon death. Intestacy laws usually give at least half of those assets to the surviving spouse and distribute the remainder among an individual’s children, all outright. Allowing the laws of intestacy to dictate disposition of assets upon death equates to a failure to plan.  Outright distribution could have disastrous consequences for any special needs beneficiary by making them ineligible for the benefits that they were receiving. Outright distribution causes issues for a minor child by requiring establishment of a guardianship for such child to receive the assets. Outright distribution could result in a beneficiary’s creditor, rather than such beneficiary, receiving assets.  Any of these consequences could prove costly, costlier, in fact, than if the individual had simply decided to create a comprehensive Estate Plan.  If outright distribution would not cause any of the issues raised above, the distribution pattern set forth in the intestacy statutes may not match an individual’s preferred pattern of distribution. Creating a comprehensive Estate Plan that consists of the documents noted above avoids these potentially catastrophic results and leaves control of important decisions to the individual creating the plan.

Some individuals try to avoid creating an Estate Plan by using titling mechanisms to transfer their assets at death. Practitioners often cite avoiding probate as one of the reasons for creating a Revocable Trust to govern the distribution of assets at death. As any good Trusts and Estates attorney knows, probate avoidance comes in other forms. For example, taking title to an asset as joint tenants with rights of survivorship avoids probate as long as the other joint tenant(s) survive. However, using that form of joint ownership raises certain issues that using a Revocable Trust does not. Because joint tenants each have rights to the entire asset, a joint tenant could deplete a joint account without the permission or knowledge of the other joint tenants. In addition, joint tenants could share legal worries. Property owned as joint tenants with rights of survivorship becomes vulnerable to legal claims of each joint tenant, even if the other joint tenants had nothing to do with the legal issue. Finally, this form of ownership could create gifting issues if one or more of the owners failed to contribute to the purchase price of the property or failed to contribute funds to the account.  Transferring assets to a Revocable Trust, however, avoids those problems. Owning assets in a Revocable Trust allows the owner to maintain the use of the assets during life and prevents the creditors of another individual from getting to those assets while the trustor is alive. The Revocable Trust also allows the trustor to include safeguards for the beneficiary that will continue after the death of that trustor and that could continue for multiple generations.

As this article demonstrates, there are many great reasons to create an Estate Plan.  First, it provides detailed instructions regarding what happens both during life and death.  Next, it avoids application of the laws of intestacy upon death.  Further, an Estate Plan provides an opportunity to consider the individual circumstances of each beneficiary and plan in a way that protects those beneficiaries.  This is particularly important for any beneficiary with special needs who may receive government benefits, for minors who cannot hold legal title to property directly, and even for spendthrift beneficiaries whose creditors might obtain the assets.  While potential clients may be tempted to use shortcuts to create an Estate Plan, those shortcuts often cause more problems than they solve.  A true Estate Plan entails creating a Revocable Trust, pour-over Will, Property Power of Attorney, Health Care Power of Attorney, Living Will, and Health Insurance Portability and Accountability Act Authorization, but that’s just the beginning. A comprehensive Estate Plan involves regular meetings to ensure the plan remains current both with the grantor’s goals and the ever-evolving estate tax laws. The next part in this series will explore the most common mistakes that could undermine an Estate Plan.