Choose Your Trustees, Agents and Health Care Proxies Wisely

This week, a colleague asked me to review a trust for her. We were concentrating on the tax provisions. But what struck me most of all were the provisions concerning the Trustee.

There were instructions to the Trustee about what to do if the beneficiaries engaged in drug abuse. There was a provision about how to handle the house, because the client had feared that one sibling might use the house as a tool to bully the other. Then, to my surprise, the siblings were named as the successor co-trustees. Wow. That was odd.

As the name suggests, appointing a trustee requires trust. You have to trust that the person you appoint is going to fulfill your wishes and going to be fair with your beneficiaries. The same concept applies to appointing an agent through a power of attorney and a health care proxy or health care agent through an advance directive. If you can't trust the person, then you are giving that person way too much power.

This is where family dynamics come in. In way too many cases, people choose trustees, agents or health care proxies because they don't want there to be hurt feelings. One sibling was chosen over the other as trustee, so that must mean you favor that one. Quite frankly, I think those types of considerations should be given minimal weight in the grand scheme of things. The primary consideration should be do you trust this person to do the things you want done, while being fair to the beneficiaries. If you fear that the person you want to appoint will bully others, then you've made the wrong choice. If you appoint co-trustees because you fear one will bully the other, then you are forcing two people to work together who probably shouldn't. Again, you've made the wrong choice.

In most families, choosing an adult child as a decision-maker or fiduciary is a good choice. But, if your family dynamics is such that you cannot trust siblings to work together, then you need to make another choice.

Here are some considerations I give to my clients when choosing a trustee. Number one, trust. Can you trust this person? Number two, age and health. Is this going to be a person who will be around and able to act when you get sick or pass away? Number three, proximity. If you want a decision to be made quickly, then it may be advantageous to have someone who lives nearby to be the decision-maker, and not the adult child who lives on the other coast or on another continent.

Sometimes, we come to a point where it is clear that a friend living close by is a better choice for fiduciary than an adult child. If that is the case, don't be afraid to hurt your family's feelings. This is an important choice for you, not for them.

Why Parents Need an Estate Plan

Everybody should have an estate plan. But, planning is critical for parents with minor children. Surely, one of the things a new parent does is to make sure that they have life insurance to protect their young ones. Well, think of an estate plan as an extension of that life insurance.

First, and most important, every parent should think about whom they would want to raise their children if the parents were gone. This is by far the hardest thing for any parent to think about. But, it is the most critical. You don't want your children to find themselves the wards of the court. Court battles can be messy, and can take time. Meanwhile, the children may need to be in foster care until the case can be completed and a new guardian appointed. You want to make sure that you decide who is going to raise them. Plus, in Virginia, this step is easy to do. Appointing a standby guardian who can act immediately upon an emergency is a simple act of completing a one page document.

Once you know who could be taking care of your children, you need to give them the tools. In this regard, note that leaving a large sum of money to a minor directly is a bad thing. If no one is named as custodian, then there will have to be proceedings to name a guardian of the estate. This includes the appointment of a guardian ad litem to investigate the case. In Fairfax County, I've noticed that not all guardians ad litem understand the law completely and may insist that the money left to a minor, including insurance proceeds, be deposited with the court until the minor reaches eighteen. Plus, we have the added problem that under the law, any money left to a minor directly becomes the minor's money at age eighteen with no strings attached. How many eighteen year olds who you know are responsible to manage thousands of dollars given to them all at once?

The simple and most flexible solution is a living trust, either naming the potential guardian as the contingent trustee to take over after the parents' deaths, or naming another responsible person as the contingent trustee with instructions to cooperate with the potential guardian. Naming the trust as the beneficiary of life insurance proceeds should both parents pass is one way to make sure that all of the money is managed in a single, simple plan.

The point is that all of this is simple to create. It takes just a few meetings with a lawyer to plan, and some thought on the part of the parent. But, for a parent, it is one of the most critical things you can do to protect your children.

We Specialize in Small Estates

Are the executor or personal representative on a Virginia estate worth more than $50,000, but less than $200,000? These estates are particularly troublesome, because you still have to file inventories and accountings, and pay the Commissioner of Accounts filing fees as well.

We specialize in assisting with small estates, and doing it at a price that is reasonable. We have a good working relationship with a fiduciary accountant who can prepare the filings at an hourly rate that is lower than an attorney's rate. Attorney rates will only be charged for court proceedings, and reviewing the filings before they are submitted to the Commissioner of Accounts Office.

If you are responsible for an estate that is worth less than $200,000, contact William J. Kovatch, Jr. now for help.

Giving a Gift to a Minor Through Your Estate Plan

Whether to a child, a grandchild, a special niece or nephew, many people wish to give gifts to minors through their estate plan. It can be accomplished through a will, a trust, a life insurance policy, or even by naming a beneficiary on a retirement account. Making the gift correctly can avoid a lot of hassle.

In this article, I am not addressing the tax implications through the estate tax, the gift tax or the general skipping transfer tax. I am only addressing the mechanics of how the transfer is made.

Many states, like Virginia, have the Uniform Transfer to Minors Act. If a minor is the beneficiary of a gift from a will, trust, insurance policy or other source, then the gift-giver has the power to appoint a custodian. The custodian then has the authority to hold the gift for the minor until the minor reaches 18, and use the money for the minor’s benefit.

If the gift-giver fails to name a custodian, then this can create problems. In Virginia, the person who wants to hold the property for the minor must then petition the court to be appointed the guardian of the estate of the minor. This is true, even if that person is the minor’s custodial parent. The guardian of the estate must post a bond with surety, and then comes under the supervision of the Commissioner of Accounts. Before using the money for the minor’s support, the guardian of the estate must consider all other sources of income or support for the minor. Generally, this means that the money cannot be used until the minor reaches the age of eighteen. As you can see, the need to go to court and the supervision afterwards creates a hassle and expense.

Other options in this situation can be for the Commissioner of Accounts to hold the money in an interest bearing account until the minor reaches the age of eighteen. Or, if insurance proceeds, the insurance company can hold the money until the minor reaches the age of 18.

Nonetheless, these options all leave something to be desired. It involves giving up control, and/or accepting court supervision.

The way to solve that problem is by leaving the gift through a well crafted trust. By creating a trust, the gift giver can define how the money is to be used, and when the money is to be turned over the to minor. For example, the trust can provide that the money can be used at the discretion of the trustee for the minor’s expenses. The money need not be turned over when the minor reaches age 18. Rather, if there is a concern that the minor would not be responsible enough, then the money can continue to be held in trust until the beneficiary reaches a suitable age, as defined by the gift-giver. Moreover, if the minor is disabled, as defined by Social Security law, then the trust can and should be drafted in such a way so as to avoid disqualifying the beneficiary from government benefits.

Gifts to minors through an estate plan are usually best made through a trust. For advice on how to craft such a trust to suit your specific needs and desires, call me at (703) 837-8832.

Beware the Contested Guardianship!

Guardianship proceedings exist to create protection for people who are no longer capable of making decisions for themselves. Often, a relative, such as an adult child, will bring a guardian petition when the mental abilities of an elderly person has started to deteriorate. Sometimes, a guardian petition is brought by a concerned family member to protect the elderly person from the exploitation of another.

In my experience, most guardianship petitions are uncontested and well-intentioned. But sometimes, a guardianship petition becomes just another phase in a bigger dispute among adult children. Far too often, disputes between adult siblings get heated because there is a belief that mom has money.

A contested guardianship case can become a problem quickly. In Virginia, if a guardianship petition is successful, and the elderly person's estate has the funds, all of the costs, including lawyers' fees, are paid from the elderly person's estate. If the adult children cannot agree on what is best for the elderly parent, and litigation ensues, this means that money that should be used for mom's care winds up getting eaten away by lawyers' fees.

Morally, adult children should give serious thought to just how hard they want to fight in a contested guardianship case. In fighting to control what happens to mom and her assets, the children could wind up throwing her money away.

Special Needs Trusts and Your Will

A colleague asked me when a special needs trust is written into a will, does a new document creating the trust need to be drafted. I answered that if the trust was created properly, then no.

However, this raised a separate question for me. Why was the special needs trust created by will, as opposed to a living trust?

To back up, a special needs trust is an instrument to make funds available to benefit a person with disabilities, so that the person would not be disqualified for public assistance. It must be drafted and administered properly, or else the funds in the trust can be considered resources, and thus disqualify the person for government programs such as Medicaid.

The problem with writing a special needs trust in the will is that the will has to be probated. Once the will is probated, here in Virginia, the Commissioner of Accounts for that county will be responsible to oversee the administration of the trust. This will necessarily involve the filing of inventories and accountings, filing fees, and the expense of hiring professionals, such as a lawyer and accountant, to make sure the filings are done properly. All of this can add to the hassle and expense of administering the trust.

A better way to handle the desire to make a special needs trust as part of an estate plan is to create the trust as part of a living trust. That way, upon death, the trust does not have to go through probate, and you do not have the watchful eye of the Commissioner of Accounts over you.

If you want to benefit a person with disabilities through your estate plan, it is best to consult a lawyer experienced and educated in special needs trusts to assist you and create the most efficient plan for you.

Who Will Make Your Funeral Arrangements?

While many people do not want to think about their own funeral arrangements, there are some who have some pretty strong feelings about the subject. The question is, how do you enforce your wishes, since you will not be around to direct your family?

Under Virginia law, the next of kin are entitled to make the decision regarding the disposition of a loved one's body and the funeral arrangements. But, the definition of next of kin is broad, including a spouse and any adult children. If there is disagreement, then the disagreeing next of kin can petition the circuit court.

This seems like an awful lot of trouble. It is especially problematic where a person has entered into a second marriage, or where a person is separated from his or her spouse and has not yet gotten a divorce.

Virginia law does have a solution. A person can designate an individual to be the person to make the decisions regarding the funeral arrangements and the disposition of the body. The designation must be in writing and notarized. It must also be accepted in writing.

If you feel strongly about the disposition of your body and your funeral arrangements, this should be part of your estate plan. You should put your desires in writing, and designate a person whom you trust to go through with your plan. A lawyer can help you accomplish this.