Pennsylvania Estate Planning Lawyer & Attorney : Jakubik Law Firm : Serving Philadelphia, Chestnut Hill, Mt. Airy

A recent article in Black Enterprise magazine provided a pretty good primer on the various reasons for using trusts as a part of your estate plan, as well as a description of many of the more commonly used trusts. As the author of the article notes, the reasons to use trusts include:

• You have sizable assets
• You want your estate to be payable to your heirs upon their meeting certain conditions, such as graduating from college, not necessarily immediately after your death,.
  
• You have a disabled relative you would like to provide for without disqualifying that person from Medicaid or Medicare.
• You want to reduce estate and gift taxes.
• You want to protect your assets from creditors and lawsuits.
• You'd like to ensure that the principal or remainder of your estate goes to your children or other heirs after your spouse dies.
  
• You'd like to maximize estate tax exemptions for yourself and your spouse.

There are, of course, numerous other reasons to employ trusts in your planning, and no two client situations are alike. Only through carefule consultation with your attorney and finan cial advisers can you assure that the structure of your plan best meets your goals and objectives and furthers the hopes and dreams that you have for your family and for your legacy.

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The New York Times recently ran the following article on the growing popularity of so-called dynasty trusts. These vehicles provide a means for enabling families to keep valued assets within the family for multiple generations, and to protect their assets from dissipation via the mismanagement of future generations, or the claims of their heirs' creditors. Read the article from the Times in full below the fold. Your estate planning attorney can assist you in determining whether such a vehicle might be of benefit to you,

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There are a multitude of reasons why you should consider preparing - and funding -  an inter vivos, or "living" trust -  as a part of your estate plan. I will be discussing many of these reasons here in the coming months. As an initial matter, however, estate planning attorney Daniel Dorsch has provided a pretty good introductory list of reasons to consider including a living trust as a part of your estate plan:

• You want to avoid probate. Since the property is no longer in your name as an individual, but is now in your name as trustee, there is no reason to go through probate. This is a savings of 5%-10% of your gross estate. An additional benefit is that it will only take weeks instead of years to transfer your property to your heirs.
• The trust will remain private. Unlike a will, which has to be filed as a public record in the probate court, the trust remains a private document even after your death.  
• With certain provision in the trust, you can completely avoid or reduce estate taxes. This can mean savings of literally thousands of dollars.
• You avoid the potential of a guardianship hearing because you have already named someone to take your place if you are unable to handle your affairs. In addition, you can set up your trust to allow your family Doctor to make the decision of whether you can handle your own affairs. The alternative is to allow a judge to do this in a public hearing.  
• If your heirs are too young or immature to handle the money you will leave them when you die, you can use a trust to determine when they will receive the money and how much they will receive each time. For example, you can leave instructions that say, when my child reaches 30, he gets 1/3 of the property. When he reaches 35, he gets another 2/3.   And when he reaches 40, he would receive the final 1/3, or the remaining balance of the estate.
• The trust is less open to attack than a will. This means that your wishes have a better chance of being carried out.  
• In the context of a second marriage, the trust is an excellent way to protect both the surviving spouse and the children from your previous marriage.
• If you have property in another state the trust will eliminate the probate in the other state.  
• Transferring property through a trust allows your property to receive a stepped up basis. This could greatly reduce the amount of capital gains tax your heirs will pay.
• Setting your finances in order will give you peace of mind.

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A high-profile trust fund fight spilled over into state district court Thursday when Albert Hill III, the first great-grandson of H.L. Hunt, sued the trustee for two family trust funds, alleging mismanagement of about $3 billion in assets.

Mr. Hill III also sued his father, Al Hill Jr., and two aunts, saying in the complaint that they, along with trustee Tom Hunt, conspired to force him and his family out of the trust after he didn't go along with a plan to split the trust money among themselves and sell off interest in Hunt Petroleum Corp.

"Al Hill III didn't sue his father until after his father sued him and said he was not the beneficiary of these trusts, fired him from the family business and filed documents in probate court that made certain claims that would oust Al and his grandchildren from any interests in these trusts," said William Brewer, attorney for Albert Hill III, in an interview.

Attempts to reach Tom Hunt, trust adviser William Schilling, and family attorney Ivan Irwin Jr., who are all named in the suit, weren't successful Thursday.

H.L. Hunt created separate trusts for the six children he had with his first wife, Lyda, to pass along the fortune. In the suit, Mr. Hill III states that he became a direct beneficiary of the trust when his father, Mr. Hill Jr., "disclaimed" most of his interests in the Margaret Hunt trust March 22, 2005.

That "irrevocable disclaimer" made Mr. Hill III a direct beneficiary of the Margaret Hunt trust when she died June 14, according to the suit. Margaret Hunt Hill was Al Hill Jr.'s mother.

Tom Hunt, H.L. Hunt's 84-year-old nephew, and the other Hill family members "conspired" to break up the Margaret Hunt Trust Estate and the Harold Lafayette Hunt Jr. Trust and "partition" it among themselves by selling the assets they contained, primarily control of shares of Hunt Petroleum Corp.

When Mr. Hill III, 37, confronted the parties, he was told he wasn't a direct beneficiary but rather a "contingent beneficiary" of the trust. In a phone conversation, Mr. Hill III told Tom Hunt that the document his father had signed was witnessed by Tom Hunt himself; Tom Hunt then hung up on Mr. Hill III, the complaint said.

When Mr. Hill III's father and other family members sensed he wouldn't go along with the plan to change the trust, they began a campaign of "emotional and financial" threats designed to force Mr. Hill III to go along, the suit said.

Mr. Hill III was disinherited from his father's will and was forced from the family business by terminating his personal services contract. The suit also names Alinda Wikert and Lyda Hill, the two aunts.

The suit alleges broad financial mismanagement of the two trusts in how assets were handled, saying their management violated federal racketeering laws.

It asks for a full accounting of the finances of the trusts, the removal of Tom Hunt as trustee, appointment of receivers for the two trusts, and unnamed damages along with punitive damages against the defendants.

Source: Dallas News

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This article is really a cut above most "you need to have an estate plan" articles -- good use of detail and examples.

One part I wanted to focus on:

In event of your disability, give someone you trust the power to manage your property. It's called a power of attorney (although the person doesn't have to be an attorney).

But there's a problem: Some financial institutions won't accept powers of attorney created more than six months before. You're unlikely to renew a power of attorney this frequently. For a better solution, ask an estate planning attorney to draft a living trust for you. (The cost is probably $1,500 to $3,000.) The ownership of all your property is changed from your name to the trust's name. As the sole trustee, you can do anything you like with the property.

But if you become disabled, a person named in your trust steps in as successor trustee to manage the property on your behalf and for your benefit. All financial institutions accept this, no matter when the trust was written.

I haven't had a problem getting "old" powers of attorney (done in the last 5 years) accepted by financial institutions, but a living trust really works better than a property power of attorney in the case of disability. Or, rather, I should say that a fully funded living trust works better. If you transfer ownership and change beneficiary designations to your living trust and then become disabled, your successor trustee really can step right in and handle your property for your benefit. If you set up a living trust but don't fund it, and then become disabled, your property power of attorney can (hopefully) be used to fund your living trust at that time. I always include specific language allowing an agent under a property power of attorney to take care of this funding.

And, of course, a health care power of attorney is very important as well.

Let me put it simply: If you become disabled, having a fully funded living trust and powers of attorney will save you and your family a lot of time and money.

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Michael Bonasera asks a couple of interestin questions at his Ohio Trust & Estate Blog:

After you have done a revocable living trust for client, is there a requirement (implicit or otherwise) on the lawyer to insure that the trust is funded or mechanisms are in place to allow for it to be funded?

Further, if the trust is not funded when the client dies (leading to a larger probate estate than would have otherwise been necessary if the trust had been funded), is the attorney who drafted the trust liable for malpractice?

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Jennifer Sawday's recent post on her California Estate Planning blog in which she addresses why you do NOT want to put your retirement plan into your revocable trust provides an opportunity to consider two of the most significant mistakes that folks make when completing their estate plans. First, many fail to fund their revocable trusts. It is not enought to simply sign your trust documents. You've got to actually transfer assets into the trust. This is called funding the trust, and if this critical step is not completed, the trust will serve no purpose whatsoever, in terms of avoiding probate, allowing for flexible disability planning or anything else. Second, the trust needs to be not only funded, but properly funded. This step involves assuring that you transfer to the trust those assets that are best situated there, and leaving outside of the trust those assets that can provide you with more flexibility and tax or financial benefit by staying out of the trust. In many circumstances, as Jennifer notes, retirement accounts are best left out of the trust. Your attorney can, and should, assist you with these processes, as can your accountant. Don't get caught short - be sure that your advisers help you complete the process and have your trust properly funded.

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Based on a lot of e-mail messages I have been receiving recently, this is the post that a lot of readers have been looking forward to...some honest commentary on how vital it is for one to own a "Revocable Living Trust" (RLT). Public interest in RLT's has been running high for the last several years. This interest has been fueled a great deal by some attorneys who convince every client that they absolutely have to own one. They create this concept of RLT's as documents that can do accomplish everything for you short of slicing vegetables. This isn't the case because every client is different and RLT's simply are not for everyone.

Bldjg01107081First, we should start with a quick sketch of how RLT's work. When you sign an RLT you essentially create a legal entity that is separate and apart from yourself, and it is a document that directs how and where the trust assets are distributed when you die, just like a will does. You then transfer ownership of your assets (bank accounts, investments, real estate, etc.) into the name of your RLT. So when you die and the Probate Court wants to know what you owned when you passed away so that it can go through the probate process, the answer is that, technically, you owned nothing...your RLT owned eveything. Therefore, no probate.

Here is a message well worth repeating: Planning with living trusts does not end when the trust documents are signed (which is the case with wills). Please notice that a vital step in this process is actually putting assets into your trust, which essentially means re-titling certain assets so that they are legally owned by your trust. Otherwise, you'll end up going through probate and defeating the primary purpose of having a trust. In other words, there are two very important steps to this process. Skipping step #2 (funding the trust) is, hands down, the most common mistake made with living trusts...and it's a big one!

Please note that it is extremely important to sign a "pour-over" will along with your trust. It is a very short and simple will which simply says that upon your death, anything that is not already owned by your trust is poured over into your trust. This ensures that all of your assets are distributed in accordance with the instructions in your trust. Ideally, everything will already be owned by your trust when you die. But just in case you forgot to re-title a particular asset or just didn't get around to it, then the pour-over will finishes the job and gets that asset into your trust. The considerable downside is that the asset now must go through the probate process, which is precisely what you were trying to avoid when you set up the trust in the first place!

Source for post: The Connecticut Probate Blog

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Investment News reports on the latest in the oft litigated estate of the late Seward Johnson, scion of the founder of Johnson & Johnson. Needless to say, this latest round is an advertisement for the need for precision and clarity in the drafting of estate documents. Read the whole story below the fold:

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Courtesy of Mitchell Port of the California Tax Attorney Blog comes a nice Q & A from the IRS that addresses many of the fundamentals of trust law and trust taxation. Like Mitchell, I believe that any good attorney practicing in this area knows the answers to these questions. Nonetheless, I think that the information is of use to most non-trusts and estates practitioners, as well as our clients, and I urge you to take a look at the IRS publication to which Mitchell links in the below post:

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A post by Paul Trudelle at the Toronto Estate Law Blog regarding some brewing problems with the rather generous trust that Leona Helmsley established for her dog in her will provides an opportunity to address one of the most fundamental estate planning issues, and an easily avoided problem. It seems that the primary trustee that The Queen of Mean designated for her faithful companion does not wish to serve. It is, as Paul notes in his post, unclear as to whether the substitute trustee is willing to serve. Should the substitute be likewise unwilling, the result is predictable - costly, asset consuming litigation. It is a fundamental precept that, before you designate a trustee you confirm that that person (or institution) is willing to serve. Failing to take this simple step can, as Ms. Helmsley's family may well discover, lead to needless litigation and the waste of time and assets. These problems are easily avoided by having a short conversation with your intended trustee. I would add, parenthetically, that this is especially important if you are considering what some might consider exotic or unconventional estate planning tools, such as pet trusts.

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Seems like the saga of the Barnes Foundation, a venerable institution in the art world, isn't't over quite yet. Three years ago a Pennsylvania state court judge gave the institution, which has been on financial life support, permission to move from its location in the Philadelphia suburbs to new, as yet to be constructed quarters, in Center City Philadelphia. Today comes the news that a group of residents who are neighbors of the Barnes in its current location have filed a petition asking the court to reopen the case and reconsider its earlier ruling, and to put the Barnes into receivership. Many of the allegations in the petition, as reported by The Bulletin, are rather scandalous. If they are to be believed, the petitioners would have us believe that there has been a far reaching conspiracy, of which the participants included Governor Rendell, many prominent Philadelphia lawyers, business people and philanthropists, the board of trustees of a local university, as well as the board of the Barnes, and the CEO of Comcast, among others. The story seems more than fanciful and the petition is, I would predict, doomed to fail.

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The USA Today recently ran a very interesting article on what appears to be a growing trend in the country toward more use of lifetime transfers of wealth. What is especially encouraging is that such wealth transfer techniques as charitable trusts and inter vivos, or living, trusts, are finding greater use among those outside the reaches of the very high net worth families. As I have commented previously, any family wealth plan should, to the extent feasible and advisable, incorporate lifetime gifts and other lifetime transfer techniques. The USA Today article would suggest that more people are thinking about their family's future and their own legacies, and are doing proper planning to achieve those goals. And that, as Martha Stewart would say, is a good thing.

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Crain's Cleveland Business reports that estate planners are seeing an increase in the number of clients who are asking about the use of so-called "incentive trusts" as a part of their estate plans. Such trusts are designed to place restrictions on the distribution of funds to heirs, ordinarily tying such distributions to certain life benchmarks, such as finishing college. Whether such trusts are advisable is, of course, a function of the individual client's circumstances and desires. Trusts may be used, moreover, to help insulate family assets from unfortunate events that may be beyond your heirs' control, such as liabilities arising from accidents or unsuccessful investments, or divorce settlements. Discussion of these issues should be a part of the planning process for all clients. Its your family, and your legacy.

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Your children mean the world to you. You’ve done everything within your power to meet their needs and to ward off dangers. You keep a watchful eye out for them, whether they’re swimming in the ocean or wandering too close to the edge of the Grand Canyon. You provide for their needs, from putting food on the table to buying new clothes for school.

We cannot protect our children from every risk in life. When they grow up, they will make some mistakes, just as we did. However, we can afford them some financial protection by leaving their inheritance in trust.

A trust can help because it holds legal title to assets, even though as beneficiary, your child will hold beneficial title. By leaving your assets to your child in a “Family Access Trust,” he or she could still get to the assets at any time. He or she could even remove all the assets from the trust, if desired. Yet, while assets remain in the trust, the trust can protect the assets from your child’s divorcing spouse and, in most states, keeps your child’s future ex-spouse from taking your child’s inheritance.

A Family Access Trust will not act to protect assets from other creditors, however. In order to accomplish that goal, you need a “Family Sentry Trust,” which is a discretionary trust for the benefit of your child. Distributions to your child are made by the person (Trustee) you appoint to make decisions for the trust.

Your child could be a Co-Trustee, but could not act alone to make distributions. Your child could be named as the Investment Trustee and, in that capacity, could direct how the assets are invested. A Family Sentry Trust protects your child from most of their creditors, subject to state law. An additional benefit is that, with a Family Sentry Trust, the assets are not taxed to your child’s estate for estate tax purposes.

You’ve spent your life building your legacy. That legacy will become your child’s inheritance. Keep that inheritance from being attached by future ex-spouses or other creditors. A qualified estate planning attorney can help you provide for your children, and not their creditors.

For more helpful information about estate planning, please visit www.smithbarid.com.

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Joel Scheonmeyer at the Death and Taxes blog published the following very interesting post that ought to be of great interest to anyone thinking of funding a living trust with real property:

A few weeks ago, I posted (here) about obtaining lender approval when placing property into a living trust. I then received an interesting e-mail from reader Richard Barid of the Savannah, Georgia law firm of Smith Barid, LLC. Mr. Barid pointed me to a portion of the US Code (12USC1701j-3(d)(8), which can be found here) that seems to indicate lender approval isn't needed. To quote the relevant parts of 1701j-3 (the emphasis added is mine):

(a)(1) the term “due-on-sale clause” means a contract provision which authorizes a lender, at its option, to declare due and payable sums secured by the lender’s security instrument if all or any part of the property, or an interest therein, securing the real property loan is sold or transferred without the lender’s prior written consent;

(b)(2) Except as otherwise provided in subsection (d) of this section, the exercise by the lender of its option pursuant to such a clause shall be exclusively governed by the terms of the loan contract, and all rights and remedies of the lender and the borrower shall be fixed and governed by the contract.

(d) With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon... (8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property
[.]

Mr. Barid [sic] adds that it's still a good idea to talk to a client's lender, for professional courtesy and to avoid surprises.

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While I will confess to being a dog lover (and proud owner of an 11 year old Basset Hound, pictured here), I have never quite understood the notion of providing for a pet in a will or establishing a trust for that purpose. Many think that folks who do these things are, well, perhaps a little dotty (not that I share that view). It is a fact, however, that on an annual basis Americans spend more money on their pets than they do on their children. An increasing number of states, furthermore, have enacted legislation recognizing the validity of "pet trusts." If you are concerned that your dog, cat, chinchilla or other pet is cared for according to your wishes after your death, you will find the following post from the Adopt a Dallas Pet - Online PetWork blog of interest:

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When planning and effectuating a family wealth plan, one of the more significant decisions that you may need to make will involve the naming of a trustee or trustees to administer various kinds of trusts that you may establish (much more about the nature and uses of these trusts will be discussed in future posts). Jennifer Sawday recently posted a helpful discussion of things to consider when deciding whom you will name as trustee at her California Estate Planning Blog. Jennifer identifies the following as issues to consider when selecting a trustee:

1. Does your loved one have time to commit to fulfilling the many duties of being a trustee?

2. Does your loved one have the knowledge and information necessary to manage the assets in your Trust?

3. Are there any terms of your Trust that could present a conflict of interest to your potential trustee?

4. Do you have conflicts in your family that could present problems for the trustee?

5. Does your Trust hold assets that may force the trustee to make difficult decisions like dealing with a family-owned business?

6. Is the cost of a professional trustee a consideration?

7. Is the loved one also a beneficiary of the Trust?

Of course this is not an exhaustive list, but its a pretty good start. I would also add that many of these questions ought to be considered when you are choosing an executor for your estate, as well. If you have any questions, concerns or doubts during this process, talk with one of your advisers. They can always help to guide you through the process and think through the issues that need to be considered before these critical decisions are made.

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Courtesy of Steve Seel at the Thorp, Reed & Armstrong law firm, Pennsylvania's Uniform Trust Act is now available online at this link. This is a tremendous resource for Pennsylvania trust and estates practitioners, and Steve is to be commended for providing this service. Thanks to Neil Hendershot for this post on the subject.

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