A Trust is a Trust, Right? Common Problems Found in Estate Plans

THE COUNSELOR

Volume 4 • Issue 6 • August 2014

The Counselor is a monthly newsletter of Hallock & Hallock dedicated to providing useful information on estate planning, business succession planning and charitable planning issues. This month's issue will discuss common problems found in estate plans.  If you are interested in learning more about the ideas and processes discussed in this newsletter please contact us for an initial consultation.


The perception exists that a trust is a trust or a will is a will and it does not matter who or what I use to create my estate plan. This perception flows from the belief that you are purchasing a set of documents – a stack of paper if you will. The documents are all just standard form documents, “boilerplate” documents, where only the names are changed and any attorney (or computer program) will produce the same results. This is unequivocally not true. All estate plans, all trusts, all wills, etc. are not created equal. It is true that with certain attorneys or computer programs you are buying just that, a stack of documents where only the names have been changed. As with most things in life, you get out of your estate planning what you put into it. Cutting corners on the front end can cause expensive problems on the back end. Seeking an attorney who focuses on estate planning, an attorney who focuses on a building a long term relationship with his or her clients, as opposed to an attorney who simply wants to complete a transaction, can make all the difference in the world. When you are paying for an estate plan, what you should be purchasing is the know-how and expertise of the attorney. Does your attorney (or computer program) focus on providing quality or is quantity their goal?

Common Mistakes or Omissions from Estate Plans

The following is a list of common shortcomings seen in estate plans:

  • Failure to Clearly and Correctly Identify People. A will or trust should clearly and correctly identify individuals so as to avoid confusion down the road. Lack of birthdates, addresses, or misspelled names can create confusion and make it difficult to properly identify beneficiaries.

  • Failure to Provide for Trustee Succession or Removal. Trusts should provide a clear procedure for removal and replacement of Trustees in the event of the incapacity or death of the current Trustee. One of the benefits of a trust is avoiding court involvement. Lack of a clear path for succession can result in the need for court intervention. Additionally, if the Trustee fails in her duty or abuses her position, the trust should provide a method for removal to avoid protracted court battles.

  • Failure to Include a Detailed Description of Trustee Powers. Trusts should include a detailed treatment of the Trustee’s powers. Many contain only a vague general reference to those powers allowed by law. Clear and detailed Trustee powers, such as the power to give gifts, the power to handle bank accounts, the power to manage investment accounts, the power to manage businesses, the power to hire professionals such as accountants or attorneys, etc. allow the Trustee to quickly and easily demonstrate the ability to engage in these actions. The lack of clear and detailed powers can result in delays, or worse, the inability to function in a particular capacity.

  • Failure to Provide Flexible Distribution Provisions. If a unique circumstance arises, such as a beneficiary becoming incapacitated or addicted to drugs, a Trustee should have the authority to use discretion in distributions. No one wants a $100,000 inheritance going to a beneficiary with a drug problem.

  • Failure to Address How Incapacity is Determined. Many trusts do not address how to determine when a Trustee is incapacitated. This failure will result in the need for court intervention to remove the incapacitated Trustee.

  • Failure to Provide Contingent Beneficiaries. Many trusts do not include provision for who will inherit should something happen to the initial beneficiaries. This opens the door for even more court involvement and the associated costs.

  • Failure to Provide for Special Needs Beneficiaries. A trust should clearly address distributions to beneficiaries who are receiving needs-based government assistance such as Medicaid. A trust should also address what happens if a beneficiary subsequently becomes disabled and falls into this category. A springing special needs trust can come into existence to protect beneficiaries who may subsequently become disabled. Failure to address this issue can cause that beneficiary to lose benefits such as SSI or Medicaid.

  • Failure to Address Retirement Plans. Retirement plans are often, next to the family home, the single largest asset in a person’s estate. Most estate plans simply ignore them. This leaves a big hole in the estate plan and can lead to an acceleration of income taxes following your death.

  • Failure to Fund the Trust. One of the most common problems is the failure to properly fund (transfer) assets into the trust. The trust only applies to assets that it owns. If the trust does not own an asset it will not be distributed according to the provisions in the trust. This could delay or completely frustrate the intentions of the party who created the trust.

  • Failure to Complete Supporting Plan Documents. Trusts are not stand alone documents. They should always be part of a complete estate plan that includes the trust as well as other supporting documents. These documents include durable powers of attorney, health care directives that include proper HIPAA authorizations to comply with privacy laws, and pour-over wills, to name a few. These documents support the trust and assist it in addressing both physical and financial needs that can arise. One crucial element of a trust-based estate plan that is occasionally overlooked is the need for a pour-over will. This will ensures that if funding of the trust has not occurred properly, the assets can be moved into the trust at death and the plan of distribution will still be effective.

What You Should Expect

While estate plans come in all shapes and sizes depending on your desires, there are certain things you should expect when working on your estate plan:

  1. An attorney who thoroughly understands this area of law and spends a substantial part of his practice focusing on this area. The attorney should not look at you as just another transaction, but should desire a long term relationship to help steward your plan through the years.

  2. A well trained support staff that can respond to your questions and resolve your concerns.

  3. A comprehensive set of customized documents that address your individual financial and health needs as opposed to the needs of the population in general. These documents should include: a trust and/or will, a durable power of attorney, and health care documents (depending on your state this may be known as a medical power of attorney, living will or advance health care directive).

  4. Follow-up support to assist you in properly funding your estate plan and keeping the estate plan up to date.

Conclusion

At Hallock & Hallock, we strive to make sure all of these potential problems, and many others are addressed in your estate planning documents. Our attorneys focus exclusively in the areas of estate and business planning.  Our staff is well trained and we are constantly striving to perfect our processes to ensure the best outcomes. Our documents are customized to the client’s individual wishes and situation. Plans are designed to give flexibility where flexibility is needed and yet give explicit instructions where needed to avoid any confusion.  A well drafted, comprehensive estate plan will ultimately simplify administration of a person’s affairs in the event of incapacity or death. It will also help ensure that more of the inheritance is going to the beneficiaries, and less to taxes or court fees.  An investment of time, effort and money in the beginning will save a great deal of expense, heartache and hassle in the end; good estate planning will leave families with fond memories of their loved ones instead of court battles and family feuds.  A trust is not a trust; a will is not a will.  All estate plans are not created equal.  Quality does make a difference.


This Newsletter is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.