On Wednesday I wrote about things to consider when protecting your spouse in your estate plan. Well, the same thing goes for your other beneficiaries - have you protected them? Here's some things to consider when drafting or updating your estate plan with regard to the beneficiaries you've named after your spouse (if you're married) or your direct beneficiaries (if you're single):
- Will your beneficiaries' inheritance be protected from creditors, lawsuits, and divorcing spouses?
There's a multitude of ways to pay your beneficiaries their inheritance, from simply leaving everything outright in one lump sum, to leaving it in stages (such as at ages 25, 30, and 35), to leaving it in trust for each beneficiary's entire lifetime. But if the property goes outright or in stages, then it will be available to creditors, subject to a judgment in a lawsuit, and become marital property if commingled with other marital property. The only way to fully protect your beneficiaries is to set up lifetime trusts for them.
- Who are the Trustees of your beneficiaries' trusts?
If you've named the beneficiary as the sole Trustee, then you may need to add a Co-Trustee to insure that the trust assets will be fully creditor and divorce protected. On the other hand, you may be able to allow the beneficiary to serve as sole Trustee by tweaking the language contained in the beneficiary's trust. And what about naming one child to serve as Trustee for another child, or something similar? Bad idea - instead, consider naming a neutral party such as a more distant relative (aunt, uncle, cousin) or an institution such as a bank or trust company.
- What do the trusts for your beneficiaries really say?
This week I reviewed some documents for a client who had set up lifetime trusts for his children. The problem is, the terms of the trusts were creditor and divorce friendly in the sense that while the funds could be held in trust for the child's entire lifetime, nonetheless the child could demand distributions at any time and for any reason, up to the entire balance of the trust - thus, a creditor or divorcing spouse could force the child to demand a distribution. Instead, we're going to firm up the language to allow the Trustee access for the child's benefit but keep the trust funds safe from creditors, lawsuits and divorces. Other documents I've reviewed contain lifetime trusts but fail to give the Trustee any guidance whatsoever as to how to administer the trust for the benefit of the beneficiary. This will lead to confusion on the Trustee's part and discontent on the beneficiary's part, so be sure to include specific guidelines for the Trustee to follow.
Further Reading
On Friday I wrote about the drawbacks of married couples using simple "I Love You" Wills and the advantages of using AB Trusts instead. Here's a couple of other things to consider when drafting or updating your estate plan if you're married:
- Does your plan use true A and B Trusts? Some plans set up the B Trust but then leave the A portion outright to the surviving spouse. This leaves the A portion vulnerable to the surviving spouse's creditors and allows the surviving spouse to dictate where the A portion will go after the surviving spouse dies. Instead, consider setting up the A portion in a trust to protect these assets just like the B portion.
- Who are the Trustees of the A and B Trusts? If you've named your spouse as the sole Trustee, then you may need to add a Co-Trustee to insure that the trust assets will be fully creditor protected. On the other hand, you may be able to allow your spouse to serve as sole Trustee by tweaking the language contained in the A and B Trusts.
- What do the A and B Trusts really say? Last week I reviewed some estate planning documents for a couple that were drafted in 1995. While their Revocable Living Trusts set up A and B Trusts, the terms of the B Trust stated that all of the assets of the A Trust had to be exhausted before the spouse could gain access to the assets of the B Trust. In my experience a restrictive provision like this is unnecessary and should be modified to give the Trustee more flexibility in balancing distributions from the A and B Trusts.
Further Reading
Is your estate plan more than a few years old? If so, then you should have your disability plan checked out for several reasons:
- If your estate plan was created in 2001-2002 or earlier, then you'll need to have your Advance Medical Directive and Living Will updated to comply with the Health Insurance Portability and Accountability Act of 1996 (HIPAA) - while this federal law was enacted in 1996, the rules governing it weren't promulgated until 2001. Thus, health care directives older than 2001-2002 can't contain the appropriate provisions, and I've even reviewed some drafted after 2002 that don't contain the appropriate provisions.
- How old is your Power of Attorney? Lately I've been reading on one of my estate planning attorney list serves about attorneys with clients all across the country who have been having difficulty with banks and other financial institutions accepting Powers of Attorney, especially older ones. Have your Power of Attorney updated every few years so that it doesn't become a stale and useless piece of paper.
- How old is your Revocable Living Trust? In my experience, trusts that are more than a few years old either don't address disability planning at all or provide minimal disability planning. Have your Revocable Living Trust reviewed to insure that it will work effectively and efficiently if you become mentally incapacitated. Otherwise, you and your loved ones will end up in front of a judge.
Further Reading
Oh, and congrats Steelers!
Today is the big day - the day when the five-time Super Bowl Champions of the World, the Pittsburgh Steelers, take on the Arizona Cardinals, who are the true Cinderella story of the 2008 NFL season. What does this have to do with estate planning? Everything for these two teams.
On Friday in his PA Elder, Estate & Fiduciary Law Blog, Harrisburg attorney Neil Hendershot gives an excellent history of the 2008 run by an outsider, Stanley Druckenmiller, to buy the family-controlled Steelers - Steelers and Estate Tax. Mr. Hendershot points out that the Arizona Cardinals are also family-controlled and facing the same estate planning and death tax issues as the Steelers.
As I reported last Monday in Death, Taxes and the Pittsburgh Steelers, Stanley Druckenmiller bowed out from his bid for the Steelers in September 2008 because the Rooney family, who has owned a part of the Steelers since 1933, couldn't agree on the terms of the deal. According to Mr. Hendershot, the future of the Steelers was resolved in early December 2008 when the five Rooney sons struck a deal for two sons to "completely divest themselves" of their shares and two other sons to sell some of their shares to current Steelers Chair Dan Rooney.
As Mr. Hendershot points out, now that the fate of the Pittsburgh Steelers has been decided, you are free to focus all of your attention today on the Super Bowl.
GO STEELERS!
Further Reading
