Trusts

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Divorce is hard enough under the best of circumstances.  But, when special needs children are involved, the situation becomes even more complicated.  While you and your spouse may be focused on how to divide financial assets and resolve custody issues, other critical matters may get overlooked.

In the midst of a divorce, do not to forget the following:

A.  Make sure to inform your attorney or mediator that you have a special needs child.  It’s important to mention what his/her disabilities are.  Is there an Individualized Education Plan (IEP) in place for him or her?  Is your child classified as having Autism Spectrum Disorder?  This information may impact the terms of your divorce decree regarding a variety of issues including shared custody and child support payments.

B.  If you have not already done so, make sure to discuss a Special Needs Trust with your attorney.  The assets, including child support payments, that are placed in this Trust (or bequeathed to this Trust) can be used to supplement government assistance for which your child is eligible.  This is critical!  Monies given or bequeathed directly to your child may exceed the financial limit that your child can have under certain government programs and may make your child ineligible for government aid.

C. Be sure to review all of your beneficiary designation forms (e.g., 401K’s, life insurance, etc.).  Beneficiary Designations are often overlooked and not updated following a divorce.  Make sure that any monies you wish to leave your child are bequeathed to the Trust.  And remember, as time goes by and you update these forms or have new ones, always make sure that the Trust, and not your child, is the stated beneficiary.

Getting Legal Help:

There are different types of Special Needs Trusts that can be established.  So, it’s imperative that you work with an attorney who specializes in this area.

Estate Planning Attorney, Elga A. Goodman, can work with you to select the proper Special Needs Trust, and to structure that Trust so that it addresses your child’s unique needs.  As a good general resource for understanding Special Needs Trusts, Ms. Goodman recommends the Handbook for Trustees, published by the Special Needs Alliance.  The book is available as a free download at http://www.specialneedsalliance.org/free-trustee-handbook/

Contact us today at 973-841-5111.

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A general durable power of attorney is an important estate planning and elder law planning tool.   A power of attorney allows the attorney-in-fact, also6291331_s power of attorney referred to as the agent, to manage the legal and financial affairs of the principal (the person making the power of attorney designation).  The agent’s authority comes from state law and from the power of attorney document that describes the agent’s duties and powers.  Typically the agent would be able to pay the principal’s bills, take care of banking, manage investments, pay insurance premiums, make claims for benefits under health insurance or other programs, collect money owed to the principal and apply for government or other benefits.  The principal can customize the power of attorney document to meet his or her specific needs.

One power that can prove particularly helpful for estate planning and elder law planning is the agent’s ability to create a trust for the benefit of the principal.   However, this power is not automatically included in a general durable power of attorney.  If the principal wants the agent to have the power to create a trust, the power must be expressly stated in the power of attorney document.

A recent appellate court case from Kentucky illustrates this point.  In Dishman v. Dougherty, a case involving a very complex set of facts, the wife as the agent under a power of attorney created a trust for her husband.  In that case, the court held that

“in order for an attorney-in-fact to create a trust pursuant to a POA (power of attorney), this authority must be expressly provided for in the instrument if it contains a specific provision related to trusts.”

The court found that the instrument in question only permitted the agent to “[c]onvey any real or personal property to the Trustee of any trust agreement between me and said Trustee and entered into either before or after the date of this instrument[.]”   That language, which is the usual language included in many power of attorney documents, only allows the agent  to convey property into a trust but does not permit the agent to create a new trust.  In Dishman v. Dougherty the court held that the trust created by the wife was void from inception.

If you are creating a power of attorney you should consider whether to give your agent the power to create trusts, and what other specific powers, if any, should be included in the document.

Getting Legal Help

The power of attorney is an important planning tool.  If you need help preparing a power of attorney or if you are the agent under the power of attorney and need guidance in your role as the agent contact experienced Estate Planning and Probate Attorney, Elga A Goodman. Contact us today at 973-841-5111.

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A critical part of estate planning involves identifying your beneficiaries, and specifying what they will inherit.  Parents (particularly those who are widowed or divorced) often designate their children as beneficiaries.  However, problems may arise among the kids depending on how those assets are divided.  Examples abound, but here are just a few:

You have three children, and you specify that

A.  50 % of your estate will go to your unmarried daughter.  The remaining 50% will be equally divided between your two married sons.

B.  your son, who received $200,000 from you to start a business, will inherit $200,000  less than each of the other two children.

C.  your two oldest children will receive their inheritances outright.  However, your youngest child’s inheritance will be held in Trust, with your oldest child serving as Trustee.

You have your reasons for what you’re doing.  But, if you don’t share those reasons with your kids, later on there may be hard feelings and misunderstandings about your intent.   Once you’re gone, your kids are left to interpret your Will without your input.  And  that may lead to major problems, possibly even litigation.

So, for example,

– in A. above, your sons may think you loved your daughter more than them.  After all, your sons have children to raise and put through college, and your unmarried daughter doesn’t have any of those responsibilities and she has a good job.  So, in your sons’ minds, it’s obvious who you loved most!

– in B. above, the son who received the startup money may not understand your reasoning and may feel very bitter about how the assets were distributed.  As far as he can tell, during your lifetime you were financially generous with the other kids too.

– in C. above, your youngest child, whose inheritance was left in Trust, may interpret your actions to mean you thought he was a “loser,” unable to manage his own affairs.  He may feel that you loved and respected his older sibling who was designated Trustee more than you loved and respected him.

Conclusion:

Informing your children in advance about your decisions regarding estate distribution may help avert discord after you’re gone.  Certainly, one good option is a face-to-face discussion.  However, an excellent alternative is to prepare a letter that explains why you’ve chosen to pass on your estate in your particular way.  The point is to clearly communicate your thoughts so that your children aren’t left guessing, and, possibly, fighting in court for years!

Getting Legal Help:

Experienced Estate Planning Attorney, Elga A. Goodman, can help you with all your estate planning needs.  Contact us today at 973-841-5111.

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Legal documents can be difficult to understand, containing unfamiliar words.  In the case of Wills, certain key terms frequently cause confusion –  specifically,  Executor, Trustee, and Testamentary Guardian.   We hope the following discussion will help clarify these three very different terms.

1. The Executor

Many of us have accumulated assets over the years (for example, a house, stocks, jewelry and personal mementos).  When you prepare a Will, you can specify how you want these assets (your “estate”) distributed once you’re gone.  In your Will, you can designate the Executor –  the person, persons, or entity responsible for “settling” the estate.  Once the estate is settled, the Executor’s job is done.

Among the key things the Executor must do is to:

– identify all the assets left upon your death and determine the value of those assets.  For example, if you left behind a house, the Executor must get your house appraised.

– use your estate assets to pay off all your debts and expenses, including all outstanding federal and state taxes.

– distribute to the beneficiaries whatever assets remain after all debts, expenses, and taxes have been paid.

Please note, if you neglect to designate an Executor, one will be appointed by the surrogate court upon your death.

2. The Trustee

Trusts are often established in Wills.  Such trusts are called testamentary trusts.  The trusts can be for the benefit of the spouse, children, grandchildren or other beneficiaries. Generally speaking, the testator (the person making the Will) directs that certain assets or portion of the estate be held in trust. The Executor distributes the assets left in the estate after paying debts, taxes, expenses and any specific bequests to the Trustee. The testator designates the Trustee, a person or bank or trust company that is to administer the trust for the benefit of beneficiaries specified in the Will.  The Trustee must manage the trust in accordance with the terms and conditions directing how the Trustee must manage the assets.

Confusion often arises as to what role the Trustee has vs. the Executor.  As noted above, in settling the estate, the Executor must determine the sum total of all assets in the estate, including those assets set aside for the Trust.  While the Executor’s role ends once the estate is settled, the Trustee, responsible for managing the assets in that Trust, will continue in that role according to the terms of the Trust until such time as the Trust ends.  It should be noted that a Trustee may serve for a prolonged period of time.  So, for example,

John establishes a Trust in his Will for his grandson, Jim.

– The Trust stipulates that once Jim turns 35, the Trust will terminate and all assets will be distributed to Jim outright.

– John passes away when Jim is three years old.

– The Trustee oversees the Trust for the next 32 years until Jim turns 35.

3. Testamentary Guardian for Minor Children

If you are a parent of minor children (under 18 years old), it is highly advisable that you designate a guardian in your Will, officially known as the Testamentary Guardian.  Should the unthinkable occur, upon your death, the guardian will assume responsibility for your children, including, among other things, addressing their material, educational, and heath care needs until they reach 18 years of age.  Typically, in the case of a married couple, each spouse will designate the other as the Testamentary Guardian. This is also fairly common with divorced couples.  However, bottom line, each Will is tailored to an individual’s personal situation.  The important point is to make sure that you designate a guardian for your minor children.  Should you neglect to do so, that responsibility will fall to the courts (that have no record of your wishes and no familiarity with your children, family, and friends.)
The guardian will be responsible for interacting with the Executor and with the Trustee(s) (if any Trusts were established for the children) to help ensure that all estate assets legally due the children and all assets managed by the Trustee(s) are properly handled and distributed.
Getting Legal Help:
Experienced Estate Planning Attorney, Elga A. Goodman, will work with you on all your estate planning needs.  Contact us today at 973-841-5111.

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Living Trusts – Truths and Myths

April 12, 2014

Many of us accumulate assets over the course of our lives – assets such as a home, a business, stocks and bonds, jewelry, cars, and assorted other personal items of greater or lesser value.  Taken together, these assets form an estate.  And, for many of us, estate planning becomes part of our “to do” list.  This […]

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