Family Trusts. Living Trusts. Inter Vivos Trusts. Revocable Trusts. Synonyms for trusts that are "Will substitutes." They help avoid probate and the need for a conservatorship. They help reduce the fees, including trustee and attorney fees, and delays of probate. Most of the documents are boilerplate, but why? What's wrong with using LegalZoom and other document preparation software? Must you file an IRS Form 1041 for a family trust? Must the living trust get its own EIN? What is a subtrust? What is an administrative trust? What is a grantor? A protector? A complex trust? How is competence determined? Are "no contest" clauses enforceable? Are illegitimate children "heirs"? Must a living trust be notarized? Must it be recorded? What is a "pourover" Will? What is a codicil? What is a holographic will? What is a personal property memorandum? What makes a power of attorney "durable"? What is a health care directive? What is a "springing" power of attorney? What is a "pot" trust? What is a "specific" bequest? When should I use a corporate trustee? What's the difference between a fiduciary bond and fiduciary insurance? What is a trust certificate? What is a "blanket" assignment of assets? What is "per stirpes"? What is the rule against perpetuities?

1. Everything You Always Wanted To Know About
Family Trusts
But Were Afraid To Ask
Givner & Kaye,
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2. Everything You Always Wanted To Know About Family Trusts
What We Will Cover:
1.
2.
3.
4.
5.
6.
7.
8.
History.
Living Trust Documents
Pourover Wills
Durable Powers Of Attorney
Beneficiaries
Fiduciaries
Other Documents
Oddballs
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P. 3
P. 10
P. 29
P. 39
P. 47
P. 57
P. 67
P. 70
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3. Everything You Always Wanted To Know About Family Trusts
History
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4. Everything You Always Wanted To Know About Family Trusts
History
1.
What Is Probate?
Probate is the process of (i) gathering together all the assets; (ii) determining the value
of the assets; (iii) determining and paying the decedent’s “just” debts (including taxes); and (iv)
distributing the assets to the heirs (which might include trusts for the beneficiaries). Think of it
this way: when someone is dead, the only person who can write a dead person’s name is a judge,
and probate is the process of asking the judge to allow someone – the Executor – to sign the dead
person’s name under the judge’s authority.
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5. Everything You Always Wanted To Know About Family Trusts
History
2.
Where Does Probate Come From?
Probate, and most of our law on descent of property, comes from Medieval England.
That is where the “Rule Against Perpetuities” and the need for witnesses to Wills comes from. In
feudal times only powerful families owned land. These large estates were normally passed down
from father to son. This transfer was naturally a matter of great political consequence and, thus,
of great interest to the king. So the proceedings were made formal, complicated and costly.
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6. Everything You Always Wanted To Know About Family Trusts
History
3.
Why Did People Come To Hate Probate?
The fees (roughly 1% of the gross estate) paid to both the executor and the executor’s
attorney and the delays of probate (4 years was not uncommon in the “old” days).
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7. Everything You Always Wanted To Know About Family Trusts
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8. Everything You Always Wanted To Know About Family Trusts
History [continued]
4.
Why Was Fear Of Probate Fees Overblown?
First, California law only sets a maximum probate fee. The family is free to negotiate a
lower amount. Second, if the family member is the executor, then the family member may not
charge a probate fee: why pay income tax on money you will otherwise receive free of income tax
as an inheritance?
5.
What Happened To Make Probate Virtually Disappear?
Two things occurred: (1) Howard Jarvis, the author of Prop. 13, helped pass a
proposition to repeal the California Inheritance Tax. Once California got out of the inheritance tax
business, the delays of probate almost completely disappeared because almost all of the delays
related to the State’s involvement. (2) Living Trusts took off starting in the mid-1970s.
6.
What Benefits Are Claimed For Living Trusts?
Eliminate Probate delays and fees.
conservatorship if you become disabled.
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Preserve privacy.
Avoid the need for a
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9. Everything You Always Wanted To Know About Family Trusts
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10. Everything You Always Wanted To Know About Family Trusts
Living Trust Documents
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11. Everything You Always Wanted To Know About Family Trusts
Living Trust Documents
1.
How Many Names Are There For A “Living Trust”?
In common usage, the following are all synonyms for “Living Trust”: Family Trust;
Revocable Trust; Inter Vivos Trust.
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12. Everything You Always Wanted To Know About Family Trusts
Living Trust Documents
2.
Why Is 90% Of The Document Boilerplate?
Because the definition of “malpractice” is the
failure to practice to the standard in the community,
and the standard in the community is to include all of that
stuff in the document.
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13. Everything You Always Wanted To Know About Family Trusts
Living Trust Documents
3.
What’s In That Boilerplate?
Half the boilerplate consists of trustee’s powers, much of which is largely copied from
the Probate Code. These powers have lengthened due to complexity of financial instruments,
environmental liability for real estate, and other problems facing trustees.
The other half of the boilerplate consists of “hurricane” clauses: what happens if the
decedent dies on a Thursday and there is a hurricane? If there is a problem that arises, we want
the living trust document to already have the answer in it so that recourse to the courts is
unnecessary. Every year in this state there are hundreds of cases decided regarding Wills and
Trusts. Inevitably about a half dozen arise to the level where all the lawyers say to themselves,
“Hmm. I wouldn’t want that to happen to my clients.” As a result, a new clause or paragraph gets
added to the boilerplate. The easy example is “no interest on gifts.” Because once – 50 years
ago - someone died leaving a relative $10,000, the probate took 4 years to complete, and at the
end of the 4 years, the relative got the $10,000, and sued for interest. To prevent that from
recurring, every document has a clause providing “no interest on gifts.”
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14. Everything You Always Wanted To Know About Family Trusts
Living Trust Documents [continued]
4.
How Long Is A Living Trust?
40 page documents are rare. 60 to 90 page documents are common.
5.
When Did Living Trusts Become Popular?
In the 1970s lawyers and charities started holding seminars in California promoting
living trusts as a way to avoid probate. Within 20 years they became the dominant method for
people with any amount of wealth to transmit their assets at death. That is less common in other
states, especially back East.
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15. Everything You Always Wanted To Know About Family Trusts
Living Trust Documents [continued]
6.
Does A Living Trust Exist?
No. A Living Trust is not a “person” in
the same way that a corporation, LLC or partnership
is a legal person. A corporation can open a bank
account in its own name. An LLC can take title to
real estate in its own name. By contrast, there is
no such thing as real estate in the name of the
Bruce and Kathy Givner Trust because a trust does
not exist as a legal person who can hold title to an
asset. The way title is held is in the name of the
trustee: Bruce Givner and Kathy Givner, Trustees,
of the Bruce and Kathy Givner Trust. Banks and
others will, mistakenly, allow you to open accounts
in the name of a trust. But that is absolutely wrong
and has been repeatedly held to be wrong. See,
as one of many examples, Presta v. Tepper, 179
Cal. App. 4th 909 (2009).
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16. Everything You Always Wanted To Know About Family Trusts
Living Trust Documents [continued]
7.
What Should I Name My Living Trust?
The name “Bruce and Kathy Givner Living Trust” does not make sense because, when
they are dead, financial institutions will get confused (“But he’s dead!”). We recommend simply
“Trust” after the names of the individuals. Some people like fictitious names, e.g., the AMKB
Trust using the first names of the children and parents. The idea is that, all things being equal,
why make it any easier for someone to figure out which assets held in the trust’s name are
connected to you? However, if you truly wish anonymity, then we use a fictitious name trust, the
beneficiary of which is your trust, and we use an independent third party as the trustee of the
fictitious name trust. Real property is indexed at the Recorder’s office in the name of the trust
and in the name of the trustee. This way, if you are Michelle Pfeiffer, and the name of the Trust is
the East African Wildlife Preservation Fund, and the trustee is your business manager, and the
beneficiary of that trust is your real living trust, no one will be able to connect it to you (especially
if you acquired it in the name of that trust in the first place).
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17. Everything You Always Wanted To Know About Family Trusts
Living Trust Documents [continued]
8.
What’s Wrong With Using LegalZoom.com?
Document drafting software is capable of producing a
good document. The problem is not the document: the problem
is knowing the questions to ask so that someone can produce
a good document. We’ve read many documents prepared
by (i) laymen using commercial services like LegalZoom and (ii)
lawyers using document drafting systems like the ones we use
(Wealth counsel). In both cases we have seen some absolutely
absurd documents, not just incomprehensible, but – in the
legal sense – malpractice per se. Competent estate planning
lawyers don’t sell paper: they sell judgment (e.g., asking the right
questions) and experience.
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18. Everything You Always Wanted To Know About Family Trusts
Living Trust Documents [continued]
9.
Why Do We Care About The Generation Skipping Transfer Tax In A Living Trust?
Assume the distribution to the children is 1/3rd at 25, 30 and 35. Assume Son has
children and dies before reaching age 35. His death is a “taxable termination” of his trust. As a
result the GSTT is imposed. The lengthy GSTT language in the living trust gives him a general
power of appointment up to the amount of his GSTT exclusion. As a result, even though he does
not exercise that power of appointment, that amount is not subject go GSTT. If the GSTT
exclusion equals the lifetime transfer tax exclusion, that amount passes to his children free of all
tax.
10.
Must The Living Trust File An IRS Form 1041 (Does It Need An EIN)?
Not as long as (i) the grantor is a trustee or co-trustee; (ii) uses his or her own Social
Security number; and (iii) reports the income or his or her own return. If the grantor is not a
trustee or co-trustee, the trustee must furnish the grantor with a statement showing all items of
income, etc. Reg. Section 1.671-4(b).
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19. Everything You Always Wanted To Know About Family Trusts
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20. Everything You Always Wanted To Know About Family Trusts
Living Trust Documents [continued]
11.
What Is A Subtrust?
A trust that is created by the
living trust upon the occurrence of a
certain event. For example, on the
death of the first spouse the living trust
is divided into a survivor’s trust, a bypass
trust and a marital trust.
Then on the survivor’s death the three
subtrusts merge together and are divided
into subtrusts for each of the children.
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21. Everything You Always Wanted To Know About Family Trusts
Living Trust Documents [continued]
12.
What Is A Share?
A share is usually synonymous with a subtrust.
13.
What Is An Administrative Trust?
Upon the death of the first spouse, the Administrative Trust comes into existence and
lasts until the trust is divided into the three subtrusts (survivor, exclusion and marital). On the
survivor’s death the Administrative Trust comes into existence and lasts until the trust is divided
into subtrusts for the children. Some trust instruments explicitly call for the creation of an
Administrative Trust. In those that do not it is created for administrative convenience.
14.
What Is A Grantor?
The grantor is the creator of the trust. Synonyms include Settlor and Trustor.
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22. Everything You Always Wanted To Know About Family Trusts
Living Trust Documents [continued]
15.
When Is A Living Trust Inappropriate?
You can argue that a single person who is not famous and has a small estate need not
spend the money for a living trust. He or she would be fine with a statutory Will and DPOAs for
healthcare and asset management. The same can be said for a young couple, with no children,
and a small net worth.
16.
What Is A Grantor Trust?
A Grantor Trust is a trust which is ignored for income tax purposes. A living trust is –
while both spouses are alive – ignored for income tax purposes. On the first spouse’s death, that
spouse’s half becomes irrevocable and is no longer a grantor trust.
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23. Everything You Always Wanted To Know About Family Trusts
Living Trust Documents [continued]
17.
What Is A Complex Trust?
A complex trust is one of three ways a trust can be classified for
income tax purposes: grantor (ignored); simple (all income must be
distributed) and complex (trustee has discretion on distributing income).
which is a separate taxpayer. On the first spouse’s death, the bypass trust
and marital trusts usually require all of the income to be distributed to the
survivor. Therefore they are “simple” trusts. However, if the bypass
(exclusion) trust allows the trustee discretion on whether or not to
distribute income, then it is a “complex” trust.
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24. Everything You Always Wanted To Know About Family Trusts
Living Trust Documents [continued]
18.
How Is Competence Determined?
There are three levels of competence:
(i) capacity to run a business; (ii) capacity
to enter into a contract; and (iii) the lowest
– testamentary capacity. An attorney who
prepares the estate plan for his client can
determine whether he or she is comfortable
that the client has testamentary capacity to
sign the documents. Gonsalvez v. Alameda
County Superior Court, #A062607 (10/29/93 –
unpublished). With the benefit of hindsight, of
course, parties turn to gero-neuropsychiatrists.
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25. Everything You Always Wanted To Know About Family Trusts
Living Trust Documents [continued]
19.
What Is The Problem Caused By Our Three Tier Definition Of Competence?
Father may be incompetent to run a business and incompetent to enter into a contract.
For example, the children may see that Father is getting ripped off by a stock broker. So they
march into court and have Father removed as trustee of his trust to prevent further damage to
Father’s accounts. However, Father still has testamentary capacity so he disinherits his children
and leaves his estate to his stockbroker.
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26. Everything You Always Wanted To Know About Family Trusts
Living Trust Documents [continued]
20.
Are “No Contest” Clauses Enforceable In California?
They were so restricted by the change in the law effective January
1, 2010, that they are difficult to draft and difficult to enforce. (i) A direct
contest brought without probable cause; (ii) challenge to a transfer of
property and (iii) creditor’s claim, but (ii) and (iii) only if the no contest
clause expressly provides for that application. A direct contest must be on
one of the following grounds: forgery; lack of due execution; incapacity;
duress, fraud, undue influence; revocation; disqualification of beneficiary.
Inappropriate when everything goes to the surviving spouse and then to the
children in equal shares.
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27. Everything You Always Wanted To Know About Family Trusts
Living Trust Documents [continued]
21.
Are Illegitimate Children “Heirs”?
You need to carefully draft the documents to be clear as to your intent.
22.
Must A Living Trust Be Notarized?
No. We do so to confirm the identity of the signers. We also do so in case, for some
reason, it might need to be recorded.
23.
Must A Living Trust Be Recorded?
No. And living trusts are rarely, if ever, recorded. If a document must be recorded we
offer the trust certificate (discussed later).
24.
Can I Prepare My Own Trust Amendment?
Certainly. But in a large estate, why take the chance of confusing a well constructed,
complex document?
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28. Everything You Always Wanted To Know About Family Trusts
Living Trust Documents [continued]
25. When Do I Need To Amend And Restate
The Trust vs. Do An Amendment?
If the amendment is to one part,
e.g., change of trustees, then an amendment
will suffice. However, if the amendment is
to many parts of the trust, or if there have
been many amendments already made so
that it becomes difficult to understand the
document, it becomes safer to amend and
restate the document than to do another
“slap-on” amendment.
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29. Everything You Always Wanted To Know About Family Trusts
Pourover Wills
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30. Everything You Always Wanted To Know About Family Trusts
Pourover Wills
1.
What Is A “Pourover” Will?
“Pourover” refers to the fact that the Will is a “cleanup” document. It
transfers to the trust any assets which are not already “in” the trust at the time of
your death.
2.
Why Do We Still Need “Wills”?
With the Heggstad case the and resultant “blanket” assignment, there
would seem to be no reason to still prepare Wills. However: (i) a Will is the
document which names a guardian in the case of a minor child; (ii) a Will has a
provision in it to “reanimate” a trust if, for some reason, the trust were to fail; and
(iii) the definition of malpractice is – again – the failure to practice to the standard in
the community, and the standard in the community is still to have Wills when you
have a living trust.
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31. Everything You Always Wanted To Know About Family Trusts
Pourover Wills
3.
What Is A Codicil?
An amendment to a Will is
called a codicil. It comes from the
same Latin root (Codex) as the word
for book and – not surprisingly – Code
(not the same root as for codpiece).
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32. Everything You Always Wanted To Know About Family Trusts
Pourover Wills [continued]
4.
Must We Prepare A Codicil Every Time We Amend The Trust?
No. But the custom is to do so. This way the pourover Will refers to the trust as it
currently exists.
5.
Can I Prepare My Own Codicil?
Yes. Just as you can prepare your own Holographic Will, you can prepare your own
Holographic codicil. However, why chance goofing up a perfectly good estate plan by playing
lawyer when the cost of a codicil – at the same time you are amending the trust – is nominal.
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33. Everything You Always Wanted To Know About Family Trusts
Pourover Wills [continued]
6.
Must A Codicil Be Witnessed?
A Codicil must be executed with all the formalities of a Will.
7.
When Do I Need A Codicil vs. A Whole New Will?
Judgment call. If it’s one item, and it’s the first change, a codicil
will suffice. If it’s extensive, or if you already have so many small changes
that it is difficult to understand the Will, then it is time for a new Will.
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34. Everything You Always Wanted To Know About Family Trusts
Pourover Wills [continued]
8.
What Is A Holographic Will?
One in which all of the important provisions are in your handwriting. PC Section 6111.
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35. Everything You Always Wanted To Know About Family Trusts
Pourover Wills [continued]
9.
What Is A Statutory Will?
The California Probate Code
includes an entire Will document. The
intent is that it can be completed without the help of a lawyer. We give out
copies freely to people. It has been
improved over the years so that it now
can be used (i) by same sex couples and
(ii) to keep property in trust for heirs up
to age 25.
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36. Everything You Always Wanted To Know About Family Trusts
Pourover Wills [continued]
10.
What If We Die Simultaneously?
The documents do not permit a simultaneous death. In interpreting each spouse’s
estate plan, that spouse is deemed to have survived.
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37. Everything You Always Wanted To Know About Family Trusts
Pourover Wills [continued]
11.
How Is Personal Property Handled?
Substantial personal property should be identified and distributed in the living trust.
Miscellaneous personal property can be addressed in the Wills with the statement that it shall be
divided equally among the children as they can agree. However, what if they don’t agree? Then
the executor will hold a hypothetical auction by first valuing the assets. Assume there are three
children and the personal property is worth $30,000. Each child is given $10,000 of hypothetical
money with which to bid on the personal property.
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38. Everything You Always Wanted To Know About Family Trusts
Pourover Wills [continued]
12.
What Is A Personal Property Memorandum?
Probate Code Section 6132 authorizes a handwritten memorandum to dispose of up to
$25,000 in tangible personal property, no item of which exceeds $5,000 in value.
13.
How Many Witnesses Are Needed?
Two. But we use three. None if it is holographic.
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39. Everything You Always Wanted To Know About Family Trusts
Durable Powers Of Attorney
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40. Everything You Always Wanted To Know About Family Trusts
Durable Powers Of Attorney
1.
What Makes A Power Of Attorney “Durable”?
Under the “Common Law” (the law we inherited from England), a POA terminates
when the principal becomes incompetent. A “durable” POA continues to be effective even if
the principal becomes incompetent.
2.
What Happened To Bring About Durable POAs?
After an auto accident Nancy Cruzan was put on life support. Her family wanted
her to be allowed to die peacefully, but the hospital refused. It took 9 years of litigation
before the U.S. Supreme Court decided Cruzan v. v. Commissioner, Missouri Department of
Health, 497 U.S. 261 (1990). The issue was who had the right to decide to remove a
permanently brain-damaged and comatose patient from life-support systems, in the absence
of the patient's own ability to express that determination. The case included family testimony
expressing what they felt the patient's wishes would have been. She died 13 days after being
taken off life support.
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42. Everything You Always Wanted To Know About Family Trusts
Durable Powers Of Attorney [continued]
3.
What Is A “Living Will”?
That was the earliest attempt to accomplish what we now accomplish with a health
care directive. It was proposed in 1959.
4.
What Is A Health Care Directive?
It is a document adopted in accordance with the 1993 Uniform Health Care
Decisions Act, which has been adopted in many states.
5.
Why Do We Use The California Medical Association Health Care Directive?
Some lawyers prepare their own forms for a client to give advice on medical care
decisions. We do not. We believe that if it comes time to implement one of these, the
physician and hospital will be more comfortable seeing the form that bears the imprint of the
California Medical Association rather than having to hire a lawyer to read a form prepared by
some law firm.
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44. Everything You Always Wanted To Know About Family Trusts
Durable Powers Of Attorney [continued]
6.
Must A Health Care Directive Be Renewed Every 7 Years?
No. That was trust of an earlier version, perhaps a decade ago.
7.
What Are The Main Problems With A DPOA-Health Care?
(i) Failure to give a copy to your primary physician. (ii) The hospital will shove a
form in front of you as soon as you are admitted, which may cause you to fill out something
quickly which will overturn the one which you previously, carefully considered.
(iii) The
California Medical Association Form does not permit you to appoint co-holders of the power.
8.
What Is A “Springing” Power Of Attorney?
“Springing” means that it comes into existence only upon the occurrence of a
specific event. In our DPOA – asset management, the event is your incompetence. Your
incompetence is determined by the vote of a committee of 3 people you name.
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45. Everything You Always Wanted To Know About Family Trusts
Durable Powers Of Attorney [continued]
9.
What Is The Impact Of HIPAA?
The person you authorize to make
health care decisions for you must also be
given access to your medical records, and
the DPOA-Health Care does not, by itself,
make that happen. So we must interlineate
the California Medical Association form
to include special language re HIPAA (Health
Insurance Portability and Accountability Act).
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46. Everything You Always Wanted To Know About Family Trusts
Durable Powers Of Attorney [continued]
10.
What Is CMIA?
California did not conform to HIPAA. Therefore, the person you appoint to make
health care decisions for you must not only be appointed to have access to your medical
records under HIPAA, but also under CMIA (California Medical Information Act).
11.
When Would We Use An Immediate POA?
When you want someone to be able to act for you now. That is almost never the
case in connection with estate planning. By contrast, that might be the case if you were in
the midst of closing escrow on the purchase of a home, and had to suddenly take a trip to
Paris.
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47. Everything You Always Wanted To Know About Family Trusts
Beneficiaries
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48. Everything You Always Wanted To Know About Family Trusts
Beneficiaries
1.
What Is The Most Common Distribution Format For Children?
Income in the trustee’s discretion to age 21. Income must be distributed starting at
age 21. Principal in three equal shares, typically at ages 25, 30 and 35.
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A Professional Corporation
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49. Everything You Always Wanted To Know About Family Trusts
Givner & Kaye,
A Professional Corporation
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50. Everything You Always Wanted To Know About Family Trusts
Beneficiaries
2.
What Are The Extreme Distribution Formats For Children?
One extreme is to give it to the children outright on the parent’s death. This way they
can blow the money and get on with their lives. The other extreme is to leave all of the money in
trust subject to the trustee’s discretion. The children may never get the principal and it will pass
on to future generations.
Givner & Kaye,
A Professional Corporation
Owen@GivnerKaye.com
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51. Everything You Always Wanted To Know About Family Trusts
Beneficiaries
3.
What’s An Incentive Distribution Format For Children?
Example 1: at age 25 the trustee will give you an amount equal to what you show on
your 1040 that you earned the year before. Example 2: at age 30 you get 1/3rd of your share. At
age 35 you must show a certified financial statement showing that you are at least worth as
much as the amount distributed at age 30 or you don’t get the next distribution.
Givner & Kaye,
A Professional Corporation
Owen@GivnerKaye.com
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52. Everything You Always Wanted To Know About Family Trusts
Beneficiaries [continued]
4.
What Is A Specific Bequest?
The phrase usually refers to a bequest that is not subjected to taxes and a share of
the expenses. But this must be clearly spelled out. It is commonly going to be the case when,
for example, the estate of $10,000,000 is being left to the children, but there is first a distribution
of $10,000 to each of the parents’ nieces and nephews. The parents don’t expect the $10,000 to
each of the nephews to be reduced by, for example, a 35% estate tax and a share of the trustee’s
fees, etc.
Givner & Kaye,
A Professional Corporation
Owen@GivnerKaye.com
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53. Everything You Always Wanted To Know About Family Trusts
Beneficiaries [continued]
5.
Is There A Good Reason Not To Leave A Bequest To Bruce Givner?
No. We think it’s an excellent idea, and we encourage it.
6.
What Is A Family Pot Trust?
When the surviving parent dies, it is common to hold the assets in a
common trust until the youngest child gets to a certain age, typically 21 or 25,
before it is divided into separate shares for each child. Why? The idea is that if the
kids are 17, 21 and 25, when the surviving parent dies, and each child’s share is
going to consist of $1,000,000, it is unfair to have the 17 year old’s share have to pay
for 4 years of college ($200,000) when the parents, while they were alive, paid for all
4 years for the now 25 year old. So the trust is kept together until that disparity has
been made up, and then it is divided.
Givner & Kaye,
A Professional Corporation
Owen@GivnerKaye.com
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54. Everything You Always Wanted To Know About Family Trusts
Beneficiaries [continued]
7.
What Is A Grandparent’s Trust?
Example 1: $400,000 is left “off the top” in a trust to take care of grandma. When she
passes away, that money gets allocated among the children.
Example 2: grandma is taken care of out of the “family pot.” The trust is not finally
distributed to the children until grandma passes away.
8.
What Is A Contingent Beneficiary?
A contingent beneficiary is the one who takes if the primary beneficiary is no longer
there at the time of distribution. So if $10,000 is left to my friend Howard, what happens if he is
dead? Does his gift lapse? Or does it go to his children? This question must be asked for every
beneficiary.
Givner & Kaye,
A Professional Corporation
Owen@GivnerKaye.com
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55. Everything You Always Wanted To Know About Family Trusts
Beneficiaries [continued]
9.
What Is A Special Needs Trust?
Language which prevents the trustee from spending money on a beneficiary which
will disqualify the beneficiary from qualifying for governmental aid programs. So, for example,
the trustee may not spend trust funds to buy the beneficiary food and shelter. Bu the trustee can
spend trust funds to get the beneficiary piano lessons and haircuts.
Givner & Kaye,
A Professional Corporation
Owen@GivnerKaye.com
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56. Everything You Always Wanted To Know About Family Trusts
Beneficiaries [continued]
10.
What Is A Beneficiary Controlled Trust?
There is no one clear meaning. It usually means that the beneficiary is given the
power to remove and replace the trustee. It can also mean that the trustee is required to
contribute the trust assets down into a single member LLC and name the beneficiary as the
member. This is a way to give the beneficiary asset protection, but still give the beneficiary
control of trust investments.
Givner & Kaye,
A Professional Corporation
Owen@GivnerKaye.com
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57. Everything You Always Wanted To Know About Family Trusts
Fiduciaries
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A Professional Corporation
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58. Everything You Always Wanted To Know About Family Trusts
Fiduciaries
1.
What Is A Fiduciary?
It comes from the Latin roots “Fides” (the common name for a dog is Fido) which
means faithful and “Fiducia” meaning trust. Executors, guardians, trustees and conservators
are all fiduciaries. As such they are held to the highest standard of good faith under the law.
The same duty is owed by one spouse to another.
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A Professional Corporation
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59. Everything You Always Wanted To Know About Family Trusts
Fiduciaries
2.
Who Should Be The Successor Trustee If I’m Alive But Incompetent?
Think twice before naming a child. If it comes to a decision of $5,000 per month vs.
$10,000 per month to take care of you, the child may prefer the $5,000 per month for your care
because it will leave more money for the child to inherit when you are dead (which may occur
more quickly with the lower quality of care).
3.
Who Should Be The Successor Trustee After I’m Dead?
Think twice before naming a child, especially if you have more than one child. We
recommend that you select an independent third party, e.g., your CPA if you have had the same
one for thirty years. If you don’t have a trusted relative, friend or colleague, you may be wise to
consider a trust company. This is true even if the assets are to be distributed outright to the
children. Why? Because there is a “reasonable period of administration” that may take a year
from the date of death to the date of distribution and, during that period, the use of an outsider
will minimize the chance of family disputes (which are more likely to occur if you name one
child or even a group of children).
Givner & Kaye,
A Professional Corporation
Owen@GivnerKaye.com
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A Professional Corporation
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61. Everything You Always Wanted To Know About Family Trusts
Fiduciaries [continued]
4.
Should I Use Co-Trustees?
If you don’t have one perfect person, then it makes sense to name two people to act
together. That will make it more cumbersome for them to take actions. However, that is part of
the point of having two people: to force them to work together.
5.
Should I Have A Committee To Act As Trustee?
If your estate is large enough, e.g., $30,000,000, and especially if it includes a closely
held business, a committee of 3 people may make sense. In some situations, e.g., $150,000,000
estates, we have 5 member committees to act as trustee.
Givner & Kaye,
A Professional Corporation
Owen@GivnerKaye.com
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62. Everything You Always Wanted To Know About Family Trusts
Fiduciaries [continued]
6.
Who Are Some Corporate Trustees?
There are a number of “Blue Chip” corporate trustees. That group usually includes
Wells Fargo; J.P. Morgan; U.S. Trust (B of A); Deutsche Bank; Wilmington Trust; and Northern
Trust. There are large local trust companies such as City National Bank and Whittier Trust.
Givner & Kaye,
A Professional Corporation
Owen@GivnerKaye.com
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63. Everything You Always Wanted To Know About Family Trusts
Fiduciaries [continued]
7.
Should I Use A Corporate Trustee?
In one current situation we have advised a
daughter, who was named as the trustee over the
trusts of herself and her two siblings, to resign as
trustee of the trust for her sister and name a corporate
trustee. Why? Because her sister is a nightmare.
So, if her sister sues, it won’t be her problem.
There are other good reasons to use a
corporate trustee, e.g., the fact that a corporate trustee
will – above all else – try to preserve principal; the
fact that a corporate trustee cannot, by definition, die;
the fact that your beneficiaries have poor money management skills; the fact that the trust is expected to last
for many generations.
Givner & Kaye,
A Professional Corporation
Owen@GivnerKaye.com
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64. Everything You Always Wanted To Know About Family Trusts
Fiduciaries [continued]
8.
What Does A Corporate Trustee Charge?
Each has a published fee schedule. They generally charge 1% of the assets for less
than $3,000,000, scaling down as the assets increase in value. They charge more when they
have control over investments.
9.
What Does A Non-Corporate Trustee Charge?
Generally the non-corporate trustee will refer to a corporate trustee’s published
schedule. Professionals may ask to be paid their hourly rates, and will request inserting that
language into the trust instrument. In every case the court reserve the right to approve or
reject fees.
10.
Should I Waive The Requirement For The Trustee To Post A Bond?
We never recommend waiving the requirement to post a bond (unless the trustee is
the spouse, and the assets are community property, or the child who is the beneficiary).
Otherwise, if we recommend waiving the bond, and the trustee steals assets, we have arguably
committed malpractice. On the other hand, getting a bond can be difficult as it requires the
trustee to post personal assets.
Givner & Kaye,
A Professional Corporation
Owen@GivnerKaye.com
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65. Everything You Always Wanted To Know About Family Trusts
Fiduciaries [continued]
11.
What Is The Difference Between A Bond And Fiduciary Insurance?
A bond protects the beneficiaries. Fiduciary insurance protects the trustee if the
trustee is sued by the beneficiaries. We always recommend that trustees buy fiduciary
insurance.
Givner & Kaye,
A Professional Corporation
Owen@GivnerKaye.com
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66. Everything You Always Wanted To Know About Family Trusts
Fiduciaries [continued]
12.
Should The Trustee Agree To Continue A Closely Held Business?
It is very risky. We will have the trustee set up an independent board of directors to
run the business rather than try to run the business himself (or herself).
13.
Should I Set Up My Own Trust Company?
Nevada allows you to do so by statute. An unregulated private trust company does
not have to meet a capitalization requirement: cannot use “trust” in its name; cannot act as
trustee except for immediate family members. In California there is no explicit statute, but the
Department of Corporations appears to permit them on the same terms.
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A Professional Corporation
Owen@GivnerKaye.com
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67. Everything You Always Wanted To Know About Family Trusts
Other Documents
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A Professional Corporation
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68. Everything You Always Wanted To Know About Family Trusts
Other Documents
1.
What Is A Trust Certificate?
It is an abbreviated version of the trust that you can give to banks or escrows who
want copies of your trust when you acquire a new asset. The certificate only discloses (i) the
trustees; (ii) the grantors; (iii) the trustee’s powers; (iv) whether the trust is irrevocable; (v) the
trust taxpayer ID number; and (vi) how title to trust assets is to be taken. If someone is offered
the certificate and still insists on a copy of the trust, they are liable for damages under state law.
2.
Why Do Banks Require You To Fill Out Their Own “Trust Certificates”?
No good reason. You can offer them your form instead.
3.
What Is A “Blanket” Assignment?
This is a document that declares that you are holding all of your assets, no matter
how they are titled, as trustees of your trust. This became recognized as effective by Estate of
Heggstad, 16 CA 4th 943 (6/21/93). The case was narrowed by Osswald, 49 CA 4th (1996), which
requires real estate to be described by address or APN.
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A Professional Corporation
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69. Everything You Always Wanted To Know About Family Trusts
Other Documents
4.
What Is The Advantage Of A “Blanket” Assignment?
It removes the pressure to meticulously change title on each bank account, each
partnership interest and each parcel of real property into the name of your new living trust.
5.
Why Not Transfer Every Asset Into The Trust’s Name?
For younger people, we don’t have a good faith belief that they will own all of their
present assets at the time of death, so spending time on transferring the current assets is likely
to be a waste of time. By contrast, when someone comes in to our office at age 80, we
meticulously transfer each bank account, each partnership interest and each parcel of real
property.
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A Professional Corporation
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70. Everything You Always Wanted To Know About Family Trusts
Oddballs
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A Professional Corporation
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71. Everything You Always Wanted To Know About Family Trusts
Oddballs
1.
What Is “Per Stirpes”?
It means by root or by branch. It is clearer to write “by right of representation.” It is
as opposed to “per capita.” So if Mom and Dad have Son and Daughter; Son has two children;
Son dies; then Son’s half of the estate goes 50% each to each of his children. That is “per
stirpes.” Were it to be per capita then 1/3rd of the estate might go to both grandchildren and onethird to daughter.
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A Professional Corporation
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72. Everything You Always Wanted To Know About Family Trusts
Oddballs
2.
What Is The Rule Against Perpetuities?
In Medieval England they did not like the
idea of unlimited control from the grave (dead hand
control). So they provided that all trusts must last
no longer than “21 years after the death of a life in
being.” That phrase was so unclear that a lawyer
who violated it in 1954 was cleared of committing
malpractice on the grounds that the Rule Against Perpetuities is so complex that the standard of care is
that no one can understand it. California has a rule
of (i) 21 years after the death of an individual then
alive or (ii) 90 years after creation.
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73. Everything You Always Wanted To Know About Family Trusts
Oddballs
3.
Why Do We Use Blue Ink?
Because it is easier to tell the originals than if we use black ink.
4.
Why Do We Have The Clients Initial Every Page?
To make it more difficult to slip in a page later.
5.
Why Don’t We Keep Original Documents?
Partly it’s a storage problem (we prefer PDFs). Partly it’s a matter of courtesy to the
clients.
Givner & Kaye,
A Professional Corporation
Owen@GivnerKaye.com
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74. Everything You Always Wanted To Know About Family Trusts
Oddballs [continued]
6.
Who Should Get Copies Of The Documents?
Your CPA. Your first successor trustee. As to the DPOA – healthcare, certainly your
primary physician. Your children?
7.
How Often Must We Check Our Estate Plan Documents?
Some people check them every year on the anniversary of the date they were signed.
Some people check them every year on their birthday or on New Year’s. We recommend an
annual maintenance program where we call you every 6 months.
Givner & Kaye,
A Professional Corporation
Owen@GivnerKaye.com
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75. Everything You Always Wanted To Know About Family Trusts
Oddballs [continued]
8.
What If We Lose The Originals?
A copy of the document is usually sufficient to implement the estate plan. In the case
of a dispute as to which is the most recent version of the estate plan, having the original may be
important. However, in 35 years of practice, that has never come up.
9.
What If We Move To Nevada?
Show your documents to a competent lawyer in the state to which you move.
Chances are there is nothing that must be done (though they lawyer may say so to generate
revenue).
Givner & Kaye,
A Professional Corporation
Owen@GivnerKaye.com
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Questions and Answers
Send us e-mail:
Bruce@GivnerKaye.com
Owen@GivnerKaye.com
Kathy@GivnerKaye.com
Neda@GivnerKaye.com
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