General Legal

Wednesday, January 30, 2008

Trouble and the Trust

Leona Helmsley famously left more than a billion dollars to her maltese, “Trouble.” But Trouble isn’t rich. Trouble is a dog, and non-human animals cannot own property. There are some people who would like to change this, but they haven’t succeeded yet. So, what happened to that money? Mrs. Helmsley left it to the trustee of a “pet trust.” What exactly the trust says, we don’t know. Unless it is the subject of a law suit, the contents of a trust are private between the trustee and the beneficiaries.  
For the same reason that Leona could not leave the money to Trouble directly, Trouble cannot be the beneficiary of “his” trust. The beneficiary must be some human, who is directed to take care of Trouble and will receive a stipend and expenses as long as he or she does. On Trouble’s passing, the remaining assets in the trust will presumably go to some other person or to charity. 
So, at least three humans have to be involved in a pet trust. The original owner, who is called the “Trustmaker” created the trust.   The person taking care of the money is called the “Trustee.”  The person taking care of the animal is the “Caretaker.” Whoever receives the money when the animal is gone is the “Remainder Beneficiary.” This last can be a worthy charity such as a rescue organization.
So, if you want to create a pet trust, then, you need at least two other people – one to take care of the animal, and one to take care of the money. Why can’t you have just one? You can, of course, leave the animal and the money to the same person. But you would not have the kind of accountability that you would have if the caretaker has to go to the Trustee for money.    The caretaker/Trustee would be free to spend the money on anything he or she wanted.  
Many people just leave the animal to a potential caretaker with a sum of money sufficient to compensate the person for any expenses. This is better than not taking thought for the fate of the animal at all. People tend to assume that they will outlive their pets, or that some kind soul among their relatives will take them in. Given the reputation of her dog, Leona Helmsley could be fairly sure that would not happen. She had the money, so she chose to make really sure that it would be in someone’s interest to take good care of Trouble.

Friday, January 25, 2008

So Your Money is Tied up in a Trust?

So Your Money is Tied Up in a Trust?  
Congratulations! Your assets may be protected, if down the road you meet with one of the creditors or predators of life. Your property may survive the encounter, to be there when you need it.
Let me give an example. One foggy morning after your spouse has passed away, you may have an accident. Suppose you hit a school bus. Suppose too, that a court determines that you were driving too fast, and so the accident was your fault.   A lot of the kids are hurt, even killed. 
Not all the insurance you could have will cover this. The plaintiffs – the children’s parents – would become creditors who could attach everything you own, your house, your bank account, everything.   You would be left completely broke.
Now suppose your spouse had left property to you in trust. The conditions of that trust were that you could get money out of the trust for your needs (broadly defined – you could basically do anything you could have done while your spouse was alive) but a creditor, like the school bus children’s parents, couldn’t get in. 
This wouldn’t mean that the parents would be out of luck. But your attorney would have a basis for saying “let’s settle this – let’s name an amount” rather than having the plaintiffs able to go after everything you have.
Let me suggest another scenario. After your spouse passes away, you meet “Beau” the tennis pro, or “Betty” the barmaid. You’re swept off your feet. A year or so later, you wake up and discover that this person is way too young and foolish for you, and they are only after your money. 
In a divorce, a court will generally look at the assets of both parties and divide them “equitably,” which may mean equally, if there is no clear reason to do so otherwise. Does “Beau” or “Betty” get away with half your assets? Not half of those that your first spouse left to you in trust, not if the trust is drafted properly.
Catastrophic creditors, divorce, bankruptcy – these are all things that can happen. A properly drafted trust will protect against all of them.
Notice that I said that your assets “may” be protected and I refer to a “properly drafted” trust. A trust is not a “one size fits all” item. It needs to be tailored to your particular needs and concerns. Not everything that is called a “trust” includes the protections that I have described. There may be reasons for leaving them out. 
What about estate taxes? If your estate (including your 401(k), IRAs and life insurance) amounts to a million or more, you will want to do some tax planning. But that’s another blog entry.

Saturday, November 10, 2007

Who needs an estate plan?

Isn't that a concern of older people, or of the wealthy?  The fact is; everyone should have an estate plan, meaning at least a will, and probably a trust as well.  Whenever anyone passes on, there are decisions that have to be made, and things that have to be given out.  The person who does this is called the "executor" if there is a will.  If there is no will, this person is called the "administrator".  If there are children, someone has to take care of them, and be responsible for the money and things that belong to them.  This person is called the "guardian." 
  It is true; the court will not leave things without owners and children without a guardian.  But do you know who will be most likely appointed administrator and guardian in the absence of any advance planning?  The first person who volunteers.  If more than one person is interested, in being, say, administrator, there will be a lawsuit about it.  Eventually, the case will be resolved, but not without the bad feelings and expense that stem from any adversary proceeding.  Especially if children are involved, think custody battle. 
  Face it; the court is going to be involved. But if your selected executor can present the court with a tightly worded self-proving will that says who you want to do what, the judge has to do a lot less work.  And judges like that.  Although the judge can theoretically appoint someone else, if the will is clear and all interested parties agree, he or she is unlikely to. 
   As a matter of fact, probably no one needs an estate plan as much as a person with young children.  Just because it is so unlikely that such a young person will pass on, such an event is a worse blow to the family than the passing of an older person would be.  It causes worse chaos, financial and emotional. If one spouse is left behind, they must care for the children alone.  What if the surviving spouse re-marries, perhaps to someone who already has children?  What happens to the assets that should have taken care of the children of the first marriage?  What is to keep the life insurance intended for those children from being spent on a new car or expensive vacations? If both spouses are gone, which side of the family gets the children?
  One way to protect children in the event of the early death of a parent is to have money, such as life insurance, paid into a trust for the benefit of the children.  The trust could pay only for specific needs of the children such as braces or private school, or it could provide a stream of income to surviving spouse or guardian to provide for the children's needs.  The trust could be under the control of the spouse if that seems like a good idea, or a third party could control it, perhaps a grandparent.  If the assets are large, you may want to involve a paid third-party like a bank.  If both parents are gone, one relative may be the trustee, while another serves as guardian. 
  You should discuss with your spouse who in your respective families could care for the children if you were both gone.  Whatever plan you choose to have, you should have one, or you may be leaving the judge to make up his or her own mind as to what is best for your loved ones.  The result may not be a bad decision, but it may be different from the one you would have made.

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Jennifer A. Deland, Counselor-at-Law advises clients throughout the Metrowest area, including Holliston, Hopkinton, Milford, Medway, Medfield, Ashland, Framingham, Natick, Sherborn, Dover, Southborough, Sudbury and Westborough.

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