This is the first article of the Know Your Estate Plan series.  In this piece I will cover some of the common questions people have about the Executor and Trustee positions.

The Executor is the person or company responsible to administer the instructions contained in your Last Will and Testament.  In practical terms, there are almost no requirements to qualify as an Executor other than that the person be eighteen years of age or older.  The Executor can even be in a different State.  In many cases, the person you nominate as Executor will be approved by the Probate Court without incident.  However, anyone interested in the Estate will have an opportunity to object to the nominated Executor and may persuade the Probate Court to reject the nominated Executor if there are concerns about financial responsibility or trustworthiness.

The Executor of an Estate will be required to secure a bond in an amount determined by the Probate Court.  You can excuse this requirement for bond in your Will.  The bond requirement exists to provide any beneficiaries wronged by the Executor’s actions an opportunity to recover some or all of their loss.

Now that we know what an Executor is, what does an Executor do?  In general terms, the Executor collects all of the Estate’s assets, pays the Estate’s debts, files the required tax returns, and then distributes the remaining assets in accordance with the terms of the Will.  The Executor has significant control over the administration of the Estate.  Many Wills grant the Executor broad discretion on certain matters.  The Executor can exercise that discretion, although they are not permitted to substitute their own judgment for what is embodied in the Will.  The Executor has a full plate, is yours up to the task?

A Trustee is responsible for many of the same duties as an Executor.  One important difference is that in many cases a Trustee is not under the active supervision of the Probate Court.  In this situation, it is even more important that someone you trust is in the position of Trustee.

How do you choose an Executor or Trustee?  The advice I give my clients is to choose someone you trust, someone that is responsible, and someone that understands your goals.  The Executor or Trustee is responsible for your property upon death or disability, it is only reasonable that you have a certain comfort level with them.

In addition to your own comfort level, consider the other beneficiaries that will be depending on the Executor.  This is particularly important in second marriages where a step-parent may be in control of a step-child’s inheritance and some children may be uncomfortable with that arrangement.  You may trust your second spouse entirely, but do you want to risk your children hauling your spouse into court all the time because of petty arguments when a more sensible arrangement may be available?  If you can not settle on an Executor or Trustee that everyone is comfortable with, you can consider an independent fiduciary to fill those roles.  It may cost more in dollars and cents, but it may also save your family a lot of headaches and argument.

Now that you know the basics of the Executor and Trustee positions, check your documents and see who you’ve put in those positions.  In many cases the Executor of a Will is nominated in the very last Article or near the end.  Trustee nominations can be found anywhere in a trust document, but it should be clearly identified with something to the effect of “Appointment of Trustee” as a title.

Now that you know who you have appointed to the positions of Executor and Trustee, you are already ahead of the game.  Some people I meet with bring in documents for me to review and are surprised when the attorney that drafted the document appointed themselves or their law firm as a fiduciary when they don’t remember agreeing to such an arrangement.  That is a big red flag to me.  In other cases, people have designated parents that are no longer fit to serve as Fiduciary or other individuals that may have become estranged since the documents were originally drafted.  Make sure your Executor and Trustee appointments reflect your goals today and get them updated if they do not.

Leona Helmsley died on August 20th. Her Will has been filed with the Surrogate’s Court (NY’s name for their Probate Court) and it provides an interesting look into celebrity estate planning. Some interesting things I observed are:

1) Using a Will as an instrument of significant distributions. This is not something I would recommend for someone in Leona Helmsley’s position, especially if this was taking place in Connecticut. First, as is obvious by now, Wills are public and everyone now knows she disinherited some grandchildren, left a very large sum to her dog, and imposed visitation requirements on other beneficiaries. Maybe it is just me, but I find it difficult to believe someone with Leona’s history in the news would invite public scrutiny of her last wishes.

Second, the Will creates several ongoing trusts. Maybe it is different in New York, but in Connecticut creating even one trust in a Will is synonymous with ongoing Probate Court involvement for years and years as well as the accompanying legal and accounting fees. Not exactly the model of efficiency and savings. If this was my client in Connecticut, I would recommend using inter-vivos trusts for ongoing matters rather than the testamentary trusts used by Leona Helmsley.

2) Article Four Section D of Leona Helmsley’s Will requires her grandchildren visit the grave of her son annually. Failure to comply with this provision will terminate their trust share. I bring this provision up to highlight the flexibility you have in structuring your estate plan. Within the bounds of the law, you are free to create any framework you like for the distribution of your assets; including steering your beneficiary’s behavior to continue personal values you believe are important.

3) Leona Helmsley took advantage of a Charitable Trust to provide a tax efficient legacy to her beneficiaries. There are different types of Charitable Trusts and the terms of Leona’s are private, so I can’t get into specifics on this one. In general terms, if Leona did not take advantage of a Charitable Trust the tax impact on her estate would have been significant. If setup properly, the Charitable Trust allowed her to re-structure some of her estate into a more tax efficient distribution to her own family as well as charitable organizations. As proof of what I described above, compare how much we know of Leona’s Will because it is public with what we know of her Charitable Trust, because it is private.

This is a good opportunity to clear up a popular misconception of Charitable Trusts. Sometimes when people first hear the words Charitable Trust offered as a suggestion for their own estate plan they think it means leaving everything to charity. Not true, you have a lot of flexibility for dividing the interests in the Charitable Trust between your own family and the charitable organization(s). In many cases where I recommend a Charitable Trust, the primary family beneficiaries will receive more after taxes than if the distributions did not use a Charitable Trust. So the next time someone mentions this opportunity, look at the numbers closely before thinking it is not for you.

Sometimes celebrity estate planning attorneys get it done right, and sometimes they get it done not so right. The general consensus is Anna Nicole Smith’s estate planning was a disaster. Leona Helmsley’s estate plan was a little better, if not more public than necessary.

Connecticut Probate has a reputation, and it is not very good. From the scandal involving Judge James Kinsella in the 1980s to systemic flaws that have been slowly revealed as the legislature began to unravel the Probate onion in recent years. Here are a few stories discussing some of the common issues with our Probate system.

Channel 8 News Report
Another Channel 8 News Report
Yale Law School Commentary

We’ve been fortunate and have not had any large scale probate scandal in recent years that I’m aware of. Although as you can see from the articles, the vulnerabilities remain and the next scandal could come any day.

You may be one of many worried about the financial issues of mental incompetence, obligations of caring for a disabled relative, or providing a residence and care for the physically incapacitated. If you are a principal income producer and you become incompetent or incapacitated for any reason, a drastic and involuntary financial adjustment in your family structure will occur. If long term public or private institutionalization is required, your property may be depleted (or you may have to expend all or almost all of your own assets) before you will be eligible for governmental or public aid.

None of these are pleasant thoughts. But you must face these and other issues before it is too late and many important planning options are lost. To preserve and protect both your property and your dignity, you must act now! If you are interested in these problems and their solutions keep reading.

THE LIVING WILL: If you were unconscious or incompetent or for any other reason were unable to make your own decisions regarding health care, who, if anyone, would you want to make such decisions? A so called Living Will may be part of the solution.

A Living Will (often called an Advance Directive for Medical Care) is a document that expresses the desire that when death is imminent, loss of mental capacity is substantial, incurable, irreversible, inevitable, and with no hope of recovery extraordinary, artificial, life sustaining techniques should not be used to prolong life. A Living Will coupled with other documents your attorney can draft for you is certainly part of the way to express your desires.

THE HEALTH CARE POWER OF ATTORNEY: A durable power of attorney for health care has been authorized in Connecticut by specific law. A health care power of attorney is broader and more flexible than a living will since it provides for many types of health care decisions other than those regarding life sustaining treatment. It allows you to appoint an agent, someone to make any and all health care decisions on your behalf in the event you are unable to make your own except to the extent you provide otherwise. You, of course, continue to make decisions as long as you are able to do so. You can refuse any health care treatment merely by objecting and can revoke the authority you give to your agent orally or in writing. A health care power of attorney is sometimes used in addition to a Living Will or may be broad enough to take the place of a living will.

THE DURABLE POWER OF ATTORNEY: A power of attorney is a relative simple and inexpensive legal document by which you give a spouse, child, or other relative or someone else (the attorney in fact ) the right to act in your place on your behalf with respect to financial matters. You can make this power as broad or as narrow as you wish. A well drawn durable power of attorney is for many people as important as a will. It may negate the need to petition a court to have a guardian or conservator appointed to handle your assets if you can’t. A durable power of attorney is a “must” if you are currently suffering from a physical disability or illness that could lead to permanent or long term incapacity but should be considered even by healthy individuals who would like to provide for continuity of management of assets if for any reason they can’t manage those assets or handle their own affairs for a period of time.

THE REVOCABLE LIVING TRUST: In order to avoid the costs, publicity, and complications of probate administration upon death or disability, many people use a revocable living trust to enable them and their family to keep control as long as possible. The trustee you select assumes the responsibility of investing, managing, and conserving the property on your behalf and for your other beneficiaries if you should become incompetent. A revocable trust allows you to change your mind and regain property that you have put into the trust or change the terms of the trust.

THE CHOICE IS YOURS! You can choose to take action now and keep control or you can choose to hesitate and let federal and state laws and fate control you and your loved ones.