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.

Just when I think the practice of law starts to re-gain some lost respectability someone finds a way to change all that. The latest entrant is courtesy of a company called “The Estate Plan” and the attorneys they involved in their “operation.”

I had never heard of the specific company “The Estate Plan,” although I have heard of various individuals and organizations with no or varying degrees of attorney involvement peddling Living Trust documents and other estate planning devices. I recently heard someone mention “The Estate Plan” company and the following case was brought up in that discussion: Cleveland Bar Assn. v. Sharp Estate Serv., Inc., 107 Ohio St.3d 219.

It is a case from the Supreme Court of Ohio by the Cleveland Bar Association against Sharp Estate Services and The Estate Plan among other defendants. The Bar Association claimed The Estate Plan engaged in unauthorized practice of law with the actions they used to sell Living Trust documents much the same way a person sells a financial product. You can read the details in the case yourself, but the critical flaw with the methodology used by The Estate Plan, as found by the Court, was the absence of independent licensed legal advice throughout the client representation process.

Designing and drafting estate planning documents is very much providing legal advice. It is providing advice to implement a client’s goals through the various legal devices available. It is being proactive to identify threats to a client’s estate plan and advising on how to minimize those threats. It is more than pushing a “magic button” and delivering one document that works for everyone everytime.

As a client, you seek to accomplish your goals through legally binding and effective documents. Would you ask your mechanic how to accomplish this and what makes sense for you? If you answered “no”, then I can’t imagine why you or anyone would consider the opinion of someone else without a law license.

To make things worse, the fees they were charging at the time (2002) were close to or above $2,000 for a Living Trust plan. Note, this was an estate plan from someone forbidden to practice law or give any legal advice. I admit I’m not familiar with the Ohio estate planning market, but in Connecticut you can still get quality estate planning work from an experienced attorney for not much more than what a company breaking the law was charging people.

Why did I bring this up and what does this have to do with attorneys? Well, The Estate Plan used attorneys as employees in an attempt to immunize themselves from unauthorized practice of law claims. The Court found these attorneys to be little more than data entry personnel and rubber stamp providers for their documents. The attorneys did not maintain their professional independence and that is where I am disappointed. As an attorney I work for you, the client. I have an obligation to you to provide independent appropriate advice. If an attorney lets external factors interfere with that obligation the very core of the attorney-client relationship is threatened.

I brought this story up to educate you, my reader. Even though I’m pointing out another black spot on the legal profession from some of its members, I want you to know what is going on out there. So the next time someone tries to sell you a Living Trust as the solution to all your problems, make sure the person telling you that is an attorney, and that they are an independent attorney working for you.

The treatment of assets owned by a revocable trust for Title 19 Medicaid eligibility in Connecticut has been clearly established by our Department of Social Services for many years. However, every once in a while I do run into someone that thinks somehow, in some way, using a revocable trust is competent Medicaid asset protection.

The thinking generally is along the lines of: “but I don’t own anything, my trust owns all my property.” Trust me, this is not a novel idea. People have tried to use that argument for many years. The Department and the Congress have evaluated countless Title 19 Medicaid eligibility cases involving revocable trusts and they have adapted.

The reality of the situation is that with a revocable trust, the trust owner continues to have complete control over their property even if they are no longer the owner of record. Connecticut’s Department of Social Services recognized this long ago and implemented regulations that in practical terms attribute the assets owned by a revocable trust to the owner of the trust. The bottom line is this: if you are using a revocable trust to shelter assets and create eligibility for Title 19 Medicaid benefits in Connecticut, I strongly recommend you obtain a second opinion on that strategy from a qualified Medicaid attorney.

My comments here are limited to revocable trusts. In some cases there are other trust planning options that do provide some degree of Medicaid asset protection; however, those trusts are not revocable.

If you are considering a Connecticut Revocable Trust for reasons other than Medicaid, visit http://CTLivingTrust.com/

When some people think about estate planning, their first thought is to hold property jointly with their children or whoever their beneficiaries are in order to simplify the transfer of assets upon death. It may sound like a good idea at first, but upon closer examination there are some important issues that should be considered before using joint property as your estate plan.

• With some assets, designating a joint owner amounts to a present gift of a portion of the asset rather than only creating a survivorship interest. On the portion of the property that’s a gift, there’s no stepped-up basis. Your cost carries over to your beneficiary. When they sell, they pay capital gains taxes. But if they inherit the property directly from you or from your living trust at death, the capital gains are wiped out altogether.
• While the property is in joint names, your beneficiary might be sued, go bankrupt, get divorced, or have an accident that leaves them incapacitated. If so, the assets might become consumed by your beneficiary’s expenses and be unavailable to you, leaving you destitute.
• If your beneficiary has siblings to whom you expect the joint owner to divvy up the assets when you pass away, the transfers are gifts, subject to gift tax.
• You can have a falling out with your beneficiary and they can clean out an account they are listed as joint owner on.
• If your beneficiary dies before you, the IRS wants proof that the asset was bought by you. Otherwise, they’re taxable in your beneficiary’s estate.

You may notice the common issue with every case described above stems from giving someone else access to your assets during your lifetime. I am a firm advocate of protecting your own assets from all the risks out there. I am hard pressed to find a reason to justify taking on somebody else’s risks by naming a joint owner of an asset. It’s risky.

One way to avoid all of these problems is to not use lifetime ownership designations to accomplish property transfers you desire after you pass away. Use a Will or Trust to define your estate plan and coordinate your assets to be distributed according to your Will or Trust. You are not vulnerable to these joint ownership issues when you use a Will or a well designed Trust.

Ready to get started? Call (860) 593-0404 and schedule your consultation today.