I have recently worked on several trust disputes that could have been avoided or reduced if the trust creation had been done with more forethought.
First, let me say that these are NOT cases in which I prepared the trusts. These are cases in which trusts were prepared by others and then brought to me after the original trustee was deceased.
What is especially upsetting about the recent trust disputes I have seen is that several of these issues caused huge fights among family members. Surely the deceased relative did not wish to start family feuding.
Remember that creating a trust has as its main purpose preventing or reducing major complications and costs upon your death. Thus, if your trust does not meet the needs of your specific situation, you may not have achieved this.
To help avoid trust complications, I offer below some simple steps that can reduce family feuds:
1. Do NOT simply copy another person’s trust for your own, erroneously assuming that your estate situations are exactly the same. This is rarely the case, and if your trust has not been created specifically for your own estate there can be major complications at your death.
2. While I understand that some people may not want to get married, keep in mind that only a legal marriage allows for the marital deduction from estate tax. Otherwise, if you have a taxable estate, the funds that you leave to your long-time companion will be subject to a 40% tax. Also, a bequest to a spouse is much harder to contest by potential heirs who feel they have been shortchanged or ignored.
3. If you own real estate, leave clear instructions in the trust as to what is to be done with that property: Do you want it to be sold? Rented out? Is it a vacation home to be shared by the family? Do you want your successor trustee to make the determination?
4. Specific real estate considerations:
a) If the trust beneficiaries are to continue to hold and rent out the property, who will manage the property and what will the compensation be for managing that property? How and at what intervals will the proceeds of that property’s revenue stream be distributed to all the named beneficiaries? Should you consider forming a family partnership or LLC?
b) If one beneficiary wants to sell the property and one beneficiary wants to keep it, include in your trust how this is to be accomplished. Provide for a buyout mechanism such as an appraisal or auction. Or consider naming an independent trustee to make such decisions.
c) If the property is a vacation home, provide a mechanism for determining who gets to use it and when.
5. Make sure all bank accounts are in the trust — otherwise there may be a dispute over whether these are included in the trust distribution. If you need to have another person on a bank or securities account for convenience, make that person a Co-Trustee or Special Trustee rather than a joint owner of the account.
6. Make sure your trust has a “no contest” clause so that anyone contesting your estate plan loses his or her inheritance.
7. Create a list or label those family heirlooms and valuables that may cause feuding. Include this information in your trust. (The list or labeling can always be amended.)
8. If you decide that one child should receive a larger share than another — say because one child has much larger financial resources — include a gift for the non-recipient child, whether cash or a particularly significant family heirloom, so this child knows you have not forgotten him or her. (You should also consider a letter to him or her explaining the disparity.)
9. To ensure that your plans for your surviving family go as smoothly as possible as well as legitimately reducing taxation on your estate, have an estate planning attorney in your state of residence create your trust rather than using some online fill-in-the-box form.
10. Then review your trust every few years for changes in the estate laws as well as changes in your family status and for changes necessitated by our evolving society. For example, do you have a digital rights management provision in your trust and in your power of attorney? (Click here to read an article on the afterlife of digital rights.)
— September 12, 2016
The information in this article is NOT legal advice, only considerations for you to discuss with your own estate planning attorney. The providing of this material does not establish an attorney-client relationship.