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File Folder with Paper - DG iStockAs a Relationship Manager for a corporate fiduciary, I am often asked by my peers in the estate planning community about typical problem areas to keep in mind when drafting a trust document. Here are three topics to closely consider to ensure the grantor’s intentions are met:

Outside Resources

A standard question most planners will ask their client is whether they would like the trustee to consider a beneficiary’s outside resources when making trust distributions. It has come to my attention that many practitioners do not realize that if a trust is silent on this issue, the default rule used by most corporate fiduciaries is to consider a beneficiary’s outside resources. If the grantor’s intent is for the trustee to distribute without regard to outside assets, it is prudent to specifically state so in the document.

Pot Trusts

While pot trusts can be appropriate in some instances (after all, fair does not always mean “equal”), we too often see significant inequality in distributions among a class of siblings, especially when a large age-range exists. The result is often negative feelings toward the sibling who receives more. Go through the potential scenarios of pot trust administration with your client. Is it important to them that there is an equalization provision? What if one beneficiary goes to an Ivy League school and the other attends community college? One sibling may potentially utilize considerably more of the pot trust assets before the beneficiaries receive their individual shares. When utilizing a pot trust, be specific about whether equalization is important to the grantor.

Duty to Inform and Report

Minnesota’s version of the Uniform Trust Code (effective January 1, 2016) defines a Trustee’s “Duty to Inform and Report” under 501C.0813. The new law creates a duty for the Trustee to keep the qualified beneficiaries…reasonably informed about the administration of the trust…” Minn. Stat 501C.0813(a). However, the grantor may expressly provide that the duty does not apply. 501C.0813(b). “Qualified beneficiary” is a new term and includes current income and principal beneficiaries as well as remainder beneficiaries. 501C.0103(m). The grantor should consider who he/she would want to know about the existence of the trust when drafting a document. If the grantor does not want remainder beneficiaries to be notified of the trust’s existence, the drafter must expressly state that in the document.

Misunderstandings tend to occur when specificity is sacrificed in the name of flexibility. I think most corporate trustees would agree that clear direction is appreciated in order to administer a document that most accurately reflects the grantor’s intentions.

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Family at a pinic - iStockParents, legal custodians, or legal guardians periodically find themselves in a position that necessitates granting power to another adult regarding the care, custody, or property of a minor child or incapacitated person (ward).

Examples may include a vacation out of state or country, a long term illness, or other extenuating circumstances.  One way to delegate this authority is by using a properly executed power of attorney form, which is a written document in which one person (principal) appoints another to act as an agent on his or her behalf.

The Powers

Pursuant to Minnesota Statute § 524.5-211, the parent or legal guardian can delegate to the agent any decision regarding care, custody, or property of the minor or ward.  Examples of this may include: authorization of medical treatment for the minor or ward; enrolling the minor or ward in school; and to provide a home, care, and supervision of the ward or minor at the agent’s home. However, this form does not allow an agent to consent to marriage or the adoption of a minor ward.

A parent or guardian can also designate the duration of the powers, so long as it does not exceed a period of one year.

The Execution

The form must be signed by both parents and the agents and shall be notarized.  In the case of a single parent executing this form, that parent must mail or give a copy of the document to any other parent within thirty (30) days of its execution unless: the other parent does not have parenting time or has supervised parenting time; or there is an existing order for protection under chapter 518B or a similar law of another state in effect against the other parent to protect the parent, legal custodian, or guardian executing the delegation of powers or the child.

Another option for delegating these powers is by designating a temporary or standby guardian under chapter 257B.

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house - iStockA comprehensive estate plan deals with multiple types of property; from probate assets that pass through your will, to non-probate assets that pass outside a will via a trust or beneficiary designation, to jointly held assets, which pass automatically at the time of the first death. One of the most common joint assets people hold is their home, which is most commonly held in “joint tenancy with right of survivorship.”

When an asset is held by joint tenants, it automatically passes to the survivor on the first death. In order to formalize the transfer, each county may have the survivor file simple paperwork. Because it is such a simple process, joint tenancy can be a useful tool to pass an asset outside of probate at the first death, and can even be used to reduce the estate to the point where probate is avoided altogether, if that is a goal in the estate plan. However, there are both pros and cons to joint tenancy that need to be considered when weighing its place in an estate plan.

Pros

It is easy and comparatively quick for the survivor to transfer title into their sole name after one owner dies.

It works for most assets: cars, real estate, bank accounts, investment accounts, etc.

After the first death, the asset is not subject to creditors’ claims that were the sole responsibility of the deceased party, only claims that were the joint responsibility of both tenants.

You are not limited to 2 joint tenants- you can list groups of any size, with full ownership rights passing to the longest living.

Cons

During the lifetime of the joint tenants, the creditors of a joint tenant can make claims against and seek payment from all of the jointly held assets.

The last joint tenant will still need a will or trust to pass the asset to their beneficiaries.

Although it’s unlikely that all owners will die simultaneously, in that situation, joint tenancy would not help avoid a probate.

The joint tenants must own equal shares, but each tenant also has the right to enjoy the whole property (including removing all assets from an account), which can leave one joint tenant open to the other taking more than is expected.

If the property is currently held by a single owner, creating the joint tenancy can result in a taxable gift to any added joint tenants.

You need the consent of all owners to transfer the property- this can be difficult to obtain if incapacity or disagreement are likely.

Changing your will does not change the ownership of the property, and you are not guaranteed your interest will pass on to your heirs (unless you are the last to die, or they are shared among the joint tenants).

Joint tenancy can be a very useful tool to speed up the distribution of assets after a death. For a person with a smaller estate, it may even help avoid the need for a probate. However, the drawbacks can be significant, and their application to each estate is best discussed with an estate planning attorney who understands the individual situation.

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Succession Planning for Your Company and Your Retirement

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