Talking about Trusts

Talking about Trusts – to learn more, find an Estate Planning lawyer at www.ZeekBeek.com

What is a Trust? A trust is formed when a person, the settler (sometimes also called the “grantor” or the “creator”), transfers property to another person, the trustee (or trustees if more than one), to be held for the benefit of another person (or persons), the beneficiary (or beneficiaries).  For example, assume Abe transfers $100,000 cash to his uncle Bob and directs Bob to hold the money in trust for the benefit of Abe’s children.  In that case, Abe is the settler, Bob is the Trustee, and Abe’s children are the beneficiaries.   Working with a lawyer, the settlor will decide what trust terms he or she wants, and those terms will be set forth in a written document called the trust instrument, which will be signed by the settlor and the Trustee. 

How does a Trust work? The beneficiaries, as the name suggests, are the people who will actually benefit from the trust property, usually by receiving payments from the trust, which are referred to as distributions.  The Trustee is responsible for managing the trust property in the best interests of the beneficiaries, for example by investing the trust assets prudently, and taking care of administrative matters, like filing any necessary tax returns.  The Trustee can also be given authority (“discretion”) to decide, for example, whether it’s a good idea to make a distribution to any given beneficiary and, if so, how much to distribute.   The amount of discretion a Trustee will have over distributions is one of things that will be spelled out in the trust instrument.

What are Trusts used for? Trusts are widely used for a myriad of estate planning purposes.  One of the major advantages of a trust is that it permits a person to make property available to family members, for example a spouse or children,  but at the same time lets the person control the way in which the family members will be able to benefit from the property.   There are many situations where that kind of control is desirable.   Certainly if the beneficiaries are minors or are incompetent, they cannot have direct access to the property.  But those are not the only cases. 

For example, let’s say the settlor wants to leave money for his son who is a young adult. The settlor is concerned about giving a 21 year old a large sum of money – the son may squander the money, it may sap his initiative, he may be preyed upon by fortune hunters, etc.  In such a case the settlor could instead transfer the money to a trust for his son, and specify that his son will receive the income from the trust each year, and will receive ½ of the property from the trust at age 30 and the rest at age 35 (or whatever ages the settlor thinks advisable).   

Or perhaps the settlor is married for the second time, and has children from his first marriage.  If he leaves his property to his wife she may in turn leave it to someone else (perhaps even a subsequent husband), and his children may receive nothing.   Instead, the settlor can leave the property in a trust that provides for income to the surviving spouse for life, with the property passing to the children of the first marriage upon the surviving spouse’s death.

Trusts can also be used to provide for family members who are not good at or are not interested in managing money, or who are profligate spenders, or who have substance abuse or other issues that make it unwise for them to own property directly.  The Trustee can make the investment decisions, and can also be given discretion over making distributions if appropriate.  For example, a trust could provide that the beneficiary will not receive any distributions at all unless the Trustee decides it is advisable; sometimes that kind of restriction is actually in the best interests of the beneficiary. 

Trusts are also used extensively for tax planning (for example, to hold life insurance policies), for Medicaid planning, and to provide for the supplemental needs of disabled individuals.   

It is not possible to list all the possible ways that a trust can be set up—powers of appointment, rights of withdrawal, and/or payments for specified purposes like education, are just some of the possibilities.  That flexibility makes trusts an essential estate planning tool, but also necessitates consultation with an experienced lawyer to decide on the best terms to meet each person’s unique situation. 

Disclaimer – Blog Not Legal Advice

This blog is not legal advice and no attorney-client relationship is formed.  The information and materials on this blog are provided for general informational purposes only and are not intended to be legal advice.  The law changes frequently and varies from jurisdiction to jurisdiction.  Being general in nature the information and materials provided may not apply to any specific circumstances.  Nothing on this blog is intended to substitute for the advice of an attorney.  If you require legal advice, please consult with an attorney licensed to practice in your jurisdiction.

To Tweet or not to Tweet

To Tweet or not to Tweet – legal aspects of Twitter, at www.ZeekBeek.com

Twitter, LinkedIn, google+, Facebook, Instagram-- these social networking tools have transformed our personal interactions and opened up new avenues of communication.   Recently these mediums have also raised interesting legal issues as the law attempts to integrate these new technologies into existing legal frameworks.

Consider twitter-- right now the Courtney Love so- called "Twibel" (Twitter/libel) case is making it's way to a jury in a California.   Courtney Love, no stranger to controversial behavior, sent a tweet in 2010 about her ex-lawyer that said:

@noozjunkie I was f---ing devastated when Rhonda J Holmes Esq  of San Diego was bought off at @fairnewsspears perhaps you can get a quote

The tweet was apparently sent after Holmes declined to pursue a fraud case against the managers of the estate of Kurt Cobain (Love's former husband).  Rhonda Holmes thought the tweet suggested she had been paid off to abandon the lawsuit  -- so she sued Love, claiming that the tweet amounted to libel.  You can read more background about the case here. http://www.businessinsider.com/courtney-love-tweets-in-libel-trial-2014-1. Incredibly, this wasn't even the first time Courtney Love was sued over a tweet!  In 2011 Love paid $430,000 to settle a twitter libel case brought against her by a clothing designer.

But this case is getting a lot of attention because it is the first twitter libel case to go to a jury.  So is it libel? Well, the technical answer is that it's up to the jury to decide.  Libel generally means a public written statement that impugns a person's reputation causing harm.   If the statement is about a public figure, like an entertainer or politician, then it's not libel unless the statement was made with actual malice.  But if the statement is made about a private person, then it can be libelous if it was made with negligent disregard of the truth.  Accusing someone of a crime or professional incompetence is a common example of libel.  But there are some defenses, including that a statement is substantially true even if it isn't 100% accurate, and a statement of opinion where the underlying facts are true.  By the way, defamation is sometimes used interchangeably with libel, but if the statement is in writing, then it is libel -- so that's why this is Twibel, not Twefamation!

The legal rules described are the basic rules that have always applied to libel.  So does Twitter really change anything?  It seems that the main problem with Twitter and libel is that many people tweet impulsively and as a result "publish" a defamatory statement, whereas in the past they might have just ranted a bit to friends or even to themselves, with no legal consequences.  Do existing legal rules provide a helpful function by discouraging false and disparaging tweets?  Or do they unfairly penalize people for comments that were meant to be momentary expressions of thoughts and feelings?

Twitter has also caused problems for the less famous.  Recently a judge ruled that a gate attendant could sue a passenger who tweeted derogatory information that specifically named the gate attendant.  A man in California saw charges against him upgraded from manslaughter to murder based on tweets about fast driving that he posted prior to a car accident that claimed the life of a cyclist.  And in a Hawaii a man tweeted himself into a 90 day jail sentence by criticizing the judge and police on twitter while his judicial proceedings were still ongoing.  These cases also show that Twitter can have significant real life consequences because of the way it memorializes and broadcasts information, reinforcing the need to think before you tweet!  

Disclaimer – Blog Not Legal Advice

This blog is not legal advice and no attorney-client relationship is formed.  The information and materials on this blog are provided for general informational purposes only and are not intended to be legal advice.  The law changes frequently and varies from jurisdiction to jurisdiction.  Being general in nature the information and materials provided may not apply to any specific circumstances.  Nothing on this blog is intended to substitute for the advice of an attorney.  If you require legal advice, please consult with an attorney licensed to practice in your jurisdiction.  

An Introduction to Revocable Trusts

An Introduction to Revocable Trusts (aka Living Trusts)—to learn more, find an Estate Planning Lawyer at www.ZeekBeek.com

A revocable trust is – a revocable trust!  No, that is not meant to be a joke.  A revocable trust is simply a trust that is revocable by the person who created it at any time up until that person’s death.  A trust is an arrangement where a person (usually called the “settlor” or “grantor” or “creator”) transfers property to a trustee to be held for the benefit of someone (called the “beneficiary” or, if more than one, “beneficiaries”).  With a revocable trust usually the settlor is also the sole trustee and the sole beneficiary of the trust during his or her lifetime.   Revocable means just what it says—the settlor can change his or her mind at any time up until his or her death, revoke it, and all the trust property will be returned to the settlor and the trust will cease to exist.  The terms of the revocable trust are set forth in a written trust document that must be signed by the settlor (and the trustee, if the trustee is a different person), and should also be notarized. 

Does a revocable trust have any income, gift or estate tax benefits?  No. In fact, for all tax purposes, it’s treated exactly as if the settlor still owned the property.  So why would anyone create a revocable trust?  Because a revocable trust has lots of advantages as both a will substitute and a way of planning for incapacity. 

To Fund or Not to Fund During Life? If you do not fund (i.e., transfer assets to) the revocable trust during your lifetime you will lose most of the benefits. Although there is some cost to transferring assets, in most cases it is modest and is outweighed by the benefits of funding.  It should be noted that some assets may not be eligible to be held by a revocable trust because there are restrictions on transfer – in particular, some cooperative apartments do not permit revocable trust ownership.

Planning for Incapacity.  It is a sad fact that many people will be incapacitated for a period of time before they die, and in some cases (for example, if an individual has Alzheimer’s) that period may be quite lengthy.  Revocable trusts have a lot of benefits in the event of incapacity:

1.     The Revocable Trust can name a successor trustee (or trustees) to take over immediately if the settlor becomes incapacitated (or if for any other reason at any time the settlor does not wish to act as Trustee).  That allows seamless management of the trust property and care of the settlor’s financial needs.

Note—it is advisable to include a definition of incapacity in the trust document.

2.     The successor trustee of a revocable trust should not have difficulty in dealing with the settlor’s financial assets or with banks, brokerage houses, etc., because the assets are already held by the revocable trust – and the substitution of a new trustee does not affect that.  By contrast, it can be complicated and time consuming to organize a person’s financial assets using a durable power of attorney.

3.     Estate planning features, like continuing annual giving or providing for the settlor’s spouse, can be built into the Revocable Trust.            

Will Substitute.  After death a revocable trust can function the same way as a Will.  That is, all the provisions about what will happen to your property after your death can be written into the trust.  You will usually need a small Will (called a “pour-over” will) to specify that any assets that were not transferred to the revocable trust during your lifetime will be paid over to the revocable trust upon your death.   A revocable trust has several advantages as a Will substitute. 

1.     One advantage is privacy – the contents of a Will are public, but the contents of a revocable trust are private.  Some people do not wish others to be able to find out how they are disposing of their property.

2.      In addition, provided that the revocable trust is funded during lifetime, a revocable trust means that the nature and extent of your assets will also not be publicly known upon your death.

3.     A funded revocable trust also provides excellent continuity in managing your assets after death.  Rather than having a period of suspension during which an Executor must be appointed to deal with your assets, the successor trustee of a revocable trust can immediately step in and begin to function upon your death.  That is helpful for taking care of your family and can be critical in cases where, for example, your assets are in need of ongoing active management.

4.     A funded revocable trust makes it much easier for your family because all of your financial assets are already identified and gathered in the trust before death.

5.     A funded revocable trust also simplifies the probate process by avoiding ancillary (“extra”) probate for any out of state residences, avoiding or minimizing required court filings and delivery of various notices, and reducing fees.

6.     If you anticipate any objection to the way you are disposing of your estate a revocable trust is also harder to attack than a Will.        

Disclaimer – Blog Not Legal Advice

This blog is not legal advice and no attorney-client relationship is formed.  The information and materials on this blog are provided for general informational purposes only and are not intended to be legal advice.  The law changes frequently and varies from jurisdiction to jurisdiction.  Being general in nature the information and materials provided may not apply to any specific circumstances.  Nothing on this blog is intended to substitute for the advice of an attorney.  If you require legal advice, please consult with an attorney licensed to practice in your jurisdiction.