Your Executor or Administrator is the court appointed fiduciary who will serve as the primary representative of your estate. An “Executor” is appointed if you have a will. An “Administrator” is appointed if you do not have a will.
What is a trustee?
A trustee is one to whom property is transferred for the benefit of someone else (the beneficiary). I find that my new estate planning clients frequently misunderstand trusts. Many of my clients have heard a horror story about a trust, and the story often involves an impoverished widow-beneficiary who cannot extract enough money from the well-funded trust to maintain herself.
Present law, well-drafted trustee powers and professional trustees now make this concept of trusts obsolete. A trust can be designed to produce almost any result desired by the client if the client gives the trustee sufficient funds with which to work. We usually recommend that trustees be given very broad and adaptable powers to provide flexibility for future events. The trustee should be empowered to do what is best for the beneficiary, without being curbed by inappropriate restrictions.
If a trust appears suitable for your estate plan, you will need to exercise care in the selection of a trustee. The family member who comes to mind as a logical first choice may prefer not to deal with the management of your properties. If a corporate trustee appears appropriate, we will suggest that you have a conference with the representative of your bank’s trust department. Further, you should consider giving someone, such as a committee, the power to change trustees.
What is a durable power of attorney?
Several years ago a new law was passed. It allows you to authorize another individual or entity to manage your affairs. It allows you to draft a relatively simple document known as a durable power of attorney. A durable power of attorney is a written document in which you, as the principal, designate someone you trust, such as your spouse, another family member, a friend or a professional, as “your attorney in fact” or “agent.” Your attorney in fact is authorized to perform certain acts on your behalf. You may give as much or as little power to your attorney in fact as you desire. For instance, you may authorize your attorney in fact only to have the power to transfer your assets to a trust set up for your benefit, or the powers could be very broad and authorize the attorney in fact to do anything with respect to your assets, including for example, have access to your safe deposit box, manage your investments, run your closely held business, sell and transfer your assets. The powers you give your attorney in fact will be in effect when the document is signed. Generally, a power of attorney terminates on the disability of the principal. If the power of attorney is “durable”, it will not be affected if you become disabled or incapacitated. Not all powers of attorney are durable.
I have found that many of my clients want to appoint someone to act for them in the event of their disability.
Who should be the attorney in fact? In view of the significant authority and discretion conferred by a general durable power of attorney, the attorney in fact must be someone in whom the principal has complete trust and confidence. If the durable power of attorney is a springing durable power of attorney (that is, one that is effective only when the principal becomes disabled or incapacitated) the attorney in fact should not also be the person who determines the incapacity of the principal.
What property will not pass under my will?
Proceeds from life insurance policies and retirement benefits will pass in accordance with the beneficiary designations. In addition, property held in certain joint tenancies with a right of survivorship (e.g. joint bank or brokerage accounts with a right of survivorship) will pass to the surviving joint account holder. Therefore, you should review the beneficiary designations and account agreements to be sure they are coordinated with your will.
Who will raise my minor children after my death?
If you die leaving minor children, the other parent ordinarily will raise and support them. If the other parent is not living, however, your minor children will require a “guardian”. A guardian is an individual who is appointed by the Court primarily to care for the person of a minor; the guardian’s power over the minor’s property is very restricted. You may appoint a guardian for your children in your will. If you fail to do so, the court will make the selection of a guardian. We recommend that you assume the responsibility for this important decision, rather than leaving it to a judge unfamiliar with your family situation.
Clients frequently tell us that they have chosen one of their parents as the guardian in the event of both clients’ deaths, but in many situations we believe that such a selection is unwise. For example, assume that the youngest child of the client is three years old and the client’s parent is sixty-eight. When that child is fifteen (a time when child-adult communication can be difficult under the best of conditions), the grandparent will be eighty. Under these circumstances, another choice may be better for your child. You should look first to your contemporaries in your families (such as brothers, sisters, or cousins). If such family contemporaries are not appropriate, then consider friends with children in the same age range as yours. In any case, you should consult with the proposed guardian to ensure that the person is agreeable to assuming the significant responsibility.
If both parents die, your minor children may be left with substantial property interests that need management and protection. Because the guardian has only limited power over the minor’s property, protective proceedings may be initiated in which the court will appoint a guardian to administer the children’s property and affairs. In some instances, the guardian may fulfill the duties of making decisions concerning the child’s medical care and personal concerns as well. A court appointed guardianship can be a cumbersome and expensive manner of dealing with the property of the minors, however, and it should be avoided. The guardianship for financial affairs can be avoided by proper planning for the use of trusts or custodianships for minors.
If you have planned your estate properly, the guardian should not experience financial strain in raising your children. We usually suggest that upon the death of you and your spouse, a trust be established for your minor children. The trustee should be encouraged to make generous distributions to assist the guardian, and the trustee can be authorized to provide funds to pay for any necessary expansion of the guardian’s home.
What is a Health Care Proxy?
A health care proxy is a document in which you may designate an individual to make decisions concerning your health care. While you are competent you are in charge of decisions which pertain to your health care. If you wish to designate an individual who will make decisions concerning your health care if you are unable to do so, you can use a health care proxy to designate the person who will make health care decisions on your behalf.
What is a Spendthrift Trust?
A “spendthrift” trust is one created for the purpose of providing a fund for the support of a beneficiary and at the same time securing that fund against the beneficiary’s own improvidence or incapacity. This is accomplished by providing in the trust instrument that the interest of the beneficiary shall not be assigned or transferred by him and shall not be subject to the claim of his creditors. Such spendthrift provisions may be drawn to apply to both income and principal of the trust to which the beneficiary may be entitled in the future.
Spendthrift trusts and spendthrift provisions in trusts are generally considered to be valid in the vast majority of states, including Massachusetts, whether the beneficiary’s interest is in the income or principal of the trust. Indeed, the leading case upholding the validity of a spendthrift provision respecting income to which a trust beneficiary is entitled is a Massachusetts one decided in 1882. Arguments against the validity of spendthrift trusts are that restrictions upon the alienation of equitable interests are repugnant to the inherent nature of property rights; that spendthrift trusts tend to encourage the weak or improvident to continue to be wasteful; and that such trusts mislead and defraud creditors of beneficiaries. Generally these arguments have been brushed aside, and it has been held that a donor of property placed in trust ought to be able to dispose of it as he wishes and that he violates no public policy by qualifying the gift to the beneficiary. Massachusetts has been particularly rigorous in enforcing spendthrift trusts against attacks based on public policy in contrast to other jurisdictions which have allowed the interest of the beneficiary of a spendthrift trust to be subject to certain types of claims.
Moreover, any income of a spendthrift trust actually paid over to the beneficiary by the trustee is not subject to the restraint on alienation and can be reached by his creditors. Also, if the beneficiary of a trust is entitled to have the principal paid to him immediately or at any time he may call for it, any restraint on the voluntary or involuntary transfer of his interest in the principal is invalid.
A “support” trust is one where the terms of the trust provide that the trustee shall pay or apply only so much of the income or principal as is necessary for the education or support of the beneficiary. A “discretionary” trust is one where the terms of the trust provide that the trustee shall pay to or apply for a beneficiary only so much of the income or principal as the trustee in his uncontrolled discretion shall see fit to pay or apply. With respect to these support or discretionary trusts, the beneficiary cannot transfer his interest and his creditors cannot reach it.
How will Medicaid benefits affect my home?
An applicant’s principal residence (if located in Massachusetts) is not a countable asset in determining Medicaid benefits. However, the Division of Medical Assistance (DMA) has the authority to place a lien on the home during the applicant’s lifetime once the applicant begins receiving Medicaid benefits. As a result, if the house is sold during the beneficiary’s lifetime, the DMA will reimburse themselves out of the sale proceeds before the beneficiary (and any other owners) receives any funds from the sale. Once the Medicaid beneficiary dies, the DMA can place an estate recovery lien on the beneficiary’s probate estate. Therefore, if the beneficiary’s principal residence is part of his or her probate estate, the home will then become subject to a DMA lien.
There are advance planning techniques that an applicant can use to protect his or her home from the DMA lifetime lien (e.g., transferring the home into a Trust, retaining a life estate in the home and renting it from the Trust). Unfortunately, not all Medicaid applicants are aware of these techniques in enough time to utilize them.
How frequently should I review my estate plan?
As a general rule, I suggest that you contact me every few years for a conference to review your estate plan to update the information in your permanent file. I also recommend that you contact me in the event of a dramatic change in your finances or in your family situation. For example, a substantial increase in your estate (through increased life insurance, inheritance, gifts, or successful investments) may create opportunities for tax savings, as well as necessitate further family financial planning. A substantial decrease in your net worth may also necessitate a revision in your estate plan. A divorce, marriage, or second marriage, of course, will re-open completely the matter of planning your estate. Likewise, do not hesitate to contact me any time you have questions as to whether or not changes in tax or other substantive laws may affect your estate plan.