Your estate planning process, whether it is in the middle or just getting underway, likely contains questions regarding how and to whom your assets should be distributed. A trust can be a great tool in your estate planning tool kit. A properly created trust can give you and your family more options and privacy than a will.

Unlike a will, a trust will help keep your estate from going through an expensive, time-consuming, and public probate process. If you set up a trust, you still create a will, but it becomes a pour-over will, which moves (pours) your assets into your trust. You can choose from different types of trusts, depending on how and when you want your assets dispersed.

Types of Trusts

There are many types of trusts, but they all establish a financial arrangement between three parties: the trustor(s), the trustee(s), and the beneficiary(ies). The person creating the trust is known as the trustor, grantor, or trustmaker. Trusts can be created by more than one person. The trustor chooses one or more persons or entities to serve as the trustee. The trust is for the benefit of one or more beneficiaries, which can be people or entities, such as charities. For some trusts, the trustor, trustee, and beneficiary are the same person.

The Role of a Trustee

The role of a trustee can vary widely, depending on the nature of the trust, wishes of the trustor, and needs of the beneficiaries. Generally speaking, a trustee manages the trust and the assets it holds and disperses income or principal from the trust in accordance with the terms of the trust. A trustor may grant the trustee broad latitude in distributing assets to the beneficiaries or may impose strict guidelines. For example, a trustee may be allowed to make funds available for the general wellbeing and happiness of the beneficiaries or may only be able to disperse funds for educational purposes.

If the trustor has a beneficiary who has special needs and is receiving benefits from Medicaid, Medicare, or another government program, then the trustee needs to make sure they are dispersing assets without disqualifying the beneficiary from the government program. Some trusts have a special or supplemental needs provision in them, and some are wholly for the person with special needs.

In addition to dispersing the funds of a trust, the trustee also pays any taxes that are owed, records expenses and income, and oversees the physical assets owned by the trust, such as real estate. The trustee may be required to report taxes, expenses, and income to the beneficiaries on a scheduled basis. All these duties will be dictated by the language in the trust.

Choosing a Trustee

In most cases, the trustee of a trust can also be a beneficiary of the trust. One notable example of when a beneficiary cannot be the trustee of their trust is with a special needs trust. For the beneficiary of a special needs trust to qualify for government assistance, they cannot have any control over the assets of their trust or how they are managed and dispersed.

When considering who will be the trustee of your trust, choose a person you can rely on to follow the instructions you lay out in the trust. This person can be a reliable family member or friend, or an entity, such as a bank or trust company. For some trusts, such as a living trust, you can be the initial trustee and select someone else to be the trustee if you become incapacitated or when you die.

More than One Trustee

More than one person can serve as trustee at a time. This can be a good option for when beneficiaries are young. For example, a trustor can allow a young beneficiary to serve as a co-trustee of their trust along with an older trustee until a certain age when the beneficiary can serve as sole trustee.

Choosing the trustee of a trust is an important decision. When you are making this decision, consider the purpose of the trust now and in the future. Consider who will be able to best manage the trust’s assets and the beneficiaries’ needs. An experienced estate planning attorney can help you create the trust, or trusts, that will best suit your needs and select the right trustees.

This article offers a summary of aspects of estate planning law. It is not legal advice, and it does not create an attorney-client relationship. For legal advice, you should contact an attorney. If you have questions or would like to discuss your personal situation, please don’t hesitate to contact our Reno office by calling us at (775) 853-5700.

Banking and payment of bills can become more difficult with age, but incapacity by accident or illness can strike anyone at any age, posing the same challenges. Incapacity is not just about mental cognition, accident, or illness. You may have a loved one who cannot drive themselves to the bank or has a distinct visual or hearing impairment. Without a plan, incapacity will jeopardize your loved one’s daily financial activity and preservation of wealth. Some possible solutions for financial oversight include:

Having a caregiver provide help
Selecting a power of attorney
Implementing trusts
Retaining a professional fiduciary
Combining some of these options

Creating a Financial Plan

Whatever you choose, careful thought and thorough planning are needed for the best outcome. To minimize family conflict, it helps to make plans together before experiencing an illness or accident that makes it impossible to handle financial transactions or decisions. Discussions among siblings, in particular, are important before assigning responsibilities. Openly discuss issues of health and financial oversight with trusted family members to minimize misunderstandings, reduce distrust, and prevent potential legal disputes. If a particular conflict seems unresolvable, a neutral third party, such as trusted clergy, a family therapist, or a mediator, can provide impartial counsel.

Protecting Loved Ones from Creditors and Fraud

A joint checking account may seem like a straightforward solution for a caregiver to write checks, make ATM cash withdrawals, track expenses, and perform other financial duties on behalf of their ward, but there are risks. The second party on the account may use their banking privileges to steal from your loved one. Creditors can seek payment from either individual on this account, so if your secondary party carries debt, your loved one may wind up paying for it. Finally, when either party dies, money in this account will belong to the surviving account holder, which may create conflict among siblings and heirs.

Setting Up a Convenience Account

About half of all US states now permit a “convenience account” where the second account holder only has permission to transact for the benefit of the original account holder. The account type is handy when the only need is to address paying bills and providing nominal amounts of cash. The secondary party will have no permission to use the money for self-interest or inherit the account upon the principal’s death. Financial stewardship on behalf of a loved one in a convenience account should include:

Written records of expenses paid from the account
Notes with the reason for all checks in the memo field
Money in the account is protected against being borrowed or claimed as an asset
Purchases can’t be made by the steward or a third party
A trusted family member acting as the second party to the account is preferred over a paid primary caregiver

When financial oversight for your loved one needs to be more comprehensive, other fiduciary categories can address financial stewardship for aging or incapacitated loved ones.

Power of Attorney (POA)

This legal document sometimes referred to as a durable financial power of attorney, designates an individual to make financial decisions on behalf of the principal (the assignor of the POA) if they become incapacitated. The principal must be of sound mind to grant a power of attorney.

Naming a financial POA, also called an agent or attorney-in-fact, will prevent the risk of a family going to court to file for guardianship if their loved one becomes incapacitated. Establishing guardianship can be a lengthy, expensive, and potentially divisive process for family members.

Trusts and Trustees

Your loved one may have their elder law attorney create and transfer assets to a revocable living trust with a named trustee. In the future, if the trust grantor loses their ability to make sound financial decisions, the trustee becomes the responsible party for the management of the trust’s assets.

A trustee’s functions may include:

Maintaining an insurance policy
Paying taxes
Making investment decisions
Putting valuables in a safe deposit box

However, as long as the grantor is capable, they may change or revoke the trust.

Professional Fiduciary

If your loved one’s financial situation is complex, they may prefer to hire a professional money manager to oversee financial decisions. Not every family has a potential candidate that can manage extensive or complicated assets, or even if they can, they may not live close enough for proper oversight.

This professional may be a certified public accountant (CPA), a trust company officer (bank or investment firm) in the business of managing trusts, or your attorney. A professional fiduciary will charge a fee for service yet still permit family members a provision to relieve the fiduciary of their duties if there is dissatisfaction with performance.

Government Fiduciary

These are special fiduciaries appointed by a government agency to manage benefit payments or refunds issued by the agency, generally the Social Security Administration (SSA), the Department of Veterans Affairs (VA), and the Internal Revenue Service (IRS). These agents can be spouses, family members, court-appointed or professional fiduciaries, or another interested party as long as they receive government agency approval.

A Social Security appointee is a representative payee and can assist with all types of agency benefits, a VA appointee is a VA fiduciary, and an IRS appointee is an IRS fiduciary. These government fiduciaries only have the authority to manage the corresponding agency’s benefits or refund checks. They have no other legal power to manage a loved one’s property, medical matters, or financial affairs.

Court-appointed Guardian

If your loved one took no action to implement a financial oversight strategy while competent and then becomes incapacitated, the court will conduct a hearing to appoint a guardian. A guardianship implies a profound loss of freedom, even dignity, so much so that less restrictive alternatives should be tried and proven ineffective before establishing a guardian. There are instances when guardianship needs implementation, but the court process can be lengthy and expensive when immediate decisions for your loved one are needed.

These wide-ranging options all require the appointed person to act with the utmost fiscal responsibility to properly manage their loved one’s financial well-being and protect them from elder financial abuse. Family conversations and an elder law attorney’s input will help define which options are best for your loved one to implement while they are capable. We hope you found this article helpful. If you have questions or would like to discuss your personal situation, please don’t hesitate to contact our Reno office by calling us at (775) 853-5700.

Tag: Trustees

The Trustee’s Role: A Brief Overview