Generative Trusts and Trustees: A New Paradigm For Trust Design and Administration

/in , , , ,

Note:  From time to time we invite guest bloggers to share their thoughts on our blog.  The following is a guest blog authored by John A. Warnick, the founder of the Purposeful Planning Institute.

by John A. Warnick, Esq.

Family Trusts commonly preserve family financial asset, but fail to preserve either family or trust—Hartley Goldstone, author of Trustworthy and Co-Author of Family Trusts – A Guide for Beneficiaries, Trustees, Trust Protectors and Trust Advisors

I have been concerned about the emotional and relational impact of trusts since I had a “professionally jarring” encounter in 2001 with a beneficiary of an irrevocable trust established by her grandfather.  The dependency, disempowerment and entitlement I witnessed led me to ask “Is there a better way?”  

The Generative Trust and the Generative Trustee are part of that better way.

I’m convinced there is a better way to think about the purpose and meaning of trusts which still honors the legal roles and responsibilities but lifts the influence of the trust to the point it becomes a generative (positive) influence in the lives of beneficiaries. Read more

Decanting to Eliminate a Beneficiary – New York Says Yes

/in , , , , , , , , ,

by Kelly Dickson Cooper

Settlors often ask whether they can change the beneficiaries of an irrevocable trust because life circumstances or relationships have changed. Often, the answer is no.  However, in a recent case in New York, the trustee was able to accomplish the settlor’s desire to disinherit one of his children through a decanting. Read more

Fifty Ways to Leave Your Lover (or Fifty Ways to Plan, Administer and Litigate Estates)

/in , , , , , , , , , , , , , , , , , , , ,

by Carol Warnick

As the old song by Paul Simon contemplates, there are fifty ways to leave your lover, and there are also fifty ways to plan, administer and litigate estates and trusts.  I have recently become aware of various situations in which attorneys assume that because things are done a certain way in the state in which they practice, they are done the same way in other states.

I am licensed in three states, Colorado, Utah and Wyoming, and deal regularly with the significant differences between them.  For example, Colorado tends to use “by representation” in dealing with passing assets down the generations, but Utah and Wyoming both use “per stirpes.”  Read more

New Uniform Directed Trust Act

/in , , , , , , ,

by Kelly Dickson Cooper

More and more, I review trust agreements that appoint a trustee, but then appoint other individuals or institutions to perform certain tasks that are normally in the domain of the trustee.  They are sometimes referred to as trust protectors, trust advisors, trust directors, special powerholders, investment trustees, or distribution trustees.  I most often see these appointments in the areas of investments or distributions.

The trust language that attempts to divide the responsibilities of a trustee among a group is often unclear and give rise to difficult questions as to the scope of each individuals’ responsibilities.  There is also the question of whether the trustee is responsible for the actions of the other appointees and if the appointees are fiduciaries.  These problems with interpretation are often exacerbated because the laws are not clear about the division of these responsibilities and the liability of each actor.  Read more

Contracts to Make Wills or Trusts

/in , , , , ,

by Carol Warnick

Does the fact that a husband and wife create “mirror-image” wills or trusts mean that they have entered into a contract with their spouse to maintain the dispositive provisions in the document?  The law in Colorado is very clear that no contract exists merely because the documents are “mirror-image” or reciprocal.

Pursuant to Colo. Rev. Stat. § 15-11-514, a contract to make a devise may be established only by:

(i) provisions of a will stating material provisions of the contract, (ii) an express reference in a will to a contract and extrinsic evidence proving the terms of the contract, or (iii) a writing signed by the decedent evidencing the contract. The execution of a joint will or mutual wills does not create a presumption of a contract not to revoke the will or wills. (emphasis added).

Read more

Charitable Trusts and the Cy Pres Doctrine: An Overview

/in , ,

by Jessica J. Smith

Charitable trusts are both valuable estate planning tools and excellent philanthropic devices. For instance, certain charitable trusts provide appealing tax benefits for donors creating charitable inter vivos trusts. While in most respects, charitable trusts are governed by the same state law concepts often discussed here on this blog (like fiduciary duty obligations for trustees), there are a few notable exceptions worth highlighting for anyone looking to take advantage of charitable trusts for estate or tax planning purposes.*

In general terms, a charitable trust is simply a trust that has a charitable purpose. See, e.g., Denver Found. v. Wells Fargo Bank, 163 P.3d 1116, 1125 (Colo. 2007) (“Instead of identifying a person or corporation as beneficiary, the settlor of a charitable trust must describe a purpose which is of substantial public benefit.”). Under Uniform Trust Code § 405, charitable purposes include “the relief of poverty, the advancement of education or religion, the promotion of heath, governmental or municipal purposes, or other purposes the achievement of which is beneficial to the community.” The Restatement (Third) of Trusts § 28 largely matches the UTC, although it is a tad more expansive. For instance, the Restatement includes the advancement of knowledge, rather than just education, in its definition of charitable purpose. The differences between the UTC and the Restatement, though, are slight.
Read more

Tax Apportionment Controversies Continue to Fuel Litigation

/in , ,

by C. Jean Stewart

Last month Maryland’s highest appellate court released[1] a narrowly-divided (4-to-3) opinion in a tax apportionment case involving the estate of celebrity novelist Tom Clancy (The Hunt For Red October, Patriot Games, Clear and Present Danger, and other popular espionage novels), who died on October 1, 2013.  This case once again confirms that (1) blended families, combined with (2) tax apportionment disputes and (3) ambiguity and inconsistency in estate planning documents, inevitably fuel expensive and protracted probate litigation.

In his will, Clancy gave his tangible personal property and two of his residences outright to his second wife, who survived him, and directed his Personal Representative to divide his residuary estate into three equal parts.  One part, designated as the “Marital Share,” was to be (a) comprised entirely of assets qualifying for the federal estate tax marital deduction, (b) held solely for the benefit of his widow, and (c) exonerated from all tax liabilities to qualify entirely for the marital deduction.   Read more

Seeking Clarity in the Distribution of Mineral Interests from a Decedent’s Estate

/in , , , , ,

by Andy Lemieux, Elizabeth Meck, and Jessica Schmidt

As any practitioner who has dealt with the distribution of mineral interests from a decedent’s estate knows, dealing with these interests can be tricky and the process is not always clear. This is particularly true when old interests have not been distributed properly at the time of death. Thankfully, recent decisions in Colorado, as well as updates to certain provisions of the Colorado Probate Code, provide some clarity to this process.  A recent decision in Utah also provides clarity about who is entitled to the proceeds of production from oil and gas operations when life tenants and remaindermen are involved.

Specifically, Colorado just updated its statutes governing the process for the determination of heirship, found in the Colorado Probate Code at Colo. Rev. Stat. § 15-12-1301, et. seq.  A sub-committee of the Trust and Estate section of the Colorado Bar Association carefully reviewed the existing statutes, coordinated efforts with other sections of the bar, and with the approval of the Trust and Estate section, presented revisions to these statute sections as part of the omnibus bill, SB 16-133, in February 2016.  The committee’s goal was to address the issues Colorado practitioners have experienced in trying to distribute these interests from dormant or previously-unopened probate estates and to make the process to distribute previously undistributed property, including mineral interests, more clear.  SB 16-133 was signed by Governor Hickenlooper on May 4, 2016, thereby adopting the revisions recommended by the committee.  A copy of the Bill as enacted can be found here.

Read more

Basic Estate Principles Learned From the Death of Prince

/in , , ,

by Jody H. Hall, Paralegal

The entire world entered mourning when music legend Prince died unexpectedly on April 21, 2016 at the age of 57. There is certainly no shortage of stories and speculation in the news and social media regarding the circumstances surrounding his death, and the handling of his legal, personal and business affairs.

However, as trust and estates professionals, we are drawn to the estate planning, or lack thereof, of the cultural icon. The story that will undoubtedly change and evolve as the estate is administered can be an entertaining and valuable source of lessons learned to share with clients, family members, and dare I say, ourselves.

No one has been able to find a Will. The initial reports stated that no one was able to find a will, and no one had reason to believe that a Last Will and Testament had been created. This underscores not only the importance of having a Will, but also of making sure your nominated personal representative knows where to find it.  Most jurisdictions still require the original will to be lodged or filed with the Court, so your loved ones will need to be able to easily access the original signed document.  Copies are generally not acceptable without additional court action.  The best place to store those documents may also not be in a bank safe deposit box, unless that person has access to the box already.  Otherwise, it may require Court intervention to access the box to determine if a Will is inside.  Communication before your death with those that you trust to handle your affairs after your death will alleviate much stress and confusion.  Read more

Premarital Agreements and the Second (Third, or Fourth . . .) Marriage

/in , ,

By Megan Meyers

For couples who marry later in life or who have children from a prior relationship, Premarital Agreements often incorporate waivers of spousal rights at death to ensure that previously created wealth is protected for children, grandchildren and charitable endeavors.  As Premarital Agreements continue to increase in popularity and acceptance for these couples, we have found there to be a fairly consistent misunderstanding common among clients – that is the relationship between the Premarital Agreement and the Will (or Revocable Trust). 

Many clients initially view the Premarital Agreement and the Will as interchangeable documents with similar contractual qualities and are primarily focused on the Premarital Agreement in the event of divorce.  Clients often do not initially understand the importance of including provisions in the Premarital Agreement regarding obligations at death between spouses, and simply state “we plan to just take care of that in our Wills”. 

We have found that it is extremely important to carefully walk through the differences between the Premarital Agreement and the Will with our clients.  Specifically, it is important to discuss that the Premarital Agreement is a contractual document which sets the minimum obligations that each spouse has to the other in the event of death, whereas the Will can be but one of many vehicles used to satisfy these Premarital Agreement obligations and which can provide additional benefits to the less-propertied spouse.  It is also important to note that the Will and other estate planning documents are changeable and in the full discretion of the other spouse during the marriage (provided that waivers of spousal rights are included in the Premarital Agreement).

Related to this issue of Premarital Agreement versus Will is that of the expectations and understanding of any adult children from a prior marriage.  These children may incorrectly view themselves as third party beneficiaries of the Premarital Agreement.  In other words – that the limitations on spousal rights at death which are included in the Premarital Agreement are limits that cannot be exceeded and that all other assets are protected for the benefit of the adult children from the first marriage.  While not all clients want to share these discussions with their adult children, it is important to ensure that clients understand that the Premarital Agreement merely sets the floor in terms of the obligations between spouses at death and that additional gifts may be made in the estate plan without any need to amend the Premarital Agreement.

The Premarital Agreement versus Will discussion also ties to the inevitable issues of capacity for these clients – particularly those who marry again later in life.  We have found that it is helpful to discuss and make explicit the expectations of these clients as to whether an agent or guardian appointed for the incapacitated spouse – particularly, the adult child – should have the authority to (i) amend or revoke the Premarital Agreement or (ii) pursue a dissolution of marriage action during a client’s incapacity.