6 Ways a Trust Protector Can Fortify Your Trust

Trust protectors are a fairly new and commonly used protection in the United States. To summarize, a trust protector is someone who serves as an appointed authority over a trust that will be in existence for a long period of time. Trust protectors ensure that trustees: 1) maintain the integrity of the trust, 2) make solid distribution and investment decisions, and 3) adapt the trust to changes in law and circumstance. 

Whenever changes occur, as they naturally do, the trust protector has the power modify the trust to carry out the Grantor’s intent. Significantly, the trust protector has the power to act without going to court—a key benefit which saves time and money and honors family privacy. 

Here are 6 Key Ways a Trust Protector Can Protect You:

Your trust protector can:

1. Remove or replace a difficult trustee or one who is no longer able or willing to serve.

2. Amend the trust to reflect changes in the law.

3. Resolve conflicts between beneficiaries and trustee(s) or between multiple trustees.

4. Modify distributions from the trust because of changes in beneficiaries' lives such as premature death, divorce, drug addiction, disability, or lawsuit.

5. Allow new beneficiaries to be added when new descendants are born.

6. Veto investment decisions which might be unwise.

WARNING:

The key to making a trust protector work for you is being very specific about the powers available to that person. It’s important to authorize that person, and any future trust protectors, to fulfill their duty to carry out the trust maker’s intent - not their own.

Can You Benefit from a Trust Protector?

Generally speaking, the answer is yes. Trust protectors provide flexibility and an extra layer of protection for trust maker intent as well as trust assets and beneficiaries. Trust protector provisions are easily added into a new trust and older trusts can be reformed (re-drafted) to add a trust protector. If you have trusts you’ve created or are the beneficiary of a trust that feels outdated, we can help. If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

3 Examples of When an Irrevocable Trust Can—and Should—Be Modified

Did you know that irrevocable trusts can be modified? If you didn’t, you’re not alone. The name lends itself to that very belief. However, the truth is that changes in the law, family, trustees, and finances sometimes frustrate the trust maker’s original intent. Or, sometimes, an error in the trust document itself is identified. When this happens, it’s wise to consider trust modification, even if that trust is irrevocable.

Here are three examples of when an irrevocable trust can, and should, be modified or terminated:

1.  Changing Tax Law. Adam created an irrevocable trust in 1980 which held a life insurance policy excluding proceeds from his estate for federal estate tax purposes.  Today, the federal estate tax exemption has significantly increased making the trust unnecessary. 

2.  Changing Family Circumstances. Barbara created an irrevocable trust for her grandchild, Christine. Now an adult, Christine suffers from a disability and would benefit from government assistance. Barbara’s trust would disqualify Christine from receiving that assistance.

3.  Discovering Errors. David created an irrevocable trust to provide for his numerous children and grandchildren. However, after the trust was created, his son (Jack) discovered that his son (Frank) had been mistakenly omitted from the document. 

Are You Sure Your Trust is Still Working for You?

If you’re not sure an irrevocable trust is still a good fit or if you wonder whether you can receive more benefit from a trust, we’ll analyze the trust. Perhaps irrevocable trust modification or termination is a good option. Making that determination simply requires a conversation with us and a look at the document itself.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

4 Steps To Irrevocable Trust Decanting

1. We all need a “do over” from time to time. Life changes, the law changes, and professionals learn to do things in better ways. Change is a fact of life - and the law. Unfortunately, many folks think they’re stuck with an irrevocable trust. After all, if the trust can be revoked, why call it “irrevocable”? Good question.

Fortunately, irrevocable trusts can be changed and one way to make that change is to decant the original trust. Decanting is a “do over.” Funds from an existing trust (with less favorable terms) are distributed to a new trust (with more favorable terms). 

As the name may suggest, decanting a trust is similar to decanting wine: you take wine from one bottle and transfer it to another (decanter)—leaving the unwanted wine sediment / trust terms in the original bottle / document. Just like pouring wine from one bottle to another, decanting is relatively straight-forward and consists of these four steps:

1. Determine Whether Your State Has a Decanting Statute. 

Nearly half of US states currently have decanting laws. If yours does, determine whether the trustee is permitted to make the specific changes desired. If so, omit step 2 and move directly to step 3. 

If your state does not have a decanting statute, the answer isn’t as clear cut. While attempting to decant a trust in a state without a statute certainly can be done, it’s risky.  Consider step 2.

2. Move the Trust. 

If the trust’s current jurisdiction does not have a decanting statute or the existing statute is either not user friendly or does not allow for the desired modifications, it’s time to review the trust and determine if it can be moved to another jurisdiction.

If so, we can make that happen, including adding a trustee or co-trustee, and taking advantage of that jurisdiction’s laws. If not, we can petition the local court to move the trust.

3. Decant the Trust. 

We’ll prepare whatever documents are necessary to decant the trust by “pouring” the assets into a trust with more favorable terms. All statutory requirements must be followed and state decanting statutes referenced. 

4. Transfer the Assets. 

The final step is simply transferring assets from the old trust into the new trust. While this can be effectuated in many different ways, the most common are by deed, assignment, change of owner / beneficiary forms, and the creation of new accounts. 

Get the Most from Your Trust

Although irrevocable trusts are commonly thought of as documents which cannot be revoked or changed, that isn’t quite true. If you feel stuck with a less than optional trust, we’d love to review the trust and your goals to determine whether decanting or other trust modification would help.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

5 Compelling Reasons to Decant Your Trust

When a bottle of wine is decanted, it’s poured from one container into another. When a trust is decanted, trust assets are poured from an old trust into a new trust with more favorable terms.

Why Should a Trust Be Decanted?

Trusts are decanted to escape from a bad trust and provide beneficiaries with more favorable trust provisions and benefits. 

Here are 5 compelling reasons to decant your trust:

1. To clarify ambiguities or drafting errors in the trust agreement. As trust beneficiaries die and younger generations become the new heirs, vague provisions or mistakes in the original trust agreement may become apparent. Decanting can be used to correct these problems.

2. To provide for a special needs beneficiary. A trust that is not tailored to provide for a special needs beneficiary will cause the beneficiary to lose government benefits.  Decanting can be used to turn a support trust into a supplemental needs trust, thereby supplementing, but not supplanting, what government benefits cover.

3. To protect trust assets from the beneficiary’s creditors. A trust that is not designed to protect the trust assets from being snatched by beneficiary’s creditors can be rapidly depleted if the beneficiary is sued, gets divorced, goes bankrupt, succumbs to business failure, or suffers a health crisis. Decanting can be used to convert a support trust into a full discretionary trust that beneficiary’s creditors will not be able to reach.

4. To merge similar trusts into a single trust or create separate trusts from a single trust. An individual may be the beneficiary of multiple trusts with similar terms. Decanting can be used to combine trusts into one trust thereby reducing administrative costs and oversight responsibilities. And, on the other hand, a single trust that has multiple beneficiaries with differing needs can be decanted into separate trusts tailored to each individual beneficiary.

5. To change the governing law or situs to a different state. Changes in state and federal laws can adversely affect the administration and taxation of a multi-generational trust.  Decanting can be used to take a trust, governed by laws that have become unfavorable, and convert it into a trust that is governed by different and more advantageous laws.  

You’re Not Stuck With Your Trust: We’ll Help You Escape:

We include trust decanting provisions in the trusts we create. Including trust decanting provisions in an irrevocable trust agreement or a revocable trust agreement that will become irrevocable at some time in the future is critical to the success and longevity of the trust. Such provisions will help to ensure that the trust agreement has the flexibility necessary to avoid court intervention to fix a trust that no longer makes practical or economic sense. 

You and your loved ones don’t need to muddle through with outdated and inappropriate trust provisions. If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Decanting: How to Fix a Trust That Is NOT Getting Better With Age

While many wines get better with age, the same cannot be said for some irrevocable trusts.  Maybe you’re the beneficiary of trust created by your great grandfather over seventy years ago, and that trust no longer makes sense.  Or, perhaps you created an irrevocable trust over twenty years ago, and it no longer makes sense.  Wine sommeliers may ask: ‘Is there any way to fix an irrevocable trust that has turned from a fine wine into vinegar?’  You may be surprised to learn that under certain circumstances the answer is yes. How? By “decanting” the old fragmented trust into a brand new one.

What Does It Mean to “Decant” a Trust?

Wine lovers know that the term “decant” means to pour wine from one container into another to open up the aromas and flavors of the wine.  In the world of irrevocable trusts, “decant” refers to the transfer of some or all of the property held in an existing trust into a brand new trust with different and more favorable terms.

When Does It Make Sense to Decant a Trust?

Decanting a trust makes sense under a myriad of different circumstances, including the following examples:

1. Tweak the trustee provisions to clarify who can or cannot serve as the trustee.

2. Expand or limit the powers of the trustee.

3. Convert a trust that terminates when a beneficiary reaches a certain age into a lifetime trust.

4. Change a support trust into a full discretionary trust to protect the trust assets from the beneficiary’s creditors.

5. Clarify ambiguous provisions or drafting errors in the existing trust.

6. Change the governing law or trust situs to a less taxing or more beneficiary friendly state.

7. Add, modify, or remove powers of appointment for tax or other reasons.

8. Merge similar trusts into a single trust for the same beneficiary.

9. Create separate trusts from a single trust to address the differing needs of multiple beneficiaries.

10. Provide for and protect a special needs beneficiary.  

What is the Process for Decanting a Trust?

Decanting must be allowed under applicable state case law or statutory law.  Aside from this, the trust agreement may contain specific instructions with regard to when or how a trust may be decanted.

Once it is determined that a trust can and should be decanted, the next step is for the trustee to create the new trust agreement with the desired provisions.  The trustee must then transfer some or all of the property from the existing trust into the new trust.  Any assets remaining in the existing trust will continue to be administered under its terms; and, an empty trust will be terminated.

WARNING:  Decanting is Not the Only Solution to Fix a Broken Trust

While decanting may work under certain circumstances, fortunately, it is not the only way to fix a “broken” irrevocable trust.  Our firm can help you evaluate options available to fix your broken trust and determine which method will work the best for your situation.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Revocable Trust v. Irrevocable Trust: Which Is Best for You?

Trusts allow you to avoid probate, minimize taxes, provide organization, maintain control, and provide for yourself and your heirs. In its most simple terms, a trust is a book of instructions wherein you tell your people what to do, when.

While there are many types of trusts, the major distinction between trusts is whether they are revocable or irrevocable. Let’s take a look at both so you’ll have the information you need:

Revocable Trusts. Revocable trusts are also known as “living trusts” because they benefit you during your lifetime and you can alter, change, modify, or revoke them if your circumstances or goals change.

1. You stay in control of your revocable trust. You can transfer property into a trust and take it out, serve as the trustee, and be the beneficiary. You have full control. Most of our clients like that.

2. You select successor trustees to manage the trust if you become incapacitated and when you die.   Most of our clients like that they, not the courts, select who’s in charge when they need help.

3. Your trust assets avoid probate. This makes it difficult for creditors to access assets since they must petition a court for an order to enable the creditor to get to the assets held in the trust. Most of our clients want to protect their beneficiaries’ inheritances.

Irrevocable Trusts: When irrevocable trusts are used, assets are transferred out of the Grantor’s estate into the name of the trust.  You, as the Grantor, cannot alter, change, modify, or revoke this trust after execution. It’s irrevocable and you usually can’t be in control.

1. Irrevocable trust assets have increased asset protection and are kept out of the reach of creditors.

2. Taxes are often reduced because, in most cases, irrevocable trust assets are no longer part of your estate.

3. Trust protectors can modify your trust if your goals become frustrated.

As experienced estate planning attorneys, we can help you figure out whether a revocable or irrevocable trust is a good fit for you and your loved ones. If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

James Brown’s Vague Estate Plan Equated To Years of Family Litigation

James Brown, the legendary singer, songwriter, record producer, dancer, and bandleader was known to many as the “Godfather of Soul.” Although he intended his estimated $100 million estate to provide for all of his children and grandchildren, his intentions were somewhat vague.  This forced his family into years of litigation which ended up in the South Carolina Supreme Court.

As an estate planning attorney, I work with my clients’ to ensure that we avoid these types of situations before they happen. In this author’s humble opinion, it is well worth spending the time up-front, to avoid the nightmares that can result later without proper planning.

Everything Seemed In Order…

Brown signed his last will and testament in front of Strom Thurmond, Jr. in 2000. Along with the will that bequeathed personal assets such as clothing, cars, and jewelry, Brown created a separate, irrevocable trust which bequeathed music rights, business assets, and his South Carolina home. 

At first glance, it seems as though everything in Brown’s estate plan was in order. In fact, he was very specific about most of his intentions, including:

1. Donating the majority of his music empire to an educational charity

2. Providing for each of his six adult living children (Terry Brown, Larry Brown, Daryl Brown, Yamma Brown Lumar, Deanna Brown Thomas and Venisha Brown)

3. Creating a family education fund for his grandchildren

However, only days after his death in 2006 from congestive heart failure, chaos erupted. 

Heirs Not Happy With Charitable Donation:

Apparently, Brown’s substantial charitable donations didn’t sit well with his heirs. Both his children and wife contested the estate.

 i. Children. His children filed a lawsuit against the personal representatives of Brown's estate alleging impropriety and alleged mismanagement of Brown's assets. (This was likely a protest of the charitable donation.)

 ii. Wife. Brown’s wife at the time, Tomi Rae Hynie, and the son they had together, received nothing as Brown never updated his will to reflect the marriage or birth. In her lawsuit, Hynie asked the court to recognize her as Brown's widow and their son as an heir. 

In the end, the South Carolina Supreme Court upheld Brown’s plans to benefit charities and recognized Hynie and their son as an heir. 

Should You Anticipate Litigation?

Brown’s estate was substantial and somewhat controversial – and he failed to update or communicate his intentions to his family.  His heirs were taken by surprise.  And experienced attorney could have avoided much of the family upset.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Trusting Your Trustee—Doris Duke’s Trustee Bilked Estate for $1Million

Choosing a trustee is a very personal matter and should never be left to chance. Doris Duke, heiress of Duke’s energy and tobacco fortunes, didn’t seem to know her trustee very well at all.  After Duke passed in 1992, her trustee bilked the estate for over $1 million. It begs the question:  How well do you know yourtrustee?

In our experience, choosing the people to nominate as fiduciaries through your estate plan is one of the hardest tasks that our clients’ face. That is why we work with each client to help them decide the best people to name in the all important roles that fiduciaries must take on when named in an estate plan.

The Butler Did It:

That old saying certainly fits in this situation because Doris Duke had her butler appointed as her estate’s trustee. The estate was reportedly worth $1.3 billion at the time of her death. Perhaps all that money was too much temptation for Bernard Lafferty, an Irish immigrant with only a grade school education. 

After Duke’s death in 1992, Lafferty went on a bit of a spending spree. It was reported that he spent over $1 million on himself, including:

1. Charging hundreds of thousands of dollars on luxury store items onto estate charge cards

2. Traveling all over the world, whenever he felt the urge

3. Redecorating Doris Duke’s old bedroom for himself

Lafferty apparently had very expensive taste as he spent over $60 thousand on the bedroom redecoration alone. 

The final straw was when he borrowed more than $825,000 from the U.S. Trust Company, the estate's co-executor, apparently without having to pay interest. He was removed as the trustee three years later.

5 Characteristics of a Good Trustee:

Your trustee will ultimately manage your financial future as well as the disposition of your estate. While it’s tempting to choose a family, friend, or say – your butler – it might be wiser to treat your choice as a strict business decision. 

Trustees have a “fiduciary” responsibility toward the trust. That means they owe the highest duty of care, good faith, honesty and diligence when it comes to managing it. Five characteristics of a good trustee include someone who is:

1. Organized

2. Dependable

3. Detail-oriented

4. Experienced in business matters

5. Confident in their understanding of your intentions

Whomever you choose, keep in mind that anyone who is dissatisfied with the terms of your trust might try to influence your trustee. In many cases, family relationships are wrought with various types of emotion. Those close bonds could put your trustee in the middle of a situation they can’t handle – especially when it involves someone where saying no simply isn’t an option. Therefore, let’s talk about whether a professional trustee would be appropriate.

Protect Your Assets, Heirs & Wishes:

Whether it’s choosing a trustee, creating a will, or coming up with a comprehensive estate plan, we can help you make the right choices. Protect your assets, your heirs, and your wishes. We can show you how to select the best trustee for your individual situation.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Kaley Cuoco’s “Ironclad” Prenup Challenged: Can A Prenup Be Bulletproof?

The Big Bang Theory actress Kaley Cuoco, is one of the highest paid actresses on television. She earns one million dollars per episode and has a net worth of Forty-four million dollars ($44 Million). Before she married tennis star Ryan Sweeting in 2013, Cuoco asked him to sign a prenuptial agreement (generally referred to as a “Prenup”). 

After less than two years of marriage, Cuoco filed for divorce. She assumed the prenup would be valid. However, Sweeting alleges that the prenup shouldn’t be enforced and he wants spousal support. So, is The Big Bang Theory star’s Prenup ironclad? A better question might be—is it possible to create a Prenup that is bulletproof?

Cuoco Was Smart, But…

Cuoco was certainly smart to have Sweeting sign a prenuptial agreement as his net worth was only about two million dollars versus her 44 million. However, while a well-written prenup generally addresses asset division and support issues, they are not always ironclad. 

In this case, Sweeting alleges that his circumstances have substantially changed due to numerous sports injuries and an addiction to pain killers which have prevented him from earning a living as a tennis player. So, while he didn’t need support when the prenup was signed, he does now. 

3 Ways to Invalidate a Prenup:

There are generally three ways to invalidate a prenup, by proving:

1. Unconscionability. This is a legal term of art meaning that, under the circumstances, it would be grossly unfair to enforce the document. To overcome it, Cuoco would likely have to prove that Sweeting was represented by an independent attorney who advised him of the consequences before signing.  

2. Coercion. Legal contracts can be deemed void when one party was coerced into signing it. In its harshest terms, that equates to being forced to sign something at gunpoint. In this case, it means that either Sweeting wasn’t given enough time to read it or didn’t voluntarily sign it. 

3. Fraud. Sweeting could also allege that Cuoco lied about her net worth and that, based on her fraudulent activity, the prenup shouldn’t be enforced.

If Cuoco’s attorney did his or her job correctly, which seems to be the case, it’s most likely that she’ll prevail.

Don’t Risk Your Wealth:

Prenuptial agreements, part of a strong estate plan, should always be prepared by experienced attorneys (a different one for each party) who know how to comply with the laws of that particular state and take into account what changes in the relationship might affect the validity of the prenup. 

Today, 50% of all first marriages end in divorce; more than 70% of all second marriages do so. It makes sense to plan for the worst and hope for the best. Certainly, don’t risk your wealth and future by failing to have as ironclad a Prenup (or “Postnup” – an agreement made after marriage) as possible. It’s easier to accomplish than you would think and we can provide you with the tools you need to do just that.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Caution: Creditors Now Have Easy Access to Inherited IRAs

Do you have IRAs or other retirement accounts that you plan to leave to your loved ones?  If so, proceed with caution.  Most people don’t know the law has changed: inherited retirement accounts no longer have asset protection, meaning they can be seized by strangers.

How Can Inherited IRAs Be Protected?  Enter the Standalone Retirement Trust

Fortunately, retirement account protection still exists but only if you take action.  Many people like you are using Standalone Retirement Trusts (SRT) to protect retirement assets.  The SRT is a special type of revocable trust just for retirement accounts. 

A properly drafted SRT:

●       Protects the inherited retirement accounts from creditors as well as predators and lawsuits

●       Ensures that inherited retirement accounts remain in your bloodline and out of the hands of a daughter-in-law or son-in-law or former daughter-in-law or son-in-law

●       Allows for experienced investment management and oversight of the assets by a professional trustee

●       Prevents the beneficiary from gambling away the inherited retirement account or blowing it all on exotic vacations, expensive jewelry, designer shoes, and fast cars

●       Enables proper planning for a special needs beneficiary

●       Permits you to name minor beneficiaries such as grandchildren without the need for a court-supervised guardianship

●       Facilitates generation-skipping transfer tax planning to ensure that estate taxes are minimized or even eliminated at each generation of your family

 The Bottom Line on Protecting Inherited IRAs

Unfortunately, the Supreme Court decision has made outright beneficiary designations for IRAs and other retirement accounts risky business.  However, we are here to help you decide whether an SRT is a good fit for you and to answer your questions about protecting your retirement accounts.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.