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What Is a Trust Protector?
Traditionally, the three roles that must be filled when setting up a trust are the settlor (also called a grantor, trustor, or trustmaker), the trustee, and the beneficiary. All three roles are necessary to create a trust that functions properly. Although it is relatively common to use trust protectors in foreign asset protection trusts, a trust protector is a fairly new role in trusts drafted in the United States for estate planning purposes. However, as the number of trusts designed to last for generations grows, estate plans need more built-in flexibility. Giving a trust protector, through the terms of the trust, certain powers over the trust, such as removing or appointing trustees, adding or removing beneficiaries, and amending or even terminating the trust, ensures that your intentions for creating the trust are fulfilled despite changing law or circumstances.
 
How Is a Trust Protector Selected?
A settlor may select as a trust protector any individual or group of individuals, such as family members, business associates, friends, attorneys, accountants, or other professional advisors. The naming of a trust protector may be specific, such as “my neighbor John Doe,” or general, such as “a CPA selected by the majority of the owners of the [ABC CPA Firm].” The settlor provides for and selects a trust protector in the trust agreement.
 
Who Makes a Good Trust Protector?
Because of the many and varied powers that a trust protector can hold, you should name a trust protector who has attributes, knowledge, or skills suitable for the responsibilities of the role. For example, if the trust protector has the power to amend the terms of the trust to account for changes in tax law, the trust protector should have some understanding of tax law and how it will impact the trust. If a trust protector has the power to veto or direct trust distributions to beneficiaries, the selected trust protector should understand the family history and desires of the settlor. Different powers may require the selection of different trust protectors or possibly a committee of trust protectors.
           
What Does a Trust Protector Do?
Based on your wishes, the purposes of the trust, and applicable laws, the trust protector can hold many different powers, including administrative powers traditionally held by a trustee, such as the power to make distributions, and judicial powers traditionally held by a court, such as the power to remove beneficiaries. Trust protector powers can include the power to

• remove a trustee or appoint a successor trustee,

• add or remove beneficiaries,

• amend the trust agreement,

• exercise the voting rights of closely held business interests owned by the trust,

• interpret the terms of the trust,

• veto or direct trust distributions,

• terminate the trust, and

• appoint and remove members of a distribution or investment committee.

This list is not exhaustive, and you should include any of these or other trust protector powers only after careful consideration of your desires and purposes for creating the trust.
 
Reasons for Including a Trust Protector in Your Trust-Based Estate Plan
There are several reasons to include a trust protector in your trust-based estate plan:

• Trust protectors offer increased flexibility and peace of mind. The administration of a perpetual trust that may last for generations can be a daunting task because no one knows what the future may hold. Including trust protector provisions in your trust agreement can ensure that your trust achieves your goals despite changing circumstances and laws.

• Trust protectors can provide additional oversight and support for a trustee. A trust protector can ensure that a trustee is properly administering the trust and carrying out the trust’s purposes. If the trustee is delinquent in its duties, a trust protector may remove the trustee and appoint a better-suited trustee. A trust protector can also help a trustee correctly interpret trust provisions and address changes in the law or beneficiary circumstances.

• Trust protectors provide an easier and less costly means of modifying a trust. If a trust needs to be modified after the settlor’s death, usually the only route is through the court system, a complicated and costly process. Giving a trust protector the power to modify the terms of a trust can prevent the need to go to court to modify the trust. 

Can I Name a Trust Protector for a Testamentary Trust?
A testamentary trust, usually created through a will, comes into existence after the settlor dies and the will has been probated. A testator (the person who makes the will) can, and in many cases should, include trust protector provisions in a testamentary trust to ensure that their  intent for the trust is properly carried out over time.
 
Does Every State Allow Trust Protectors?
State law varies in its treatment and classification of, and guidance for, trust protectors. Though many states have adopted a uniform set of laws governing trust protectors, or a modified version of these uniform laws, other states have not addressed trust protectors at all. It is important to consult an attorney familiar with your state’s laws to understand whether trust protector provisions are right for you and your goals.
 
Please contact us to learn more about naming a trust protector and discuss whether it is a good idea for you. We are happy to answer any questions you may have and help you craft an estate plan that is perfect for you and for your loved ones.

If you have already done your estate planning, you have taken a significant step toward ensuring that your loved ones will know how to manage your affairs if you become incapacitated or die. However, simply having a will or a trust and related estate planning documents is often not enough. A detailed inventory of all of your accounts and property is crucial for helping your loved ones manage your legal and financial affairs effectively.
 
Most estate planning attorneys have received calls from distressed children who knew that a deceased parent had a will or a trust, but had no idea what accounts, insurance policies, or items of real and personal property the parent owned. If an inventory was never prepared and shared with the parent’s attorney, the child likely had to spend countless hours meticulously combing through the parent’s file cabinets, drawers, tax returns, mail, and online accounts to identify what the parent owned.
 
Needless to say, this is not something that anyone wants to happen. Even if you do not have a will or a trust in place, you do not need to wait to prepare an inventory of your property until you have created these legal documents. In fact, assembling an inventory can be an excellent first step when it comes to your estate planning. This preliminary effort will allow your attorney to immediately begin focusing on the creation of a will or a trust that takes into account each of your accounts and pieces of property and how they should be coordinated with your estate planning goals. If you take this step, your attorney is guaranteed to be impressed and grateful for your preparation.
 
How to Create an Inventory
Creating an inventory of your accounts and property does not need to be very complicated. It can be a simple word processing document or even a handwritten list. Many individuals create spreadsheets in software programs like Microsoft Excel, Numbers, or Google Sheets. There are also numerous online services that can help you create a thorough inventory of your property. Many of these services enable you to automatically share your inventory with chosen individuals at a time that you designate before death or disability strikes. The bottom line is that any of these methods can work well—the important thing is that you create an inventory. Below is an example of an inventory formatted as a spreadsheet with columns and rows:
 

 
Of course, this is just an example of what an inventory could look like. You should include any information that you think will be helpful to someone who is put in charge of collecting your property after you have passed away. You might include additional details, such as where the property is located. For example, if you keep certain items of jewelry in a safe, or a boat you own is stored in dry storage, this would be crucial information to include.
 
In addition, though you will not share this with your attorney, consider using a software program or other service to store passwords for online accounts and even store digital copies of your important documents.
 
Probate and Your Property
As you create your inventory, you will review how each item is titled or who is named as the beneficiary on certain accounts, which will enable you to identify those items of property that will have to go through probate. Probate is the court process that appoints an executor or personal representative to inventory your probate property and distribute the property according to state law or the terms of your will, if you have one. Generally speaking, any account or property that meets the following conditions will have to go through the probate process: (a) is owned only in your name, (b) is not owned jointly with another person, (c) is not titled in the name of a trust or business entity (like an LLC or partnership), and (d) does not have a named pay-on-death (POD) or transfer-on-death (TOD) beneficiary associated with the property.
 
Probate can be an expensive, time-consuming, and public process that most people would rather avoid. If avoiding probate is a goal of yours, preparing an inventory well before you pass away can alert you to those items of property that will require a probate so that you can take steps prior to your incapacity or death to transfer ownership or retitle them.
 
Additional Benefits of a Complete Inventory
By creating an inventory with the type of information demonstrated in the example above, you can help your loved ones understand their next steps with regard to taking control of your property for management and distribution. Certain items and accounts, such as the following, may be distributed according to the unique legal aspects of that type of property:

• Property owned in joint tenancy with rights of survivorship (such as real estate or bank accounts) will pass automatically to the surviving joint owner and outside of a trust or probate.

• Some bank or investment accounts may have POD or TOD designations that allow those accounts to skip the probate process and be paid directly to a named beneficiary such as a child, spouse, trust, or charity.

• Life insurance proceeds typically will not have to go through probate if you have properly completed the beneficiary designation form by naming your loved ones, a trust, or a charitable organization as beneficiaries on the policy.

• Accounts and property titled in the name of a trust (i.e., owned by the trust) can be distributed outside of probate according to the terms of the trust agreement.

• Retirement accounts usually require the listed beneficiaries to file a claim with the account custodian before the account will be paid out. Probate courts and trusts usually have no control over retirement accounts.

• Vehicles will typically need to be transferred through the local department of motor vehicles, which requires an affidavit along with a death certificate and the physical car title.

• Certain items of personal property (e.g., furniture, jewelry, art, collections, etc.), if above the value determined by state law, may be subject to probate, unless they are transferred into a trust before death.

What to Do with Your Inventory Once Created
After creating your inventory, make sure to store a copy where your loved ones will be able to easily find it should something happen to you. Consider the following locations:

• an estate planning portfolio or binder

• a file folder that is clearly marked and easily accessible to your loved ones

• your client file with your estate planning attorney

• an electronic document format that can be shared with your trusted loved ones online

• a clearly labeled USB drive in your safety deposit box or safe (as long as you let your loved ones know what to look for, where to find it, and how to access it)

• your client file with your other professional advisors (so that they can help your loved ones easily identify all of your property if your loved ones call them first after your death)

Once you have created and shared your inventory, you should create a plan for updating it. Over time, accounts get closed or consolidated with other accounts, property is sold or acquired, stocks get converted to cash, and retirement accounts get depleted. If you do not regularly update your inventory, there is a chance that you could create confusion and send your loved ones down rabbit holes as they try to handle your affairs.
 
Some people find it helpful to choose a specific date each year when they will review and update their inventory and also review their estate planning documents. Whatever will work best for you, make a plan, implement it, and then stick with it. Your loved ones will praise your name for years to come if you do. If you need assistance or have questions reviewing your important documents, feel free to give us a call.

For most people, it is perfectly natural to think about estate planning only in terms of planning for death. While planning for your death is very important, if that is all you plan for, your planning can quickly become woefully inadequate. As medical knowledge and technology have improved over the decades, so too has modern medicine’s ability to keep people alive for much longer. It is no accident that in many areas of the country, long-term care facilities such as assisted living centers and nursing homes are being built at record pace.[1] 
 
At first blush, staying alive longer would seem to be a good thing. And for many people, it is. However, simply living longer does not always result in ideal circumstances. Longevity coupled with physical or mental incapacity can be extremely challenging if you fail to make arrangements for someone to assist you during that period of time. On the other hand, with proper incapacity planning, you can rest assured knowing that your affairs are in good hands, out of the public eye, and being handled without the expense of lawyers, courts, and unnecessary complications.
 
What Is Incapacity?
Before we discuss how to plan for incapacity, it is important to clarify what it means to be incapacitated. Each state has its own method for determining legal incapacity, and most have enacted laws that define what incapacity is. For example, in states that have adopted the Uniform Probate Code, an incapacitated person is typically defined as follows:
 

“Incapacitated person” means an individual who, for reasons other than being a minor, is unable to receive and evaluate information or make or communicate decisions to such an extent that the individual lacks the ability to meet essential requirements for physical health, safety, or self-care, even with appropriate technological assistance.[2]

 
Although some states have defined incapacity more broadly or more narrowly, in most states, this is a common definition of legal incapacity. From a purely practical perspective, however, incapacity can be described as an ongoing condition where you simply do not have the mental ability to take care of routine tasks for yourself without assistance from someone else. Such tasks might include paying your bills, cooking your meals, bathing, grooming or dressing yourself, taking your own medications, or being unable to protect yourself from financial or physical exploitation.
 
Why a Will Alone Will Not Cut It
Almost all estate plans created in this country include a will. A will is a legal document that allows you to memorialize your wishes for what you would like to happen after you have died.  For example, a will allows you to

• authorize someone to handle your final affairs after your death (an executor or personal representative);

• name who will receive your accounts and property and in what shares, including successor or backup beneficiaries; and

• designate guardians of your minor children.

Did you notice a theme in the list above? They are all things that must be handled only after you have died. That is an important point. A will only becomes effective once you are dead.
 
So does a will help you if you become incapacitated? The short answer is no. A will is not any help if you become incapacitated. To provide some level of incapacity planning in your will-based estate plan, you must obtain additional legal documents, including at least a financial power of attorney and an advance directive.
 
Financial Power of Attorney
A financial power of attorney (POA) is a legal document that you sign before you become incapacitated that allows you to appoint a trusted individual to act as your agent (meaning the appointed individual can act on your behalf). In this document, you spell out what an agent may do: a general POA allows an agent to handle most of your financial affairs whereas a limited POA restricts an agent’s actions to certain things or for a limited amount of time. Legally, your agent must act in your best interests when handling your property and legal affairs. A POA can, and in many cases should, grant the power to take the following actions:

• handle your deposit and banking accounts

• withdraw funds from your retirement accounts

• enter into contracts

• collect your mail

• deal with your various insurance companies

• make investment decisions on your behalf

• sell, mortgage, lease, and manage real property

You can also determine when your agent is allowed to act on your behalf. It can be restricted to only after you have become incapacitated (a springing POA) or take effect as soon as you sign the document (an immediate POA). When planning for your incapacity, it is important that your POA be durable, which means that your incapacity will not affect the validity or effectiveness of the document.
 
If you have a will-based estate plan and no financial POA (or an invalid one), your loved ones will have to go to court to have someone appointed to take care of these matters for you through a process known as guardianship or conservatorship. This can be a very costly, public, and time-consuming process for your loved ones during a stressful and emotional time.
 
Advance Directives
An advance directive is a document or set of documents in which you can appoint an individual to act on your behalf regarding medical decisions and, if authorized under your state law, also memorialize some of your medical and end-of-life wishes. Similar to a financial POA, a medical durable POA is one kind of advance directive that allows you to appoint an agent, often referred to as a medical or healthcare agent or proxy, who has the ability to make medical decisions on your behalf when you are unable to communicate your wishes yourself (i.e., if you are unconscious, even temporarily).
 
Another kind of advance directive is a living will, which is a legal document in which you can specify the kinds of end-of-life decisions that you want your doctors or healthcare agent to make on your behalf. In some states, an advance healthcare directive will contain both a power of attorney and end-of-life instructions; other states require separate legal documents. Regardless of the format, these documents are a critical component of making your estate plan incapacity proof. By naming someone you trust to make healthcare decisions for you, similar to the decisions you would have made if you could still communicate your wishes, you can ensure that you receive the care and medical treatment that is most appropriate for you.
 
If you do not have an advance healthcare directive, your loved ones will be forced to go to the court and have a judge decide who can make medical decisions for you if you are not able to make or communicate your wishes.
 
Trust-Based Estate Planning and Incapacity
For those who want to make their estate plans truly incapacity proof, a revocable living trust can be a powerful legal tool. This type of trust has become the foundation of many well-constructed estate plans in this country. A living trust is a legal agreement between a trustmaker (a person with the money and property, sometimes called a trustor, settlor, or grantor) and a trustee (the person charged with managing, investing, and handing out the money and property). For most revocable living trusts, the trustmaker changes the ownership of the trustmaker’s accounts and property from the trustmaker as an individual to the trustee of the revocable living trust, who is often initially the trustmaker himself or herself. The trustee agrees to manage and protect the money and property for the benefit of beneficiaries. In a revocable living trust, the trustmaker is also the beneficiary during the trustmaker’s lifetime. Holding the property in this type of legal structure creates a great deal of flexibility to deal with incapacity issues as they arise.
 
For example, if you created a revocable living trust, named yourself as trustee, and transferred most of your property into the trust, you could use and enjoy your property just as you do today. But if you suddenly became incapacitated, a successor trustee (named by you beforehand in your trust document) could quickly and seamlessly step into your shoes as trustee to continue managing the trust property for your benefit throughout any period you were incapacitated. All of this could be accomplished outside of the courtroom, maintaining privacy and eliminating burdensome court and attorney fees in the process. Then, when you die, your successor trustee would have the authority to continue to manage the trust property or give it to remaining living beneficiaries (typically, your loved ones that you leave behind). Again, this can be done completely outside of the court system, thereby eliminating significant cost, delay, and invasion of your and your loved ones’ privacy.
 
Do not forget that this incapacity planning is only as good as the individuals you choose to serve in these roles. If the person or people you named can no longer fulfill their responsibilities, you will need to change your legal documents as soon as possible to ensure that the best possible people are serving in these crucial roles.
 
Finally, it is important to remember that a trust-based plan should still include a will, financial POA, and advance healthcare directive. Each of these documents has important legal functions designed to address circumstances that a trust alone cannot.
 
By carefully crafting each of these legal documents with our help, you can feel confident that your loved ones and the property that you have worked your whole life to obtain will be in good hands if incapacity strikes. We are here to help you think through and implement each decision that goes into making your estate planning truly incapacity proof. Give us a call today.

[2] Unif. Prob. Code § 5-102(4) (2019).

This year is quickly coming to a close. For many of us, December 31 cannot come soon enough, as 2020 has been anything but a walk in the park.

The first quarter of 2020 brought a worldwide pandemic. Not only did this raise concerns about everyone’s health and safety, but it also fundamentally changed the way we all live. Many people found themselves either working from home or out of work. The pandemic also created market volatility that impacted many people’s investment and retirement accounts. Along with the pandemic, many areas of the country experienced severe natural disasters such as hurricanes, earthquakes, and fires, leaving them without homes. Lastly, the 2020 presidential election proved to be just as unprecedented, with many states taking days after the election to count all of the votes and certify the election results.

While there is reason to be optimistic that 2021 will bring a COVID-19 vaccine and the promise of a return to some level of normalcy, it is unlikely that this return to normalcy will occur on January 1, 2021. In the meantime, life marches on. We are just as busy as ever with supervising kids attending school and other activities (in-person or virtually), pursuing new employment opportunities or adapting to new work environments, and adjusting savings and investment goals. With so much going on in your life, it can be easy to forget the details that can help you prepare for whatever 2021 may bring. That is why we are here: to remind you of those things that can make your life easier when it comes to your estate, financial, and tax planning. Here are a few important things to consider as the year comes to a close.

Maximize Contributions to Retirement Accounts

This year brought plenty of employment disruptions for many of us. These disruptions may have resulted in a job change and the establishment of a new 401k account with your employer. Or they may have caused you to reduce or even suspend making regular paycheck contributions to your retirement account given the uncertainty of the job market as the pandemic escalated. As a result, you may not have maximized your annual contributions to your retirement accounts in 2020. Depending on your current employment status, perhaps you have forgotten to restart your contributions and are at risk of missing out on the opportunity to maximize your annual contribution limits. Although the IRS has routinely allowed for contributions to be made even after the first of the year for the preceding year, it is typically good practice to make such contributions before the end of the year if possible.

Tax Return Preparation

December is the perfect time to begin pulling together your tax records in preparation for filing your 2020 tax returns. The sooner you can begin to get a sense of what your tax bill will be for 2020, the sooner you can prepare to write that check to the IRS or carefully plan how you will use any tax refund if you are entitled to one. In either case, preparing now for tax season can be an easy way to reduce stress over the holidays by knowing that you are ready to begin working on your returns just as soon as January 1 comes around.

You can begin gathering the following information and documentation in preparation for filing your tax returns:

• Social Security numbers and birthdates for everyone to be listed on your return

• W-2 forms, any 1099 forms, bank or financial institution tax statements, miscellaneous income records (e.g., gambling or lottery winnings)

• Property tax payment records

• Charitable donations

• Receipts for medical expenses and health insurance coverage records

• Business expense records

• Mileage records

• Home office expenses

Last-Minute Gifts

A frequently forgotten tax benefit that exists for all US citizens is the ability to gift up to $15,000 per person (in 2020) without incurring any gift tax liability and without the need to file a gift tax return. This annual gift tax exclusion amount is noncumulative, so it is a use-it-or-lose-it tax benefit. Because the pandemic has caused financial hardship for many people, utilizing the annual gift tax exemption may be a great way for you to help family and friends without incurring tax liability. And despite some of the recent presidential election drama, it appears increasingly likely that Joe Biden will be inaugurated as the forty-sixth president in January, which presents a distinct possibility that the lifetime unified gift and estate tax exclusion amount will be decreased in the near future.

If you have significant wealth, you should seriously consider leveraging this annual gift tax exclusion in 2020 as a part of an ongoing strategy for reducing your estate’s size and thereby avoiding potential future estate taxes. Although writing a check for $15,000 to each child or grandchild annually is one way to use this tax benefit, it may not be the best way. Forming a trust can add significant benefit and protection to this kind of gifting strategy.

For example, forming an irrevocable life insurance trust continues to be a highly effective way to leverage the annual gift tax exclusion by using the annual cash gifts to purchase life insurance on you, your spouse, or both of you. At your death, the life insurance benefits pass income tax-free to the trust and can then be managed and used on behalf of your trust beneficiaries in a much more protective and strategic manner.

If you have questions about how to best leverage this annual gift tax exclusion, we would welcome a phone call to visit with you about it and help you understand the available options.

It Might Be Time to Review Your Estate Planning

This year also brought significant changes to the law surrounding retirement accounts and how to coordinate them with your estate planning. The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which was passed in late December 2019, had a major impact on estate planning for those with significant savings in tax-deferred retirement plans. No longer can required minimum distributions from an inherited IRA be stretched out over the lifetime of the person inheriting the IRA. Unless a beneficiary is a spouse or otherwise qualifies as an Eligible Designated Beneficiary, the retirement account must now be paid out within ten years of the plan owner’s death. Although this received some attention in the media early in the year, it paled in comparison to the COVID-19 pandemic coverage, so it is not surprising that many people are still very unaware of these changes and how they could impact their estate planning.

With all of the changes that 2020 has brought, it is more important than ever to review your estate planning documents. If it has been a few years, you will want to make sure that your plan still reflects your wishes. Give us a call to schedule a review of your plan if you or your loved ones have experienced any of the following life changes:

• Marriage or divorce

• Birth or death in the family

• Moving

• New job

• Retirement or loss of employment

• Acquiring new accounts or property

If you currently have a trust-based estate plan, carefully reviewing your financial accounts before the end of the year to determine how your accounts are titled and how the beneficiary designations have been made can ensure that you catch critical mistakes and identify accounts unintentionally left out of your living trust.

Taking the steps described above can go a long way toward preparing you for the upcoming year. When you are prepared, there is not much room left for uncertainty and fear. Instead, you can feel confident heading into the holiday season that you will be ready for whatever 2021 has in store for you.