Garland Law Offices, P.A.

Is My Irrevocable Trust Revocable?

“Irrevocable trusts appear, by definition, to be unchangeable and inflexible. But are they?”

Irrevocable trusts aren’t as irrevocable as their name implies, according to Barron’s recent article, “Are Irrevocable Trusts True to Their Name?” The article says that, for both new and existing trusts, there are ways to build in flexibility to make changes to a grantor’s wishes, if terms are no longer appropriate or desirable for beneficiaries.

However, there are strict rules that apply. These rules vary between states. One of the main reasons for an irrevocable trust, is to remove assets from an estate for estate tax purposes. If the rules aren’t followed carefully, a trust can be rendered unlawful. If that happens, the assets may be returned to the grantor’s estate and estate taxes may apply.

If you want to be certain that beneficiaries have some discretion in the future if circumstances change, grantors should build flexibility into the trust when it’s established. This can be accomplished by giving a power of appointment to beneficiaries. However, if the beneficiaries are looking to change the terms or the structure of an existing trust, the trust must be modified, according to state law.

Most states allow trusts to be decanted. When you decant a trust, you pour its terms into a new trust, and leave out the parts that are no longer wanted. Just like decanting a bottle of wine, it’s like the sediment left in the wine bottle.

In a state that doesn’t permit decanting, a trustee can ask a judge to allow it. You should be careful with decanting, because you don’t want to do anything that would adversely affect the original tax attributes of the trust.

The power of appointment in a trust or the ability to decant can’t be given to the person who set up the trust. Thus, grantors can’t have a “re-do” or rescind the terms. It’s only trustees and the beneficiaries that can do that.

If you and your attorney create a trust with a lot of flexibility for the trustee, you may want to appoint an institutional trustee from a bank, trust, or other financial services company.

They can be either the sole trustee or serve as co-trustees with a personal, non-institutional trustee, like a family member. This can help to eliminate future conflicts.

Reference: Barron’s (June 18, 2019) “Are Irrevocable Trusts True to Their Name?”

What’s the Latest on Lee Radziwill’s Estate?

“The recent passing of Lee Radziwill was the end of an era. From her iconic fashion sense to her family pedigree, Radziwill lived a unique American life. Through all the ups and downs, she always reflected poise and style.”

Lee Radziwill had a unique place in history, as the sister to Jacqueline Kennedy Onassis. Her will was probated in New York, and her estate planning was complex and thorough, says Forbes’ recent article, “How Lee Radziwill's Estate Plan Reflected the Refined Elegance Of Her Life.”

Her estate plan uses a standard structure of a Will and a Revocable Trust. This trust is commonly used as a way to create privacy and ease of administration. Although her assets passed into trust, she also had a will. The will was necessary to handle certain elements of estate administration that could not be put in the revocable trust document. The will that was probated was put in place in September of last year, just a few months prior to her death.

If Radziwill knew that her health was not good, it might have caused her to review her decisions and make some final changes, based on her current life circumstances.

Her estate planning reflects family history, as wealthy families often use trusts as a way of dynasty planning, to manage assets in a family line.

The goals of these types of trusts are control and tax savings. One way to pass property to your children and make sure it stays in the family, is to use a trust. Trusts can last for generations. This multi-generational approach is very obvious in Radziwill’s will. She references three different trusts among three generations. Estate planning allows for the assets to move between generations. In this case, Radziwill exercises a special power of appointment over the principal of the trust to pass it to a trust for her daughter Tina that is created under Radziwill’s Revocable Trust, adding to the principal in that trust.

When someone makes a lifetime gift to someone in trust, they may also give that person the power to dispose of the property in trust at death and sometimes during life, which is known as a power of appointment. If it’s an unlimited power, it is a general power. If the power is limited in any way, it’s a special power of appointment. Radziwill’s power of appointment was limited, so she was probably only able to appoint these assets to her heirs or charity. By restricting those who can inherit from the trust, she’s able to maintain her family’s intent.

In executing a well-designed estate plan, Radziwill properly protected and passed her family assets to the next generation.

Reference: Forbes (March 31, 2019) “How Lee Radziwill's Estate Plan Reflected the Refined Elegance Of Her Life”

What Are the Common Myths of Powers of Attorney?

“While most of us have heard of a power of attorney, many have misconceptions about them.”

The Lubbock Avalanche-Journal’s recent article entitled “Five common myths about powers of attorney” explains away some misconceptions about powers of attorney.

1. There’s just one uniform power of attorney document. No, there are many types. However, they can vary by state. Talk to an experienced estate planning attorney to draft a document to meet your specific needs.
2. It’s OK to sign a power of attorney, even if I lack mental capacity. No, to be valid, the person granting the rights (the principal) must have mental capacity to execute the document. A power of attorney can be valid for an individual with mental incapacity, provided the document was signed before the occurrence. That’s a key reason to have a durable power of attorney in place.
3. A durable power of attorney and healthcare power of attorney are the same thing. No, a durable power of attorney grants rights to an agent to act on your behalf, regarding your assets. These rights can be general to all assets for an unlimited time, or the POA can be limited as to the time frame and assets included. A medical power of attorney grants an agent the authority to make medical decisions on your behalf.
4. Senior citizens are the ones who need a power of attorney. Not true, because accidents and unforeseen illness can strike at any age. You need to have a plan in place to ease the burden of one aspect of an already stressful and complicated situation. Don’t assume your spouse has automatic power to make decisions on your behalf. It can be much more difficult, unless you have given them the power of attorney.
5. A power of attorney can be used to handle my relative’s estate at death. Again, not true. Although there are other ways to structure an estate to avoid probate, a power of attorney isn’t one of them. A power of attorney lets the agent to stand in the place of the principal to make decisions. It doesn’t continue beyond the death of the principal.

If you avoid these common misconceptions, a power of attorney can be a very useful tool to meet your needs.

Reference: Lubbock Avalanche-Journal (March 15, 2019) “Five common myths about powers of attorney”

What are the “Must Have” Estate Planning Documents?

“Having these three legal documents in place can make a huge difference for your heirs.”

What do Aretha Franklin, Kurt Cobain, and Prince have in common? Aside from being famous and talented, each of these stars passed away without a will. All three had the money and attorneys to draft a proper estate plan, but for whatever reason, they didn't draft one. It’s a good lesson to not neglect your estate plan.

Motley Fool reports in the article, “3 Must-Have Estate Planning Documents To Get Done This Year,” that dying without a will creates numerous problems for your family. If there are no legal instructions in place, probate law dictates the distribution of your assets and selection of guardians for your minor children, which can cause problems. Regardless of your personal situation, you should think about creating these three important estate planning documents.

1. Will. A will is used to distribute your estate, according to your instructions. A will can say how much and what type of asset each heir will receive, to minimize family fighting after your death. If you have young children, you can designate guardians in your will to be in charge of their care. If you die without a will, the probate judge will order who becomes their guardian.

You also need a will to make charitable bequests, to expedite the probate court process and to reduce or eliminate estate taxes. When you draft your will, you'll appoint trusted people to serve as the executor and the trustee.

2. Living will. A living will can take effect while you are still alive. This is a legal document that sets out your instructions for medical treatment, if you become unable to communicate, such as whether or not you want to be placed on life support. A living will can relieve the emotional burden from your family of having to make difficult decisions.
3. Power of attorney. This legal document helps in the event you’re incapacitated or in the hospital in an unresponsive state. A power of attorney gives the individual you designate the authority to transact financial and legal matters on your behalf. Set up a power of attorney, before you need it. If you don’t and you're unable to make decisions, your family may have to petition the court to get those powers, which costs time and money.

Estate planning is a huge favor that you’re doing for your family. Get these three legal documents in place.

Reference: Motley Fool (February 18, 2019) “3 Must-Have Estate Planning Documents To Get Done This Year”

What Can Tim Conway’s Demise Can Teach Us About Elder Law?

“To avoid family squabbles later, think hard now before giving a loved one decision power over your finances and your health.”

Comedian Tim Conway was hilarious in his comic skits on The Carol Burnett Show in the 1970s. One of his comedy classics featured his ad-libbing and out-of-turn laughter in a famous skit, where he plays a hapless dentist with Harvey Korman as his patient. America loved Tim Conway.

Kiplinger’s recent article, “Choose Agents for Power of Attorney, Health Care Proxy Carefully” reports that the 84-year-old Conway was in the headlines recently for vastly different reasons. When he was incapacitated by dementia, his family fought over his care. One of Conway’s daughters from his first marriage and his second wife battled in Los Angeles probate court for his sole conservatorship.

Conway’s case illustrates that as more adults age with blended families in charge of their care, family disputes over decision-making authority are increasing. A person’s second spouse may be listed as health care proxy or the agent under the power of attorney. However, that doesn’t mean the adult children from the first marriage—who may have hard feelings—won’t start a legal challenge.  Siblings with different opinions on the costs and quality of care also may want to find a way to take control. This may result in a judge appointing a guardian or revoking a relative’s authority. This can only mean more resentment and more legal bills.

Families can avoid the time and expense of litigation, by attempting mediation of the problem before going to court. A geriatric care manager or a social worker can assess a loved one’s care needs and offer a professional opinion to assist a family looking for a solution. There are also other strategies you can try to avoid a fight.

To begin with, choose carefully when you give a person decision-making power over your finances and your health. It’s best to select a person who’ll try to get you the best care possible and not worry about their inheritance. A child with financial problems might not be the right choice for your financial power of attorney. For seniors living alone, there are of care-management agencies that will act as agents for a fee. However, make certain that you understand the fees and costs involved.

Once you’ve designated an individual as your health care proxy, have a conversation with them about why you selected them.  You should be specific about what type of care you want to receive.

You can also guard against a potential battle, by adding terms in your will that say if your children unsuccessfully challenge your choice of agent or health care proxy, they could have their inheritance eliminated or reduced.

Reference: Kiplinger (November 29, 2018) “Choose Agents for Power of Attorney, Health Care Proxy Carefully”

Virginia Supreme Court Examines Power of Attorney Statute

 

“Neither of these provisions makes an attorney-in-fact liable for the alleged misuse of his or her principal's property solely by a third party (including by a separate agent over whom he or she has no express authority), or to affirmatively act to recover such property when stolen”

In 2010, Bobbie Wynder appointed Leroy Mangrum to be her attorney-in-fact by a general power of attorney. She died in June 2013. A year later, Wynder's four stepchildren, also the beneficiaries under her will, filed a suit against Mangrum for disclosure of all transactions and financial records from his time as Wynder's attorney-in-fact.

From the partial accounting he provided, the stepchildren saw several transactions for which they sought more information. One was a withdrawal by Mangrum's wife, Doris, of $36,000 from a savings account held jointly with survivorship by Wynder, Doris, and Brenda Chavis, one of the stepchildren, and Mangrum's surrender of Wynder’s $116,000 annuity. The annuity proceeds were initially deposited in Wynder's checking account but were then withdrawn and deposited into Mangrum's own account. The plaintiffs also sought an order that Mangrum restore any assets transferred in violation of state law.

The Supreme Court of Virginia explained in the case of “Mangrum v. Chavis” that the circuit court found that Doris's withdrawal was improper and that Mangrum improperly surrendered the annuity. In its order, the court found that he "failed to account properly with care, competence and diligence" as required by the state’s power of attorney act. The court awarded judgment to the stepchildren, ordered Mangrum to restore $152,000 to Wynder's estate, and to pay $19,000 in attorney's fees.

On appeal, Mangrum contended that the circuit court erred by ordering him to restore $36,000 to Wynder's estate as a result of Doris's withdrawal of that amount from the joint savings account. He argued that the circuit court expressly found that Doris alone made the withdrawal—not that he was responsible for it. The stepchildren also acknowledged that Doris acted alone. He claimed there was no evidence that he ever had authority over the money after it was withdrawn. The withdrawal didn’t arise from or depend upon his power of attorney for Wynder.

The stepchildren argued that he had duty to preserve Wynder's estate plan and a duty not to act in a way that would create a conflict of interest. They argued that he breached these duties by not preserving the funds in the joint account—even if he didn’t withdraw them himself. The stepchildren also argued that he had knowledge of the transaction and benefitted from it, which created a conflict of interest.

The Supreme Court explained that Doris, as a joint account holder, was Wynder's agent for the purposes of the funds Wynder owned in it and was liable as an agent for any breach of fiduciary duty. But this agency relationship between Wynder and Doris was separate from, and foreclosed liability under, the agency relationship between Wynder and Mangrum.

The trial court expressly found that only Doris withdrew the $36,000, not that Mangrum directed or participated in the withdrawal (even if he benefited from it). Because his agency relationship was established by the power of attorney, and Doris's agency relationship was established separately by her status as a joint account holder, they didn’t owe their fiduciary duties to Wynder jointly. Thus, as a separate agent, Mangrum couldn’t be liable for Doris's acts, unless he had a duty to supervise her.

Virginia Code § 64.2-1612(B) doesn’t imposes such duties, the Supreme Court said. The laws states that an attorney-in-fact must "[a]ct so as not to create a conflict of interest that impairs the agent's ability to act impartially in the principal's best interest," and that an attorney-in-fact must "[a]ttempt to preserve the principal's estate plan, to the extent actually known by the agent, if preserving the plan is consistent with the principal's best interest based on all relevant factors, including [t]he value and nature of the principal's property."

The Supreme Court found that the provisions of the act didn’t make an attorney-in- fact liable for the alleged misuse of his or her principal's property solely by a third party (including by a separate agent over whom he or she has no express authority).

The Supreme Court reversed the portions of the circuit court's judgment, awarding the plaintiffs $36,000 based on Doris's withdrawal of that amount from the joint savings.

Reference: Supreme Court of Virginia (March 1, 2018) “Mangrum v. Chavis”

Rhode Island Supreme Court Decides Power of Appointment Issue in Probate Case

“In the case before us, however, if the exercise of the power of appointment were deemed valid, the very terms of Constantine's will would place the assets of the irrevocable trust in his residuary estate, thereby subjecting them to the demands of creditors.”

The Supreme Court of Rhode Island recently heard a case where plaintiff Elaine Jaffe (Jaffe) and defendant William C. Pournaras (William)—the two surviving children of Constantine W. Pournaras—argued over a Superior Court judgment granting Elaine's request for declaratory relief and prohibiting William from transferring assets of the decedent's irrevocable living trust into his estate.

Findlaw recently published the case of “Jaffe v. Pournaras.” In this case, Constantine, who passed away  in 2012, executed signed documents during his lifetime that are at issue: a revocable living trust (the living trust), an irrevocable living trust (the irrevocable trust) and a last will and testament.

The living trust named Constantine as trustor and sole trustee with William as the sole successor trustee. According to Jaffe, the living trust was "funded with approximately $500,000." The living trust provides that, upon Constantine's death, the trustee (William) "shall pay the property located at 43 Knollwood Avenue, Cranston * * * to * * * POURNARAS [William]* * *"; the living trust also provides that, if the trust owned liquid resources, the trustee shall pay $50,000 from those liquid resources to Jaffe, not including the aforementioned real property.

The irrevocable trust names William as trustee. Jaffe says that William advised her that the irrevocable trust contained assets worth approximately $694,000. The irrevocable trust reserved to Constantine the power "to appoint any part or all of the [t]rust [e]state to or for the benefit of any of [his] descendants, in equal or unequal amounts, either directly or in [t]rust, as [he] may direct." It also specified that this power of appointment is "exercisable by written instrument during [his] lifetime or by [w]ill or any [c]odicil thereto[.]" The power of appointment, however, is limited and cannot "be exercised in favor of [Constantine's] estate, the creditors of [his] estate or in any way that would result in any economic benefit to [him]." The trust also directs William, as trustee, to divide the trust assets into "separate and equal shares" between Jaffe and William, as his surviving children, upon Constantine's death.

The will names William as personal representative and provides that he "shall distribute [Constantine's] residuary estate to the then acting [t]rustee" of the living trust (William). Section 5.01 of the will defines "residuary estate" as, in relevant part, "any property over which [Constantine] may have a power of appointment * * * less all valid claims asserted against [his] estate * * *."

In 2014, the will was admitted to probate, and Jaffe filed a complaint seeking declaratory and injunctive relief to prevent William from transferring the assets of the irrevocable trust into Constantine's estate, and to have William removed as trustee. She alleged that he intended to transfer assets from the irrevocable trust to Constantine's estate by exercising the limited power of appointment in the irrevocable trust. But William argued that the will was intended to be an exercise of the limited power of appointment contained within the irrevocable trust.

Chief Justice Paul A. Suttell said in his opinion that the court's primary objective when construing language in a will or trust is to ascertain and effectuate the intent of the testator or settlor, if that intent is not contrary to law. Plain language of the will or trust is considered first, and the court won’t resort to considering extrinsic evidence, where the intent is clear "from within the four corners of the will[.]"

Jaffe argued that the plain language of the irrevocable trust was clear and expresses Constantine's intention to prohibit the limited power of appointment from being exercised in favor of Constantine's estate or creditors of his estate. She argued that Constantine could have, but didn’t exercise his limited power of appointment by his will to appoint the property to a third party, such as directly to his living trust or to [William]. She said the language in the will didn’t constitute a valid exercise of the power of appointment, because it would contravene the plain language of the irrevocable trust, which expressly prohibits the exercise of the power of appointment for the benefit of Constantine's estate. The Supreme Court agreed.

The Chief Justice found that if the exercise of the power of appointment were deemed valid, the very terms of the will would place the assets of the irrevocable trust in his residuary estate, subjecting them to the demands of creditors. That would be contrary to Constantine's intent, as expressed in the irrevocable trust.

The Supreme Court found the language of the irrevocable trust to be clear and unambiguous, so extrinsic evidence wasn’t needed to determine Constantine's intent. The power of appointment was to be executed "for the benefit of any of [his] descendants, in equal or unequal amounts," and "not * * * in favor of [his] estate[.]" Thus, the Superior Court didn’t err in holding that the defendant's intended exercise of the limited power of appointment contained in the irrevocable living trust was invalid.

Reference: Findlaw (February 23, 2018) “Jaffe v. Pournaras”