Trust Issue - Lawyer Insight Needed

[thunderlounge 8409]

Having an issue with a trust. Being an open location here I'd prefer to not go into specific details, but will try to give a broad picture.

Trust #1 was executed, which turned into 4 individual pieces. One of the pieces was placed into a trust, we'll call that Trust #2. With Trust #2 it was set up to where any monies from that trust had to be approved by a manager (or whatever they are called.) Trust #2 specifies that upon death the trust would transfer to children (there are 2), and if a child was deceased it would pass to their children, or their children's children, etc.

Of the two children to whom Trust #2 is to be distributed, the person to whom Trust #2 was originally left absolutely does not wish for any of Trust #2 to be distributed to one of the two children.

We've had lawyers looking into it for a few years, but have yet to find a solution to where Trust #2 is left to just one child. If that isn't possible, then at least place the second piece of Trust #2 into it's own trust which would also have a manager (executor, whatever they are called) that would have to approve any monies disbursed from that piece of Trust #2.

That's pretty vague, I get, but do any of y'all lawyers deal with anything like this? It unfortunately has been sped up significantly as the recipient of Trust #2 has been placed under hospice care and time is running quite thin.

Thanks in advance.

[beer 3294]

[stayed in holiday inn last night]

Keeping this vague as well...

Better hope the trust passes to parent and that the trust can be dissolved or the assets moved out of it.  I have the right to give my stuff to anyone and you can't tell me what to do - I do what I want.  If I want to give stuff to someone that you dont like - tough tittys. 

This sounds like an excellent way to piss someone off.  Make them trustee of some really cool stuff knowing that when they die someone that they absolutely hate (not your situation I know) will take over the stuff.  

We set up a trust to keep our kids' significant others from getting stuff if the relationship does not work out and to keep them from spending the assets outright until they are old. But that is a different thing obviously. 

Edited April 20, 2018 by beer

[thunderlounge 8409]

I wish it were as simple as "just spend it" or "spend it on property and put it in someones name", but unfortunately it isn't.

The reason Trust #2 was set up in that manner was to protect the beneficiary from an ex, and to make sure that money was there for their use and not anyone else. This has worked fine, but there is the problem now with Trust #2 being split. The beneficiary of Trust #2 doesn't want it split between their two children, as one is pretty much a piece of shit. Said child is heavily into meth, and has no business around any type of money like this. On top of that, this child has stolen significant money from their parent already.

One instance out of dozens went something like this, "I want to come up and see you, but need to get a tire fixed and put gas in my car. Can I have your debit card # to get on my way?" Next thing you know, the kid doesn't show up, but has spent a shitload of money ordering pizzas and adding outrageous tips for several hundred dollars (one was $750) at a time. Almost $7k was gone from the account (over the course of about 8-10 days) before it was stopped.

And that is just one example of this child's bullshit behavior.

So all of that adds up to:

• Trust #2 currently in use. Upon death it is to split into 2 shares, one per child.
• User of Trust #2 wants to change Trust #2 (which was established by Trust #1) to a sole beneficiary.
• Unfortunately, time is getting to be a critical asset, as user of Trust #2 has been placed under hospice care.

The manager of Trust #2 would have no problem unloading as much as possible, but the problem then arises of how to explain that to the court. While any sympathetic ear would fully understand, the problem isn't what is right, but what is legal.

In short, it's a big clusterfuck that nobody could have realistically anticipated. Once the user of Trust #2 passes (could be a few weeks, could be a few months, but it won't be long) then it's game over. I was just hoping one of the many, many fine lawyer we have wandering around here (or at least I hope they have transferred over) have some good knowledge of trusts. Obviously they would need to actually read the paperwork for the fine print, but maybe they've heard or know of something to investigate so the terrorist doesn't win.

 

[TwiceHorn 32076]

Ok.  For future posts, lets kind of get the terminology straight.  The two important parties to a trust are the beneficiaries and the trustee.  The third party is the settlor or the one who created the trust.  Upon creation of the trust, beneficiaries and the trustee are specified by the settlor, as well as conditions or identities of persons who could be future trustees and beneficiaries.  Beneficiaries get money/property distributions from the trust and the trustee governs the distributions as well as how trust property is invested until it is distributed.

After that, assuming the trust is irrevocable, the settlor and his/her intentions, wishes, desires become irrelevant except as embodied in the trust document.

A typical provision in a trust document is that distributions are made to beneficiaries for health, education, maintenance, and support (the "spendthrift" trust).  The trustee owes a fiduciary duty to the beneficiaries of the trust, but only the current ones, not future ones (I believe, but defer to a trust/fiduciary specialist on this).  The trustee makes distributions, usually upon request, to the beneficiary(s), but retains some discretion whether, when, and how much to distribute.  The governing principle here is the duty to the beneficiaries and any restrictions (spendthrift) contained in the trust document.

The beneficiaries have little or no say in the identity of the trustee or future beneficiaries, but they can challenge how the trustee makes distributions and seek appointment of another trustee if the current one is derelict in his duties.

So, assuming it is a spendthrift trust (it probably is, as there are tax advantages to it), they key is the trustee.  If the trustee is aware that the bad beneficiary wants trust money for drugs or other unwise purchases, s/he can simply refuse to distribute it.  The trustee then becomes subject to suit from the beneficiary and must defend his or her actions.  The fees for defense of the suit come out of the trust.

A trustee could conceivably distribute the entirety of the trust to a current beneficiary or beneficiaries, leaving nothing for future ones.  Whether this is permissible depends upon the standard set forth in the trust documents (spendthrift or something else or nothing at all) and may again subject the trustee to fiduciary litigation.

Those are kind of the basics.  Illustrates the hazards of creating potentially perpetual trusts with contingent (determined in the future) beneficiaries.  Better estate planning practice, imo, is to let the beneficiary pass on their beneficial interest as they see fit.

 

It isn't clear to me from your post whether "Trust #2" is to be dissolved upon the death of the current beneficiary and the money/property distributed  in a lump sum to the children, or whether the trust is to continue with two new beneficiaries in the form of the children.  If it is the latter, the trust could conceivably be "busted" or reformed for violating the rule against perpetuities.

 

 

 

Edited April 20, 2018 by TwiceHorn

[Liquor and Poker 3659]

Unfortunately, these questions turn almost entirely on the actual wording of the trusts.  I'm sorry that's such a bullshit lawyer answer, but trusts are even more language-driven than "normal" contracts.  Like TwiceHorn said, you'd need to know a lot of precise and specific details, such as the mechanisms of transfer and distribution,  the rights and duties of the trustee and beneficiaries, the nature of the assets, and exactly how they were settled and funded.  You'd probably also need to know the same thing for Trust #1, and maybe for Trusts 3-6.  That's just off the top of my head.

I hate when I have to give this answer but it's all I can do - I could recommend some high-level asset protection experts in Austin, Dallas, Ft. Worth or Houston if you want something from a deep-weeds perspective.  They aren't cheap but they are acknowledged experts in this stuff.

 

[Hank Scorpio 17924]

What about the fertile octogenarian? 

[thunderlounge 8409]

I agree that the devil is in the wording of the trusts. I would expand more but I'd much prefer that google doesn't pick it up with enough information that someday could be used against anyone involved. I did send a PM to @TwiceHorn with some more details, so maybe if he's feeling kind enough could elaborate with some more legal terms that could help.

Liquor, trust #1 was disbursed in 2009, into 3 parts. Two of those parts were straight distribution, 1 was placed into trust as Trust #2. The beneficiary to whom Trust #2 went, has a trustee on their side. The time for Trust #2 to be distributed is coming quickly, and they are currently under hospice. It is their desire to only have what remains of Trust #2 to only be distributed to one of their children, not both. However as the language from Trust #1, which established Trust #2, was written was that it would be distributed to their children. If their children were not alive, then their children, etc on down the line.

Even if the shares must be distributed, maybe there would at least be a way to bind one share into a similar trust so that the beneficiary of that portion could not touch it without a trustee's permission. Not really sure what the answer is, but attorney's here or with the financial institutions haven't been able to figure it out yet. I'm not sure how deeply they looked into it though.

 

[thunderlounge 8409]

Also I should mention that we're willing to pay if an attorney feels they have some options. Whether that is for council, opinion, assist to local attorney, etc.

[J-Mart 60]

I’m a trust and estates attorney. Yes, more information is needed, as already stated above. 

My $0.02 is that the trustee needs to tread very carefully here. There may be a duty owed to meth child even though meth child is just a remainder bene. Meth child could make things difficult for the trustee here if meth child’s expectancy of a distribution when primary bene dies is jeopardized.

That said, a couple of things to explore:

1. Does the trust give the current bene (the one on hospice) a power of appointment? If so, is bene competent to exercise it?

2. Is the trust wording such that the trust can be “decanted” to a trust with more favorable terms? See Texas Property Code 112.071 et seq. 

[Pig Bellmont 8885]

“We’ve had lawyers looking into this for a few years”

I’m confused. You have lawyers looking at this already? You just scamming for a free second opinion because you don’t like their answers?

[thunderlounge 8409]

4 hours ago, J-Mart said:

I’m a trust and estates attorney. Yes, more information is needed, as already stated above. 

My $0.02 is that the trustee needs to tread very carefully here. There may be a duty owed to meth child even though meth child is just a remainder bene. Meth child could make things difficult for the trustee here if meth child’s expectancy of a distribution when primary bene dies is jeopardized.

That said, a couple of things to explore:

1. Does the trust give the current bene (the one on hospice) a power of appointment? If so, is bene competent to exercise it?

2. Is the trust wording such that the trust can be “decanted” to a trust with more favorable terms? See Texas Property Code 112.071 et seq. 

 

I'll send you some additional info by PM if that's alright.

 

47 minutes ago, Pig Bellmont said:

“We’ve had lawyers looking into this for a few years”

I’m confused. You have lawyers looking at this already? You just scamming for a free second opinion because you don’t like their answers?

 

There has been a family law attorney looking at it, as well as lawyers from the bank where the trust is being held. None specialize in trusts, thus seeking input from someone that may specialize in trusts, and be more familiar with the fine print as well as perhaps know some avenues of research that may be unknown to someone that doesn't specialize in that area.

[thunderlounge 8409]

I would like to go ahead and thank TwiceHorn. He was able to offer a (non-legal) suggestion of something for the attorney to follow-up on, as well as help define a couple terms and their application. A big thanks!

 

[Dbeasy 15592]

Would appreciate a recommendation for a good lawyer in Austin to discuss a living trust. I want to find someone who really knows their stuff. I’ve heard horror stories about improperly executed ones.

[TwiceHorn 32076]

9 minutes ago, Dbeasy said:

Would appreciate a recommendation for a good lawyer in Austin to discuss a living trust. I want to find someone who really knows their stuff. I’ve heard horror stories about improperly executed ones.

Do you mean an "inter vivos" trust in lieu of probate?  

Caveat:  I am a law dog, but my knowledge of wills and trusts comes mostly from Stephen Goode, the Texas bar, and having been through it with my parents, both estate planning and probating their estates.

The problem with those trusts is that all your assets (well, those subject to probate, not IRAs, 401ks, other accounts with beneficiaries), have to be in the trust, which can affect some things.  A lot of people fail to title everything in the trust, which defeats the purpose.

Also, the conventional wisdom is that the PITA that putting assets into the trust and the occasional headache it causes is greater than or equal to the cost of probate.

[Reagan1k 3042]

Yep-  lots of those trusts are created and then the trust lays there empty and serves no purpose other than to put a couple grand in the pocket of the attorney who drafted it.  People get lazy, forgetful or are not properly educated and nothing is titled to the trust. 

[Dbeasy 15592]

Yes probate is one reason I’d want it. Also asset protection.

[hornian 5292]

6 hours ago, Dbeasy said:

Would appreciate a recommendation for a good lawyer in Austin to discuss a living trust. I want to find someone who really knows their stuff. I’ve heard horror stories about improperly executed ones.

It’s not so much the execution as the follow through. 

I always give my clients very specific instructions on how to title property and accounts in the name of the trust when I draft one, but I still worry they won’t follow through on it. I will make sure real properties that exist are titled correctly, but I’ve has more than one client who came back to me after I drafted a trust and titled the property correctly who have either refinanced and the deed of trust defeats the purpose of the trust, or who sold the property in trust and didn’t title the new property in the trust. 

Plus for asset protection you really need an irrevocable trust, and most people don’t want that once you explain it to them. And most people’s main assets are a homestead and retirement accounts, which are generally exempt from judgment anyway, so “asset protection” is really not a good reason for a trust in most cases.

I talk most of my clients out of trusts who come in wanting one for reasons like that. And with Transfer on Death Deeds now allowed in Texas (as of 2015), you can avoid probate for real property without a trust most of the time. And even if you don’t go that route, with a properly executed will the probate system in Texas is not that onerous. Yes, you need a lawyer, but it will probably cost less to get s Will drafted and pay a probate attorney to take the Will through probate than you will pay to establish a trust in the first place (and spoiler alert - you still have to have your estate probated even if you have a trust).

There are a few (usually 1-2) clients a year I consult with where a trust makes sense, but most of the time it’s not worth the hassle to set up and operate and they go with a more traditional estate planning package that is less expensive, more flexible, and protects them just as well as a trust (and better than a trust thats not operated correctly).

 

[midtown 3354]

Probate is no big deal in Texas.   Lots of lawyers sell trusts to people who have no real need for one.   Plus I think people get a kick out of thinking...Oh yeah Ive got a trust, Im special like that.  Very douche.

Asset protection as a reason is only legit if we are talking about higher levels of assets   And in this case it has to be irrevocable.  Can you say tax rates? 

The main reason to do a trust is for control.  Either you have a kid who can't handle the money or a second wife family issue or you are above the estate tax and you are doing some generation skipping stuff.

Permanently encumbering assets isn't something you should do just to be cool or to avoid a one day and $2500 probate cost.

I'm not a lawyer and I am not practicing law, just my opinion as a someone who has seen a ton of this stuff. 

[Reagan1k 3042]

But the free buffet from the Golden Corral or the banquet room chicken dinner at the Holiday Day Inn you get while listening to the Living Will / Trust seminar makes it all worth it.

Space is limited - reserve your seat today.

[TwiceHorn 32076]

Also, to some degree, at least, "asset protection" in a trust where the grantor and beneficiary are the same is overstated.  At minimum, a judgment creditor can get a "charging order" or "turnover order" that all distributions from the trust come to them.

In some cases, a grantor-beneficiary trust can simply be punched through as a fiction.

Nonetheless, it is a barrier to collecting judgments, however small.

[Bevo 13870]

Wouldn't it be much cheaper to give the meth kid a bunch of meth?

[thunderlounge 8409]

13 hours ago, hornian said:

It’s not so much the execution as the follow through. 

 

This right here. You absolutely have to follow through and keep things up to date. You can end up fucking yourself and the beneficiaries right in the puckered starfish with no lube if you don't. If you don't really need one, DON'T fuck with it. And if you do need one, you better damn well find the right people to oversee it all.

 

 

1 hour ago, Bevo said:

Wouldn't it be much cheaper to give the meth kid a bunch of meth?

 

In all honesty, and blunt, yes it sure as fuck would have been. Guess I never really mentioned the resolution, but thanks (again) to @TwiceHorn and his suggestion(s) for exploration, the outcome was satisfactory for all but one individual. Aunt passed 10 +/- months ago, and I think the 12 month waiting period for final claims on the estate should be up the beginning of December or thereabout.

It was a pain in the ass for my mom to get shit sorted out, and we never really found a home-run type lawyer. However we were armed with enough places to look that it ended up about as well as it could have, all things and situations considered.

The things with trusts, and wills, is that you absolutely can put very specific things into them if you need to, and tailor it to your specific situation. Shit can get complicated as hell, but someone could put that a beneficiary must have graduated from a 4-year college, and may not access a distribution until the age of 30. If no college degree, than may not access until age 50. If any beneficiary has been convicted of a felony, they are in turn exempt from being a beneficiary.

Extreme examples, but the whole point of these instruments is to make sure the originators wishes are carried out to their satisfaction upon their death. Sometimes you just don't think something would happen, but they can and do.

Oh, and if you're a beneficiary, get your shit in a row as soon as possible. Do NOT put it off. Heaven forbid something happens in the few months you neglect getting things set back up on your end. It happened to another one of my Aunt's, and that didn't go overly well.

 

[horn4life 3838]

I was told that this scenario is a way to shield dollars from the tax man via trusts.  Is any of this accurate?  It was over happy hour... so...

1) IF you set up a trust that skips a generation (grand kids) that the proceeds of the trust would not be taxable?

2) That you could appoint the parent of the grandkids as trustee without any restrictions on spending and whatever is left passes onto the beneficiary?

If these were true then in the scenario at hand the parent could have simply spent the money out of the trust and distributed a greater portion of the liquidated trust to the child of preference, correct?  Sounded weird to me, but I have  abuddy whose folks are well off and they set up some sort of generation skipping trust between all the kids but he and one of his sisters have no children????   Or is he gonna get screwed when his folks pass by the siblings with kids?

 

[RollLeft 5090]

On 9/17/2019 at 9:21 PM, Dbeasy said:

Yes probate is one reason I’d want it. Also asset protection.

But a few of us have already seen her.  Save your money.  

[TwiceHorn 32076]

35 minutes ago, horn4life said:

I was told that this scenario is a way to shield dollars from the tax man via trusts.  Is any of this accurate?  It was over happy hour... so...

1) IF you set up a trust that skips a generation (grand kids) that the proceeds of the trust would not be taxable?

2) That you could appoint the parent of the grandkids as trustee without any restrictions on spending and whatever is left passes onto the beneficiary?

If these were true then in the scenario at hand the parent could have simply spent the money out of the trust and distributed a greater portion of the liquidated trust to the child of preference, correct?  Sounded weird to me, but I have  abuddy whose folks are well off and they set up some sort of generation skipping trust between all the kids but he and one of his sisters have no children????   Or is he gonna get screwed when his folks pass by the siblings with kids?

 

All it would avoid is estate taxation at death of the grantor of the trust.  It is also limited to $2M per grantor.  Distributions from the trust are taxable as income to the distributee, and income and capital gains within the trust are taxable as such.

The current estate tax exemption is $11.4M, which can effectively be doubled by a married couple.  Probably same with GST.

You could use a GST in conjunction with the estate tax exemption to shelter about $15M from estate tax.

[Dbeasy 15592]

It’s not so much the execution as the follow through. 
I always give my clients very specific instructions on how to title property and accounts in the name of the trust when I draft one, but I still worry they won’t follow through on it. I will make sure real properties that exist are titled correctly, but I’ve has more than one client who came back to me after I drafted a trust and titled the property correctly who have either refinanced and the deed of trust defeats the purpose of the trust, or who sold the property in trust and didn’t title the new property in the trust. 
Plus for asset protection you really need an irrevocable trust, and most people don’t want that once you explain it to them. And most people’s main assets are a homestead and retirement accounts, which are generally exempt from judgment anyway, so “asset protection” is really not a good reason for a trust in most cases.
I talk most of my clients out of trusts who come in wanting one for reasons like that. And with Transfer on Death Deeds now allowed in Texas (as of 2015), you can avoid probate for real property without a trust most of the time. And even if you don’t go that route, with a properly executed will the probate system in Texas is not that onerous. Yes, you need a lawyer, but it will probably cost less to get s Will drafted and pay a probate attorney to take the Will through probate than you will pay to establish a trust in the first place (and spoiler alert - you still have to have your estate probated even if you have a trust).
There are a few (usually 1-2) clients a year I consult with where a trust makes sense, but most of the time it’s not worth the hassle to set up and operate and they go with a more traditional estate planning package that is less expensive, more flexible, and protects them just as well as a trust (and better than a trust thats not operated correctly).
 

Super helpful. Not sure what to do.

[TwiceHorn 32076]

4 minutes ago, Dbeasy said:

 

Super helpful. Not sure what to do.

 

Probably a conventional estate plan with a marital bypass trust.  Yes, it will have to be probated, but as hornian points out, "living trusts" don't entirely avoid probate either, if you want to do things right.

Probate "fear" is highly overestimated.

Edited September 19, 2019 by TwiceHorn

[BottleRocket 659]

My father recently paid about $5k to unwind a 20 year old generation skipping trust and set up a standard will. My brother and I went through all of the conditions he had originally set up in the trust and he couldn’t explain any of it. In fact the trust contradicted many of his current wishes. It became apparent that, as a poster mentioned above, it was originally set up because of my father ‘s ego and desire for control. I think it’s all sorted out now.

My wife’s side of the family has a corporation set up inside of a generation skipping trust and it is a total shit show that has provided nothing but heartache and grief. I call it the ‘Dis-trust’. It could be dissolved in a year after one of the grandchildren reach 30. This trust was also set up in order to control beyond the grave.

Avoid.

[hornian 5292]

7 minutes ago, BottleRocket said:

My father recently paid about $5k to unwind a 20 year old generation skipping trust and set up a standard will. My brother and I went through all of the conditions he had originally set up in the trust and he couldn’t explain any of it. In fact the trust contradicted many of his current wishes. It became apparent that, as a poster mentioned above, it was originally set up because of my father ‘s ego and desire for control. I think it’s all sorted out now.

My wife’s side of the family has a corporation set up inside of a generation skipping trust and it is a total shit show that has provided nothing but heartache and grief. I call it the ‘Dis-trust’. It could be dissolved in a year after one of the grandchildren reach 30. This trust was also set up in order to control beyond the grave.

Avoid.

Ironically, that's actually one of the only real legitimate reasons for a trust, IMO. If you really don't trust your knucklehead kids/grandkids, nothing wrong with controlling their access to funds and making them ask permission from someone you trust to get access to the money.

[hornian 5292]

1 hour ago, Dbeasy said:

 

Super helpful. Not sure what to do.

 

Talk to an attorney. I'm easy enough to find, but it doesn't have to be me. 

[Reagan1k 3042]

As mentioned a few posts up, the language of a trust makes all the difference.

I've done some planning and we set up our plans to establish separate trusts for each child (who are now adults) as opposed to one trust covering all of them.

One size doesn't fit all in estate planning and FAIR DOESN'T MEAN EQUAL NOR DOES EQUAL MEAN FAIR.

I don't like age based distributions because age has nothing to do with the ability to handle money.  I know more than one peer or child of a peer who sat/sits around waiting for the next trust milestone to get the next big lick and does nothing but burn through the prior distribution in the meantime.

Our trusts stipulate a trustee to manage distributions based on a series of guidelines - basically establishing the spirit of my intentions (how I would distribute assets were I still alive).....Both spelled out and discussed with the trustee. 

There won't be any Range Rover driven to a job flipping burgers.  Spending for homes, cars, vacations, allowance all are to be in line with what common sense would dictate; not generated by an artificial point on a calendar or an educational milestone. 

I don't want the money to stifle ambition or create a trust fund layabout. 

At a certain point if the beneficiary is ready, the trustee brings the beneficiary on board as a co-trustee and they manage the assets and any distributions together.  Basically the beneficiary becomes an intern of sorts.  Then at another point the original trustee has the ability to relinquish control and the beneficiary becomes the sole trustee for their own trust. 

At that point they can decide to keep the trust active or make final distributions and dissolve the trust - all contingent on their situation as they may or may not need whatever protection the trust still provides from wives, creditors, etc.

If one of them goes off the deep end they don't ever have to be brought into the fold and / or have the trust turned over to them.  It can just sit and pay for rehabs and basic support....but out of their grasp.