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TRUST PLANNING: IF NOT A CURE ALL, WHY DO IT?
In the past few weeks, I have had two trustee-clients ask me the same question: “What was the point of all of the planning if I still have to deal with all of this drama from my sibling [or child] now that my parent has passed away? Wasn’t Mom/Dad’s Trust supposed to avoid all of this?”
In the first case, Mom had established an Irrevocable Trust during her life and had transferred her house to her trust with the goal of preserving the property in the event that she ever had to go to a nursing home. She built into the trust special language that will also protect the trust assets so that her disabled son can preserve eligibility for any government benefits he might need due to his own illness. As it turned out, this Mom never ended up needing nursing home care before she died. Her son (trustee-client’s brother) is chafing at timeline and restrictions and is demanding “his” money out of the trust immediately despite the restrictions on his share.
In the second case, Mom and Dad each established and funded Revocable Trusts many years ago. Both trusts incorporated language intended to minimize or avoid completely any estate tax exposure on their deaths. Dad died years ago, and the assets in his trust were indeed sheltered from estate tax. Mom just died so it is time to distribute the assets from both trusts. Beneficiaries of Dad’s trust are Daughter (trustee-client) and her children. Two of the three grandchildren are saying “thank you, Grandpa” for the gifts that were left for them. The third grandchild is challenging her mom’s administration of the Grandpa’s trust, and scrutinizing each distribution that was made over the years to her elderly grandmother.
In both cases, it is the “give me” attitudes of the beneficiaries, even more than their demands themselves, layered on top of longer-standing relationship challenges that arose after the plans were created, that are causing so much distress and wrecking havoc on these families.
So, what was the point? Would these families – and others like them — have been in better shape had the parents not had their estate plans in place? Despite the drama, I believe the answer is “no.”
Let’s look at what the plans did accomplish.
In the first case, Mom and her children had the peace of mind during her life of knowing that if she did have to go to a nursing home, the value of her home was protected from the costs of her care and from any Medicaid claims for reimbursement after her death. Since the house was in trust and not owned by Mom individually, we do not have to go through the probate process in order to sell the house and administer the proceeds. And (although he doesn’t appreciate this), the very ill son can also access long term care benefits without fear that his share of the sale proceeds will have to be spent down or grabbed by the state after his death. All of those are good things. If there was no Trust, we would be in probate court, and the son’s share would be fully exposed to the costs of his illness. And if Mom had needed nursing home care, the state would be looking for payback from the house of any Medicaid benefits she might have received.
In the second case, if all of the assets had passed directly from Dad to Mom when Dad died, then Mom would now have a taxable estate and no one would be getting anything until after the state has been paid. And, since a traditional estate plan usually just passes assets down to the immediately next generation rather than pushing some down to the grandchildren if their parent is still living, it is quite possible that the grandchildren might now be getting $0 since Mom had years to (a) spend everything, and/or (b) change her own estate plan, especially after she had a falling out with Grandchild #3. If there were no Trusts, we would likely now be in probate court for Mom’s estate, there would be an estate tax bill due nine months after Mom’s death, and Daughter would take all under the laws of intestacy.
So what did I tell my clients when they asked “what was the point?” I told them that neither a Trust nor a Will is a magic bullet that will dissolve all family dysfunction or longstanding (or new) relationship issues. When there is money on the table, those issues are going to come to the surface regardless of whether we are managing and distributing property in the relative privacy of a trust administration, or in the public forum that is the Probate Court. But the reason why we have Trusts and Wills is to make sure that the person creating them has a chance to be heard, and so that his/her wishes/hopes for his/her loved ones are honored. And to minimize money going to taxes and lawyers and court costs.
No parent has ever walked in to my office and said “gee, I sure hope my family fights for years after I die.” And so, an important part of the estate planning counseling process is working to identify and resolve potential trouble and challenges while the creator of the plan is still living. Our goal at The Shore Law Firm is to help our clients create plans that will maximize the likelihood that their children/grandchildren will enjoy years of happy holiday dinners together, rather than duking it out on the steps of some courthouse.
And that is the point of planning.