Trusts

Trust Interpretation Up for Debate in Recent Texas Court of Appeals Case

Published on: March 31, 2023 | By Thomas W. McCulloch

Recently, a court of appeals in Texas had to decide an important case regarding the interpretation of a decedent’s trust, which had implications for several family members who stood to benefit from the sale of a property specified in the trust. The trust in question was created by a man who intended to leave his property to his brothers, his sisters, and their children after his death. Fifty years after he died, however, the man’s nieces and nephews had questions about how the trust should be interpreted.

Facts of the Case

The decedent in this case passed away in 1964; according to his will, his property was put into a trust for the benefit of his siblings, nieces, and nephews. Per the terms of the trust, the properties would bring in income, and that income would be distributed to the siblings, nieces, and nephews as time went on. Twenty-one years after the death of the last niece or nephew alive at the man’s death, the trust would terminate.

In 2020, the trustee initiated this litigation, asking the court to determine whether one of the pieces of property could be sold. The court’s ruling would be important, said the trustee, because it would affect how income would be distributed to the nieces and nephews, as well as how much income they would receive. One of the nephews became involved in the litigation, arguing the property could not be sold and had to stay as it was.

Brother and Sister Litigate Trust Distribution Case in Drawn-Out Legal Battle

Published on: March 21, 2023 | By Thomas W. McCulloch

Brother and Sister Litigate Trust Distribution Case in Drawn-Out Legal Battle

In a recent case before the Fourteenth Court of Appeals, two siblings asked for a decision regarding the assets left in their father’s estate. Originally, the siblings fought when one took longer than the other wanted to distribute funds from their father’s trust. Without clear guidelines for how to handle the father’s estate, the siblings found themselves in a legal battle that went on for years after their father’s death.

Facts of the Case

This case originated when the father of two siblings died in October 2014. After the death, the decedent’s daughter was named trustee of the family’s trust, and it was her responsibility to distribute the money in the trust.

Several years later, the trustee’s brother sued her, arguing that she was intentionally and maliciously keeping funds from him by delaying the distribution of funds. He asked the trial court to order his sister to distribute his share of his father’s estate immediately, as well as to order her to pay the attorney’s fees he accrued in the lawsuit.

A Living Trust: When to Get One and How to Know if It is Right for You

Published on: February 21, 2023 | By Thomas W. McCulloch

When clients and prospective clients come to us for their estate planning needs, their first priority is often asking us to help them write their wills. What many clients don’t know, however, is that wills are only one option clients have at their disposal. Trusts are another tool that can create security throughout the estate planning process. Trusts come in many forms – some address specific needs, while others are general and help individuals avoid the probate process.

A common misconception we see is that trusts are only for the super-wealthy. Trusts can be utilized, however, by any individuals that have assets they don’t want to go through the probate process. Probate is a legal procedure through which assets owned in a decedent’s name are distributed by a court. The kinds of assets that go through probate are typically assets like bank accounts, homes, cars, art, and bank accounts. These assets don’t pass directly to a decedent’s spouse or heirs, so it is the court’s job to make sure they are distributed fairly. Using this kind of trust instead of a will means that assets owned by your trust will totally avoid the probate process and go directly to your loved ones.

When an individual creates a living trust, then, they can take more control of where these assets will end up. Assets held in a trust are also taxed differently than if they are owned outside of the trust. Trust planning can reduce estate taxes, creating yet another benefit that many clients do not know about.

What is a Fiduciary Duty with Regard to Trusts and Estate Planning?

Published on: February 8, 2023 | By David W. Miller

There are many terms in the field of estate planning that have become ubiquitous in the field, however, their meaning is often misunderstood. Trustee, beneficiary, executor, and fiduciary are some of these terms. The personal term “fiduciary” comes from the type of duty that a fiduciary owes to a beneficiary in a trust or financial management decision. This “fiduciary duty” is generally based upon a relationship or contract between a beneficiary and a fiduciary, or trustee.

The fiduciary duty is built upon a contractual relationship whereupon the fiduciary agrees to accept responsibility for the duty to manage the beneficiaries assets in the best interest of the beneficiary. An example of a fiduciary in the field of estate planning is the relationship between the trustee and the beneficiaries of a trust. A trustee is a person or entity (often a bank or law practice) that takes legal ownership of the trust assets and manages them in a way to benefit the beneficiaries and honors the trust. This management may include investing money, purchasing or selling assets, paying taxes, and managing legal or financial issues and disputes.

Fiduciary duties related to trusts and estate planning may involve specific obligations. The fiduciary has a duty of care to diligently inform themselves of the details of the trust assets in order to exercise sound judgment to protect the interests of the beneficiaries. Furthermore, fiduciaries owe beneficiaries a duty of loyalty, which includes removing themselves from decision-making that could pose a conflict of interest. Another duty of a fiduciary is to act legally and in good faith. A fiduciary should not break the law or behave unethically when handling the beneficiaries’ assets, especially if such dealings collaterally benefit the fiduciary. Finally, a fiduciary owes beneficiaries a duty of confidentiality. The fiduciary should not release the identity or any information about beneficiaries without a mandate or good cause.

What Happens if Someone Challenges the Terms of a Texas Trust?

Published on: January 26, 2023 | By David W. Miller

While establishing a trust for your loved ones is often a wise choice, a number of pitfalls can make the experience more stressful than it has to be. Financial matters—and, in the case of a trust that goes into effect after the death of the grantor, grief—can make an already delicate situation even more challenging. While nobody wants to plan for the worst-case scenario, doing so can ensure your wishes are carried out, and your trust remains unchallenged. In addition to being very clear about your trust terms and working with an estate planning attorney to ensure procedural compliance, trusts can also incorporate a no-contest clause that removes a challenging beneficiary’s right to the trust if they challenge the trust and fail.

Reasons to Challenge a Trust

A trust can generally be contested in the same way that a will can. These include a wide range of reasons that can vary based on your own personal circumstances. For example, someone challenging a trust may claim that the person who formed the trust lacked the capacity to do so or did so under duress or undue influence. There are also certain procedural requirements a person must meet when establishing a trust, and a challenger can attack on those grounds if any steps are missed, or any T’s are uncrossed or I’s undotted. Specific terms of the trust can also be challenged if ambiguous or unclear or somehow against reasonable public policy. Alternatively, beneficiaries can sue the trustee directly if the trustee acts outside of the bounds or spirit of the trust.

Why a Will and a Trust Do Not Make a Complete Estate Plan

Published on: December 27, 2022 | By David W. Miller

Horror stories abound of individuals with plenty of assets passing on without a will, throwing their loved ones into chaos and probate drama. You may have heard of these stories and made sure to establish a secure will. You may have even gone a step further and placed some assets into a trust for your heirs so those assets can avoid probate. Unfortunately, a will and a trust do not make a complete estate plan. Here are 5 other things to consider when evaluating the completeness of your estate plan.

Regularly Update Your Documents

First, even a will and a trust won’t do what you want them to if you do not regularly evaluate and update them. Changes to your financial or personal circumstances should prompt an update. For example, a divorce, marriage, death of a spouse or beneficiary, or a loss of a job or large inheritance could all require changes to your estate plans.

Include Health Care Designations

If you have a will and a trust, you still may wish to put specific documents in place that designate your healthcare wishes in the event you become incapacitated. These documents are called advance directives. A medical power of attorney grants a person of your choosing the right to make your medical decisions for you, while a directive to physicians will outline wishes for your care in advance.

Can You Change Your Mind After You Transfer Assets in a Trust?

Published on: November 22, 2022 | By Thomas W. McCulloch

A trust is a legal entity set up during a beneficiary’s lifetime by a third party to ensure assets are spent in accordance with the person setting up the trust’s wishes. Trusts can also avoid certain tax consequences and the headache of the probate process. If you have set up a trust, you may be wondering if the terms of that trust are modifiable after it’s been signed on the dotted line. Changes in circumstance, such as a changed relationship with a beneficiary or a change in your financial situation, may spark reasonable questions about any trusts you have set up.

The short answer: it depends. If your trust is set up as a revocable trust, you can change the terms at any time. If your trust is set up as an irrevocable trust, it can’t be modified unless any and all relevant beneficiaries provide consent. There are different benefits to each type of trust, and different circumstances may indicate the need for one, the other, or a combination.

What is a Revocable Trust?

A revocable trust is also known as a living trust. The person who created the trust, or grantor, can change the terms of the trust at any time. Changed terms include changed requirements on asset management requirements and the removal or addition of beneficiaries, but the exact rules vary by state.

The Two Types of Special Needs Trusts in Texas

Published on: November 15, 2022 | By David W. Miller

Loved ones, family members, and parents of special needs individuals know they often need a unique approach in helping care for the special needs child or adult in their life. This approach is often augmented by help from government benefits established to make life easier for people with special needs, such as Medicaid and Social Security. These programs, however, become unavailable to individuals above certain asset thresholds.

To help preserve access to this much-needed medical and living expense coverage granted by the federal government, caretakers and financial providers for special needs individuals may wish to set up special needs trusts. In a special needs trust, a grantor names a trustee to administer the trust and a beneficiary, who is the special needs individual. Funds are distributed from the trust without impacting income eligibility for these government programs. Special needs trusts must not be used for living expenses or medical expenses already covered by Medicaid or Social Security, but can be used for supplemental expenses, such as job training or educational program tuition, and even luxury expenses and non-essential costs like vacations, hobbies, or home furnishings. The beneficiary never has direct access to the trust.

There are two main types of special needs trusts: first-party and third-party. The following summarizes the key differences between the two types of trusts. An estate planning attorney can help determine which type, if any, of these two trusts makes the most sense for your family.

How Trustees Can Protect Themselves When Managing a Texas Trust

Published on: July 18, 2022 | By Thomas W. McCulloch

On one hand, being appointed as a trustee for a Houston trust can be something of an honor, as it shows that the grantor of the trust considered you to be a trusted person capable of carrying out the goals of the trust. However, on the other hand, it can also raise concerns, as serving as a trustee is a critical role that can, in some cases, expose a trustee to personal liability in the event they are accused of mismanaging trust assets. Thus, it is imperative that trustees not only understand their duties and how to carry them out but also that they know when they need to outsource certain roles to third-party professionals.

A Trustee’s Duties

Trustees have several duties, most of which are owed to beneficiaries of the trust. Perhaps the most important duty is a trustee’s fiduciary duty to beneficiaries of the trust. A trustee’s fiduciary duty includes the duty to administer the trust in accordance with its terms, preserve and protect the trust assets, and the duty to avoid conflicts of interest.

Administering a Trust in Accordance with Its Terms

Simply put, a trustee must perform their duties in such a way that is consistent with the terms of the trust. For example, if a trust contains an investment policy statement, trustees ensure all investment management decisions comport with the investment policy statement. Thus, even if an investment may be suitable in a trust as a general matter, if the chosen investment disregards the investment policy statement, a trustee may be found in violation of their duties.

Investment Management Pitfalls in Estate Planning

Published on: July 18, 2022 | By David W. Miller

Investment Management Pitfalls in Estate Planning

Trusts offer a wide range of estate planning benefits depending on a trust’s structure and its ultimate goals. Of course, one of the primary purposes of estate planning is the preservation and growth of estate assets through the effective use of trusts. However, from the investment management perspective, trusts are only effective to the extent that they are well managed. Thus, it is imperative that those who are considering the creation of a high-value trust take special care in avoiding the most common investment management pitfalls.

Be Careful About Who You Put in Charge

When a grantor creates a trust, they must also name a trustee to oversee the administration of the trust. While selecting a trustee is almost always one of the most important decisions when creating a trust, the factors you should consider when reviewing potential candidates depend on the type of trust, the value of the assets contained in the trust, and your goals in forming the trust.

For example, many grantors name trusted loved ones to manage a trust. This is a workable solution in many cases. However, just because you have someone in your circle who is willing to serve as a trustee doesn’t necessarily make them a good fit. For example, managing a multi-million-dollar trust is very labor intensive and requires the trustee have significant investment experience. While some grantors may have loved ones who can adequately handle these responsibilities, those for whom an obvious choice doesn’t stand out should at least consider naming a corporate trustee. However, it is important to note that corporate trustees are typically much more conservative in their approach than individual trustees.