- Anatomy of a Trust -
- Survey Indicates How
Many Americans Have Begun Their Estate Planning (hint: not many)
- Durable Powers -
"Springing or Immediate"?
- Longest Probate Ever?
- When You Become 18
- Q & A: Signing of a Document by the Physically Impaired
- New Law Allows Supplementation of Medi-Cal Benefits
- Protecting Heirs In A
of a Trust
Part 3 –
Revocation and Amendment
benefit of a living trust is the Settlors’ ability to amend or revoke
it. This is a benefit, because the document does not “lock in” the
Settlors to the original terms of the trust. Instead, it gives
them the flexibility they need to alter it to fit changed circumstances
over the years. Beneficiaries change; gifts specified in the trust
are given during the Settlors’ lives or are otherwise disposed of;
Successor Trustees die or move across the country; trust types change;
assets increase, decline, or change character; Trustee powers are
increased or restricted, etc. Because the trust is revocable or
amendable, these changes can all be accommodated.
there are pitfalls as well – not so much with the revocability or
amendability itself, but with the Settlors’ assumptions and actions.
Since they know the trust can be altered, Settlors often ignore the
rules that specify how to amend. We have seen trusts where the Settlors
crossed out words, sentences, or paragraphs, sometimes writing
replacement text in the page margins – sometimes signing or initialing
the change, sometimes not. Either way, such alterations,
especially if contested later on by a beneficiary, would likely fail.
Even more frequently we find surviving spouse Settlors attempting to
amend or revoke terms of a trust that should have become irrevocable at
the death of the first Settlor.
The surviving spouse can, of course, amend or revoke the survivor’s
trust, or the entire trust if division into two or more trusts at the
first death is not required. But, without approval of the beneficiaries
or a court, they cannot alter or revoke a bypass or marital trust or any
of the terms of the trust governing them. In these situations, the most
common request is to change distribution to the deceased spouse’s
beneficiaries. While this may be reasonable under certain circumstances,
and not under others, clients should be carefully advised of the
limitations on their powers to amend or revoke after the death of a
can, while both are living, amend or revoke the trust as it relates to
his or her half of community property or all of any separate property
that either may own. This should be done by executing a separate
document and delivering it to the other Settlor-Trustee, or to any other
Trustees of the trust. Both Settlors can jointly amend or revoke the
trust, with both executing a document incorporating the change.
Notarization is prudent, but not required.
ATS’s trust, in Article 3, spells out the rules for amendments and
revocation. It provides for retaining in a revoked trust sufficient
assets to cover any liabilities the trust may have incurred. It also
requires that any amendment not increase the Trustee’s duties or
liabilities without the Trustees’ agreement, and specifies that a
Trustee is not obligated to act under any amendment unless he or she
accepts it. This is to prevent the Settlors from making unreasonable
demands on non-Settlor Trustees.
provides blank amendment forms in the trust binder, clients are strongly
advised to consult their attorney before making changes to their trust,
or revoking it altogether.
Survey Indicates How Many Americans Have Begun
Their Estate Planning
FindLaw.com recently conducted a survey to estimate the
amount of Americans who have estate-planning documents. It
questioned 1,000 adults, with a margin of error of plus or minus
three percent. The survey found that most Americans lack even the most
fundamental documents. Fifty-five percent of Americans don’t
have a will. Of the ones who do have a will, forty percent have not
updated their will within the past five years or have never updated it.
Also, only thirty-three percent have a living will, leaving two-thirds
of Americans without one. With recent events, like the case of Terri
Schiavo, indicating how important it is to possess these documents, more
Americans should be encouraged to begin their estate planning. For more
information, visit http://company.findlaw.com/pr/2005/051005.estateplan.html.
Longest Probate Ever?
The July 25th issue of the L. A. Times tells of a home
that has been in probate for 80 years (yes, you read that right,
“eight zero”!) To read “This Old Hassle Over This Old O. C.
[Orange County] House” in full, click here:
We’ll update this again in 2015!
& A: Signing of a Document by the Physically Impared
My client is
physically impaired. How would I notarize her documents if she can’t
sign her name?
situation can pose some difficulties and the notary needs to be very
careful to evaluate the level of impairment the signer is in. If the
signer is mentally alert, knows about the document she is signing and
wants to sign the document but is simply limited in her ability to hold
a pen, then she can “sign by mark”, holding the pen to the best of
her abilities, whether in her hand, between her forearms, or in her
mouth and making an “X” on the signature line. Under this rule, her
mark would then need to be witnessed by two other individuals who will
sign in the presence of both the signer and the notary. However, if the
signer is so physically impaired that she is unable to hold a pen with
any body part, then the document cannot be notarized. According to the
Secretary of State, the notary is advised to refuse notarizing in such
situations, and in no situation should a notary acknowledge a mark made
by one person holding the signers hand for that mark.
document in question cannot be notarized, it will need to be witnessed
instead. According to the Continuing Education of the Bar and
specifically with regards to signing Trust documents, the notary
acknowledgement is not actually required. The CEB language states,
“The Will (DPA, HC, etc.) may be signed in the testator’s name by
some other person in the testator’s presence and by the testator’s
direction, or by conservator pursuant to court order.” These
instructions are followed by specific signing rules for the Will, DPA
If you believe you have a client who will have trouble executing the
documents, let ATS know the exact situation, and we will provide the
appropriate signing format for each document.
Powers - "Springing or Immediate"?
There is no
consensus agreement among legal professionals as to whether it is best
for clients to give their attorney in fact immediate powers, or to make
those powers springing. Both types of documents have their pros and
The difficulties with an immediate power of attorney are obvious; no one
would be appointing someone to be their attorney in fact if he or she
did not trust the person, yet we know there have been many times when,
once granted, attorney in fact powers have been used by the agent to
inappropriately manage assets of the principal. The benefit of the
immediate powers is that the agent can promptly step in to take care of
financial matters when the principal needs them to do so, without the
delays and difficulties that exist with a springing power of attorney.
power of attorney inevitably causes delay, due simply to the need to
have the principal’s incapacity established by two physicians or by
court order. The CEB points out a variety of problems with the springing
DPA, including the difficulties that arise when a person’s descent
into incapacity is gradual, and unclear. Additionally, some institutions
refuse to accept a springing DPA, and some states actually forbid this
as to whether to make the attorney in fact powers springing or immediate
is one of the many situations in which there is no clear right or wrong
answer that will work for every client. The best that can be done is to
be sure the client understands their options, and discusses any concerns
with their attorney.
of the Month
community and investment in the future comes before individual
self-interest. It's simply the price of civilization. --Bill Gates
You Become 18
ATS still has
some remaining issues of “When You Become 18”, a guide for teenagers
turning 18 that’s funded by The Foundation of the State Bar of
California. Much of the information is beneficial to adults too,
especially recent California residents. Contact ATS to obtain your free
Law Allows Supplementation of Medi-Cal Benefits
AB 2821 went
into effect on January 1, 2005 and changed the law regarding health care
services by adding Section 14019.7 to the Welfare and Institutions Code.
The bill allows relatives of Medi-Cal beneficiaries residing in a
skilled nursing facility to pay an additional amount to allow the
resident to obtain non-covered services. Services include a private
room, telephone, television, and extending bed hold days beyond the
covered period, which is currently seven days. The additional fee cannot
exceed the charges to private pay residents, and the extended bed hold
days cannot exceed the rate paid for by Medi-Cal. Also, nursing
facilities are prohibited from giving preferential treatment to
residents whose relatives can pay for additional non-covered services
over the residents whose relatives cannot afford the extra services.
With the new law, the quality of life for Medi-Cal recipients in skilled
nursing home facilities can improve without the concern of losing their
Heirs In A Second Marriage
Since so many
people put off Estate Planning until later in life, planners encounter
many clients who are in a second marriage, with one or both spouses
having children from a first marriage. In this situation, it can be very
important to each of the clients that their share of the assets is
passed on to their own designated heirs. There are several ways to do
this. Which method will be best for your clients will depend upon a
variety of factors, including the value of the estate and how much the
clients trust each other.
If the estate
is small, and simplicity is important, a provision can be added to a
Small Estate Trust or Disclaimer Trust specifying that once the first
spouse is deceased distribution cannot be changed for the Deceased
Spouse’s portion of the estate. The clients can then specify that the
Successor Trustees will be a representative from his family and a
representative from her family, jointly, to further protect the
interests of the two groups of heirs. However, this arrangement does
nothing to keep the Surviving Spouse from depleting the Trust assets
after the death of the first spouse, revoking the Trust entirely, or
amending the Trust to remove the Deceased Spouse’s designated Trustee.
alternative is to create an Exemption Trust (A/B Trust). In an Exemption
Trust, the Deceased Spouse’s portion of the Trust Estate must be
allocated to the Bypass Trust at his or her death. The assets and the
terms of distribution of the Bypass Trust become irrevocable, thereby
ensuring that the Deceased Spouse’s distribution desires cannot be
changed. However, the standard Trust language gives the Trustee broad
powers to access the funds of the Bypass Trust. These powers are
intended to avoid a situation in which the Surviving Spouse’s ability
to provide for his or her own necessary expenses are compromised by an
inflexible arrangement of assets, but the powers could be used by an unscrupulous
or careless person to deplete the assets of the Bypass Trust, while
leaving the Survivor’s assets intact for the Survivor’s heirs. If
this possibility is a concern, the Settlors can specify that the
Surviving Spouse not serve as Trustee of the Bypass Trust, but rather
that a relative of the Deceased Spouse shall serve. The downside of this
arrangement is the potential unpleasantness that may arise from the
Surviving Spouse’s need to ask permission from the Trustee to access
any of the assets of the Bypass Trust. Since so much is left to the
discretion of the Trustee, there is a potential for the Trustee to
deprive the Surviving Spouse of enough funds to live at a level
consistent with what the Deceased Spouse would have thought appropriate.
Additionally, by law there is a maximum amount of assets that can be
allocated to the Bypass Trust. If the value of the Deceased Spouse’s
estate surpasses this limit, a Q-Tip Trust will be needed.
As you can
see, the desire to both provide for the needs of the Surviving Spouse
while protecting the distribution desires of the Deceased Spouse can be
a complex problem. The clients will need to give serious thought to
their priorities, and then have their attorney explain the best options
for their particular situation.