Maryland Estate Litigation

Tag: Maryland estate planning

“For reasons which are known to them” – Disinheriting a Child

by David A. (Andy) Hall

The decision to disinherit a child is generally not made lightly and neither should be the approach to planning.  Careful consideration as to why a parent wishes to exclude a child from her estate planning is necessary prior to preparing the documents.  There may be ways to arrive at alternative solutions that achieve many of the client’s goals without risk of litigation that disinheriting can bring (which I will cover in part 2 of disinheriting a child).

Some may want to disinherit because they want to create incentives for their children to develop a strong work ethic. This is the approach that Sting intends to take with his children.[1]  A number of celebrities, like Bill Gates and Warren Buffet, have similar ideas to Sting.[2]  Celebrities have also disinherited children for reasons that were (allegedly) known only to the children.[3]  Leona Helmsley famously left $12 million for the care of her dog Trouble while also disinheriting two of her grandchildren “for reasons which are known to them.”[4]

Whatever the reason or reasons for choosing to disinherit, a diligent approach to the estate planning and the documentation of the estate planning is necessary.  It is relatively easy to challenge a will.  In Maryland, a Petition to Caveat a Will (a will contest) is a notice pleading.[5]  The Petition needs to contain “an allegation that the instrument challenged is not a valid will . . . and the grounds for challenging its validity.”[6]  In simpler terms, one challenging a will (the “Caveator”) needs to say that the will is not valid and offer a laundry of reasons that it may not be valid.  The list of reasons does not need to be supported by facts.  Many practitioners describe the grounds for challenging a will as including the “kitchen sink” because due to the six-month statute of limitations it is necessary to plead every single possible cause of action or it will be barred despite further evidence that may be generated.

“For reasons which are known to them” is a common refrain in estate plans that disinherit.  This language, however, does no favors for litigation counsel who ultimately defend the will against a disgruntled heir.  The disgruntled heir inevitably has nary a clue as to what the cryptic language is referring to; indeed, they will describe their relationship with the disinheriting parent in glowing terms.

Litigation counsel will then turn to the drafting attorney’s file and look for clues as to the testator/testatrix’s intent for disinheriting a child or grandchild.  In a will contest, the drafting attorney’s file is no longer privileged upon the death of the testator.[7]  Experience has shown that drafting attorneys do not always have the best habits of taking notes when meeting with their estate planning clients.  Even when they did take copious notes, the estate planning file has a tendency to winnow down through the years where the only remaining documents are usually only the final draft or executed version of a will.  The attrition of an estate planning file can seem suspicious to an outsider, but it also makes sense from a logical perspective.  Successful attorneys have thousands of clients that they represent over the course of a career, which generates reams of paper.  As the files build up, a game of survivor begins to take place.  Documents may be destroyed in accordance with a firm’s file retention policy or those documents may be returned to the client upon the conclusion of the representation or the drafting attorney’s retirement from practice.  Absent explanation in the drafting attorney’s notes, litigation counsel is forced to rely on other contemporaneous documents and the testimony of those that knew the testator/testatrix – namely their children or grandchildren – those who stand to lose out on a portion of their inheritance.

The attorney representing the Caveator can attack the lack of evidence and cryptic words of the testator/testatrix in an attempt to extract a settlement from the estate.  Many times a settlement will make sense because of the risk involved in litigating any case and also the attorney’s fees that will be expended by the estate in defending against the caveat.  A little additional care by the planning attorney in maintaining their file or documenting the reasons for the caveat in the first place can go a long way in protecting the client’s ultimate wishes for the disposition of their assets.

We will discuss some other approaches to estate planning where the client wishes to disinherit a child in our next blog in this series.  Should you wish to discuss your estate plan with an attorney who has not only drafted, but also litigated a will or trust, then do not hesitate to call.

David A. (Andy) Hall, Esq.
King|Hall LLC
5300 Dorsey Hall Drive
Suite 107
Ellicott City, Maryland 21042
410-696-2045

andy@kh.legal

 

[1] http://time.com/money/2922231/sting-disinherit-will-kids-heirs-inheritance/

[2] http://time.com/money/2913542/10-other-celebs-besides-sting-whove-cut-their-kids-out-of-their-wills/

[3] https://www.theguardian.com/film/2008/may/25/biography.film

[4] https://static01.nyt.com/packages/pdf/nyregion/city_room/20070829_helmsleywill.pdf

[5] See Md. Rule 6-431.

[6] Id.

[7] See Benzinger v. Hemler, 134 Md. 581, 107 A. 355 (1919).

What are Trusts? Main Trust Principles

by David A. (Andy) Hall

1. Trust Terms, Concepts and Definitions

A trust is, “[a]n equitable or beneficial right or title to land or other property, held for the beneficiary by another person, in whom resides the legal title or ownership, recognized and enforced by courts of chancery.”[1] It is worth noting that Maryland does not have courts of chancery and the Circuit Court where venue is appropriate would enforce a trust. More generally, a trusts is an important estate planning vehicle, but can also serve a vital role in the protection of assets prior to the Grantor’s[2] death.  They can serve as a desirable alternative to a will and allow the grantor’s family to avoid probate to a large extent and provide for greater control over the decedent’s assets after death.

Types of Trusts

Trusts are broadly split into two categories: living or testamentary.  The living trust, or inter vivos, is a trust created while the Grantor is alive.  A testamentary trust is a trust created in a Last Will and Testament.  Trusts can also be split in two other categories: revocable or irrevocable.  A revocable trust can be terminated by the Grantor during her lifetime.  An irrevocable trust cannot.  Finally, there are charitable trusts and non-charitable trusts.

Goals of Trusts

There are five key goals to trust planning.  1. Avoid Probate; 2. Protect the Grantor/Beneficiary’s Privacy; 3. Plan for Incapacity; 4. Tax Minimization; and 5. Creditor Protection.  By avoiding probate, grantors and their trustees can avoid cumbersome estate administration especially in estates with real property in other jurisdictions.  There is no immediate jurisdiction of the court for the administration of a trust.  The well drafted trust will contain a mechanism for succession should grantor/trustee become incapacitated.  Trusts, particularly those with charitable components can be an useful tool in the minimization of taxes.  Finally, trusts can help protect young or unsophisticated beneficiaries from their own poor choices and shelter assets in the event of a divorce.

Functions of Trusts

Trusts provide for flexible management.  They allow an orderly means for the transfer of authority in the event of a trustee’s resignation, incapacity, or death.  Trusts can also reduce the expenses of administration as compared to probate.  Trust planning is effective to protect the Grantor’s estate planning objectives by allowing her to shield beneficiaries’ from themselves and by exercising control for multiple generations.  Trusts can also serve as mechanism to manage litigation.  Litigation in trust cases is often more expensive and complex, which can deter a would be challenger.  And unlike a will, the filing of litigation does not strip the trustee of power to continue to act without seeking the order of the Court.  In many instances, there will be no need to file for guardianship for an incapacitated or underage beneficiary.

Definitions

  1. Beneficiary – One for whose benefit a trust is created[3]. “Beneficiary” means a person that:
    (1) Has a present or future beneficial interest in a trust, vested or contingent; or
    (2) In a capacity other than that of a trustee, holds a power of appointment over trust property.[4]
  2. Grantor – a person, including a testator, that creates or contributes property to a trust.[5]
  3. HEMS – Health, Education, Maintenance and Support – This is the most common discretionary standard.[6]
  4. Incapacity – inability of an individual to manage the individual’s property or financial affairs effectively due to:
    (1) Physical or mental disability;
    (2) Disease or illness;
    (3) Habitual drunkenness;
    (4) Drug addiction;
    (5) Imprisonment;
    (6) Compulsory hospitalization;
    (7) Confinement;
    (8) Detention by a foreign power; or
    (9) Disappearance.[7]
  5. Income Beneficiary – a person entitled to income from a trust
  6. Independent Trustee – A non-interested trustee who is granted additional powers under the Internal Revenue Code.[8]
  7. Interested Trustee –
  8. Under the Internal Revenue Code, a related or subordinate party. In simpler terms, someone working for or a first degree relative of the Grantor.[9]
  9. Power of Appointment – authority to designate the recipient or recipients of beneficial interests in property.[10]
  10. Property – anything that may be the subject of ownership, whether real or personal, legal or equitable, or an interest in the thing.[11]
  11. Qualified Retirement Benefits – amounts held in or distributed pursuant to a plan qualified under Section 401, an individual retirement arrangement under Section 408 or Section 408A, a tax-sheltered annuity under Section 403 or any other benefit subject to the distribution rules of Section 401(a)(9)
  12. Settlor – See Grantor
  13. Situs – The location of the trust for legal purposes. Maryland law provides that the situs of the trust is any county where the trustee may be sued.[12]
  14. Trustee – One who, having legal title to property, holds it in trust for the benefit of another and owes a fiduciary duty to that beneficiary.[13]
  15. Trustor – See Grantor

2.  Key Parties in a Trust and Their Roles

There are three key roles in a trust, but there are also additional roles to consider as well.  First and foremost is the Grantor.  The Grantor grants or gives property to be included in the trust.  The property is held by the Trustee for the benefit of the Beneficiary.  The Trustee is guided by the rules within the trust document and pursuant to state statute and case law regarding the management of the trust including, but not limited to, distributions to the Beneficiary.  The Trustee has a duty of loyalty to the beneficiaries.[14]  A beneficiary may be either a current income beneficiary or contingent beneficiary entitled to receive funds at some future date under certain specified conditions.

A role player not often contemplated, but which may be forced to decide on matters related to the trust, is the court.  The Court can modify the terms where appropriate or where all trustees and beneficiaries agree as long as it is not inconsistent with the grantor’s intent.  It can modify if unanticipated circumstances arise.  It can also remove a bad actor trustee.

Additional Roles to Consider

  • Trust Protector
  • Trust Company
  • Financial or Investment Advisor
  • Doctor or other mental health professional

A Trust Protector serves an oversight role of the trustee and the operation of the trust.  A trust protector can step in, and depending on their powers, remove the trustee, or amend the trust as necessary to keep it current with the intent of the grantor, or in line with changing laws.  A Trust Company can serve the same role as the trustee, but may have different members of the organization serving various roles.  A Grantor may appoint a Financial Advisor to serve as the investment manager.  Many times a trust instrument will provide that the Grantor or a Trustee can be considered incapacitated for the purposes of the Trust if two doctors certify that person lacks capacity.  In practical instances, it can be extremely difficult to get a reluctant Grantor to two different doctors.  In addition, long-time family physicians are going to be extremely hesitant to certify that her patient no longer has capacity.  Appointing a third party mental health professional, or a trusted person, to decide whether the Grantor has the capacity to continue managing assets is an option to remedy doctor shopping.

Care should be exercised before nominating any party for a particular role.  They should be consulted with prior to their inclusion in the document.  Trustees should affirmatively sign that they have accepted the position.

3. The Laws of Trust Creation and Administration

The most critical law for Maryland attorneys regarding the creation and administration of trusts is The Maryland Trust Act.[15]  It was adopted along with approximately 30 other states as a variation of the Uniform Trust Code.  It was not adopted to revise Maryland law on trusts, but to fill in gaps and codify much of the common law.  It applies, prospectively and retroactively, to all trusts created before, on or after January 1, 2015.  It is not applicable, however, to constructive or resulting trusts.

A couple of key provisions to note, it allows a trustee to terminate the trust if the fair market value is under $100,000.[16]  In addition, it codifies that the capacity to create, amend, revoke or add property to a revocable trust is the same as that to create a will, that is, the Grantor must know the nature and objects of her bounty.[17]

4.  Trust Revocability and its Implications

The ability of a trust to be revoked allows the Grantor to retain control over the trust property.  This gives the Grantor/Trustee considerable power to amend the terms of the trust, change beneficiaries, change or remove trustees, but with this power comes certain drawbacks.  The Trust property will still be considered an asset of the Grantor in most instances.  This can have important ramifications for tax or Medical Assistance planning.  In addition, a self-settled trust will likely not be afforded as much creditor or bankruptcy protection as an irrevocable trust.

5.  Trust Funding Basics

Too many attorneys draft great documents, but the plans they have drafted ultimately fail because of a lack of emphasis on funding the trust.  Clients do not understand that a trust is incomplete until it is actually funded with assets.  A trust is an empty vessel without property to fund the trust.  It is often left to the client to figure out the funding of the trust on their own with a few notable exceptions.  Many attorneys are familiar with the pour-over will and a deed titling real property in the name of the trust, but some may be less familiar with the assignment of personal property or dealing with retirement assets.  Finally, it is helpful for assets that are not titled to have the clients prepare an asset schedule to be included in the trust.

[1] Black’s Law Dictionary

[2] Also known as a Trustor or Settlor.

[3] Black’s Law Dictionary

[4] Md. ESTATES AND TRUSTS Code Ann. § 14.5-103(d)

[5] Id. § 14.5-103(v)

[6] See also Id. § 14.5-103(y): Support provision. —

(1) “Support provision” means a mandatory distribution provision in a trust that provides that the trustee shall distribute income or principal or both for the health, education, support, or maintenance of a beneficiary, or language of similar import.   (2) “Support provision” does not include a provision in a trust that provides that a trustee has discretion whether to distribute income or principal or both for the purposes under paragraph (1) of this subsection or to select from among a class of beneficiaries to receive distributions in accordance with the trust provision.

[7] Id. § 14.5-103(l)

[8] 26 U.S. Code § 674(c)

[9] Id. § 672(c)

[10] Md. ESTATES AND TRUSTS Code Ann. § 14.5-103(q)

[11] Id § 14.5-103(s)

[12] Md. Rule 6-111(a)

[13]  Black’s Law Dictionary

[14] Md. ESTATES AND TRUSTS Code Ann. § 14.5-802

[15] See generally Id.  § 14.5-101 et seq.

[16] Id. § 14.5-412

[17] Id. § 14.5-601.  It is silent as to irrevocable trusts.

 

David A. (Andy) Hall, Esq.
King|Hall LLC
410-696-2045
5300 Dorsey Hall Drive
Suite 107
Ellicott City, Maryland 21042
andy@kh.legal

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Investing in Family

by barrettrkingpc

Throughout the years, we are constantly taught, admonished, reminded that we must invest. We must invest in our education by focusing on our studies or by taking student loans to complete our degree so that we can increase our earning potential and job satisfaction. We are taught that we must invest in our retirement by saving a portion of our earnings in an IRA or 401(k). We eventually, for those of us who have them, invest in our children by saving for their own education and by making sure to catch their baseball or field hockey games even if it means going back to the job or office and pulling a late night as soon as the game ends.

Looking back, as teenagers we start our flight from the nest and comforting wing of our parents or guardians with our desire to establish independence. An important part of our passage into adulthood is separating ourselves from those who invested in us so that we can invest in ourselves. And, before we know it, our parents have aged into retirement. To your eyes, are they enjoying themselves? Do they travel? Do they engage in hobbies? Are they experiencing what you grew up hearing them say they would hope to experience in retirement? Do they get to spend time with you or with the grandchildren? Are they getting to relish in the satisfaction of seeing you thrive on their investment and sacrifice in you?

Eventually, the caregiver becomes the cared for. It is worth talking to your parent or guardian about long term care insurance or whether they saved enough for retirement to self-insure for anticipated lifetime medical and long term care expenses. It can affect your ability to invest in your own children or in your own retirement if you have to take time away from work or your young family to become a caregiver or untangle a legal morass where your parents did not properly plan.

Help your parents plan for themselves. You are a major part of your parents’ life story and their future. We spend such a large part of our lives doing the things we do not want to do – chores, commuting, planning, even sleeping – that we should truly enjoy the small moments. And one way to ensure you and those who invested in you will get to do just that is to talk about estate planning and investing for the years to come.

Barrett R. King, Esq.
King|Hall LLC
410-696-2405
5300 Dorsey Hall Drive
Suite 107
Ellicott City, Maryland 21042
barrett@kh.legal
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