by Haleigh Collins
What is the difference among a Personal Representative, Trustee, Agent, Guardian and Proxy?
The Personal Representative, also known as an Executor, settles your estate if a court-supervised probate is required. You can appoint your Personal Representative in your Will.
The Trustee is the person or entity who manages assets owned by your trust and distributes the trust fund to the named beneficiaries according to the dispositive provisions of the trust. A husband and wife who create a trust often appoint themselves as the initial trustees and their children as their successor trustees. Instead of appointing their children as successor trustees, some clients opt to appoint an entity as their successor trustee, such as a trust company.
An Agent is the person you appoint in your Power of Attorney document to make decisions on your behalf if you are incapacitated or otherwise cannot conduct your business. Through the Health Care Power of Attorney, our clients appoint an Agent to make decisions regarding medical and other personal care matters. Through the Durable Power of Attorney, our clients appoint an Agent to make decisions regarding legal, property, and financial matters. If a third party requires court authorization, the Guardian is the person you nominate, or suggest, the court to appoint. Most often, a client selects the same individual to be his or her Agent and Guardian.
A Proxy is the individual you nominate under your Advance Directive to ensure your end-of-life decisions are fulfilled.
What do I need to do if my spouse becomes incapacitated?
If your spouse’s mental or physical condition is rapidly declining such that he or she is unable to make financial and medical decisions for himself or herself, you need to take steps to protect your spouse. You may need to obtain letters from your spouse’s physicians to document the incapacity. These letters accompanied by an affidavit will allow you to notify third parties that your spouse is no longer able to serve in a fiduciary role as agent or trustee. Also, if your spouse has a power of attorney triggered upon his or her incapacity, you will need to present the physicians’ letters and the power of attorney to third parties in order to act as your spouse’s agent. If your spouse does not have a power of attorney document, it may be necessary for you to seek a court-appointed guardianship to care for your spouse.
Our married clients commonly have estate plans in which each spouse is authorized to act for the other (as agent, trustee, and health care proxy) without having to document their spouse's incapacity. Many single clients have similar delegations of fiduciary authority to other adults (children, parents, siblings, or trusted friends). Planning for your incapacity, or for your assistance to loved ones who become incapacitated, is important and can be done in many creative ways to ensure a person's needs are met in the best way possible.
What do I need to do when my spouse dies?
Every person's affairs are different as their life comes to an end. Although a long list of detailed tasks could be compiled in advance, much of it would be unnecessarily confusing or inapplicable when the time comes for its use. The best advice is two-fold. First, consult with your attorney, accountant, doctor, and financial advisor to have good estate planning in place and keep it up to date with annual plan reviews. Then, when a death occurs or seems imminent, convene a meeting of those advisors to confirm the planning in place and the appropriate actions to take after considering the circumstances at the time. Each person has their own unique circumstances with a need for a unique plan, unique in both implementation and in execution. Plan your work, then work your plan.
Can I transfer real property to my trust if it is subject to a mortgage? What if I need to refinance my home?
Federal law permits individuals to transfer their homestead property to a revocable trust for estate planning purposes without triggering the due-on-sale clause in a mortgage agreement. This law only applies to your homestead property – it does not apply to rental properties or vacation homes. If you need to refinance your home, most likely the mortgage company will require you transfer the home out of your trust to yourself individually. After you have refinanced, it is imperative for you to deed your home back into your trust to avoid probate and ensure your home passes according to the terms of your trust. You can transfer other real property subject to a mortgage to your revocable trust, but you will need to coordinate with the mortgage company to avoid triggering the due-on-sale clause.
What do I need to transfer to my trust?
In general, all assets requiring interaction with a third party in order to transfer the asset should be owned by your trust if you want the terms of the trust to govern the disposition of the asset upon your death or incapacity. You should consider transferring the following assets to your trust: real estate, automobiles, savings accounts, checking accounts, certificates of deposit, money market accounts, stocks, bonds, interests in general or limited partnerships, interests in limited liability companies, accounts receivable, notes receivable, mineral interests, royalty interests, boats, and other recreational vehicles. Some of these assets may pass by beneficiary designation or joint ownership if they are not transferred to your trust. You should review your beneficiary designations to determine if your trust should be listed as the primary or contingent beneficiary.
What should not or might not be transferred to my trust?
Retirement accounts, such as IRAs and 401(k)s, must be owned by individuals. A trust cannot own these types of assets. However, trusts can be the designated beneficiaries of such assets. Take caution though, because your trust should not be the designated beneficiary of your retirement accounts unless your trust contains certain "qualifying" provisions.
Retirement accounts are unique assets because they receive special tax deferral treatment. To take advantage of this special tax treatment, contact your financial institution and make sure you have primary and contingent beneficiary designations in place for all of your retirement accounts.
Some clients are uncomfortable with the thought of relying on beneficiary designations to transfer their retirement accounts to their beneficiaries. This discomfort is understandable because retirement accounts often comprise the bulk of many clients’ estates. If you prefer your retirement accounts pass to your beneficiaries according to the distribution provisions of your trust instead of providing complete control to your named beneficiaries, please contact us before designating your trust as the primary or contingent beneficiary of your retirement account. We will review your trust to make sure it includes the provisions required to “qualify” the trust for tax deferral.
I’m concerned about my child’s marriage, substance abuse, financial management, etc. How can I protect my child’s inheritance?
This is a concern shared by many clients. If your estate plan provides your children their inheritance outright, there is not much you can do to protect them from themselves or their creditors once their inheritance is distributed. At your death, if your trust distributes outright, your trustee must distribute your assets to your beneficiaries as your trust directs. Unless your trust specifically provides otherwise, your trustee will not have discretion to withhold assets from your beneficiaries, even if a beneficiary is a drug addict, in prison, filing for bankruptcy, or going through a divorce.
If this possibility concerns you, the best way to protect your child's inheritance is to set up a trust for their share. Your child's trust can authorize the trustee to use his or her discretion in deciding whether or not to distribute trust funds to your child. Because the trust fund can only be used at the discretion of the trustee and because the child, as beneficiary, cannot force a distribution, creditors cannot reach the child’s trust fund and the child's spouse cannot claim an interest in the trust fund as marital property.
Our address changed. Do we need to update our documents?
Your estate planning documents are not invalid because your address and phone number have changed. However, accurate contact information may become important when you provide these documents to third parties. For example, your Health Care Power of Attorney provides the name, address, and telephone number of your Agent, the person you have selected to make health care decisions on your behalf if you are incapacitated and unable to do so. In an emergency situation, your medical care providers should have accurate contact information on file so they will be able to contact your Health Care Agent as quickly and easily as possible.
What is my trust’s tax ID number?
For individual revocable trusts, the tax ID number for the trust is the social security number of the settlor, or creator, of the trust. For joint revocable trusts, the trust's tax ID number is usually the social security number of the primary reporting spouse. However, if the initial trustees of your revocable trust are no longer trustees, new identification numbers should be used to report trust income. You can file an SS-4 with the IRS to request a trust identification number.