1.Why do I need a Will? What does a Will do?
A Will designates who will receive your probate assets after you die. Probate assets are assets owned in the decedent’s name alone and do not include jointly owned assets or assets which pass by way of a named beneficiary (notably life insurance and pension plans).
If you die without a Will, the law determines who will receive your probate assets. Many married couples think their probate assets will automatically pass to each other with or without a Will but this is not true. If a couple has children, one-half of the probate assets pass to the surviving spouse and one-half pass to the children. Only by having a Will can you leave all your probate assets to your spouse alone.
The plan that often makes the most sense is one that leaves all probate assets to the surviving spouse, but if both spouses die within 30 days of each other passes probate assets to a trust for their children.
2.Who will serve as Guardian of my child after I die?
We prepare Wills which name a guardian for minor children. When a couple is married and the surviving spouse is the biological parent of the decedent's child(ren), the surviving spouse is automatically the guardian, unless someone challenges his or her fitness to care for the children.
If the parents are divorced and the custodial parent dies, the surviving birth parent is not automatically the guardian of a child. Unless someone challenges the fitness of the parent, however, the birth parent will almost always be appointed by the Probate Court as the guardian upon the birth parent’s petition to the Probate Court.
The person you name as Guardian would be required to personally appear in the Massachusetts Probate Court and petition to serve as guardian. A court investigator may be appointed to interview the designated Guardian and make a recommendation to the judge. Unless there is a challenge to the Guardian's appointment or a showing of unfitness, your testamentary designation will be honored.
3.Who should be designated as Guardian?
The Guardian is a person who would be responsible for raising your child(ren). You should carefully select someone whose child-rearing abilities are unquestioned and should select someone who shares a value and belief system similar to the one you hope to instill in you child(ren).
Grandparents are not usually a good choice. Even if your parents are in good health now, they may not be when your children are teenagers. Grandparents are better left with the freedom to be loving grandparents rather than cast in parental roles.
Before naming a close friend, rather than a relative, you should consider how much interaction you want your children to have with your extended family. Even a well-intentioned friend will not spend holidays and reunions with your child's family. You are placing a burden on friends whom you ask to serve as Guardian. Remember that children who have suffered the extreme trauma of losing both their parents will need lots of family support and interaction.
Typically, the best choice is a sibling. While you do not need to name the sibling's spouse, you should consider that whether you name your sibling-in-law, he or she will become a major part of your child's life. You should also consider whether you would want the sibling-in-law to carry on alone as Guardian if something happened to your sibling. The advantage of continuing with the sibling-in-law as guardian is continuity for your children. The disadvantage may be the loosening of familial ties.
4.What is a Trust? Why should I have a Trust?
A Trust is a document that controls who will manage assets consigned to it during your life and after your death. Generally you can continue to control your estate for approximately 90 years after your death! In the plan we are discussing, a trust would only come into existence upon the death of both the Husband and Wife and, then, only if your children are younger than a particular age you choose. The type of trust we are discussing does not provide any tax-saving advantages.
There are, nevertheless, many advantages to leaving your assets to your children through a trust. The most important of these reasons is that you may not want to leave a large sum of money to a minor child. In Massachusetts, when a child under age 18 receives an inheritance, the money is either held by the Probate Court or paid to the appointed guardian. In both cases, the Guardian cannot expend or obtain access to the money without receiving the approval of the court. If real estate is involved, the real estate cannot be sold or rented without cumbersome and expensive court approval. The process for receiving court approval is cumbersome and expensive, and may decrease a child's inheritance.
A Guardian is also required to file annual accounts with the court to document his or her investments and expenditures. Although the account is supposed to be filed every year it is often not filed until the child is 18. After so many years, records may be lost and irregularities in spending can be obscured. Your young children will not understand their rights in challenging the account. Upon reaching age 18, a Guardian must turn over all assets to your child. The child could then do whatever he wanted with the money -- buy a car, take trips -- no one can force him to use the money for college or to save for the future.
5.What are the benefits of a trust?
A separate trustee manages your children's assets for as long as you determine would be desirable. You can name a trusted friend, a family member, or a professional trustee to serve as trustee of your trust. The trustee will serve as a “check” upon the guardian and vice-versa. Another advantage of having a separate trustee is that if the child wants a large sum of money for a particular purchase (a car, for example) and the Guardian thinks the child should not have the car, it is easier for the Guardian to let the trustee say no and, thus, not harm the guardian-ward relationship.
You may provide specific instructions regarding how the trust principal may be used and when your children will eventually inherit the money. You can extend the trust past the age of majority -- the most common choice is age 25 -- and you can decide how the money will be used until then.
A testamentary trust requires that the trustee file an annual account with the Probate Court and any "interested party," such as the Guardian, may review the file to be sure the trustee is actually filing the accounts and investing the money appropriately. The trustee of a “Pour-Over Trust” can only be challenged by initiating a lawsuit in the Probate Court.
6. Whom should I name as Trustee?
The trustee manages the money. You should name someone with financial ability, good judgment, and an ability to meet deadlines.
While at first blush it seems natural to appoint the same person as both Guardian and trustee, there are compelling reasons to name two separate people. First, being a Guardian or a trustee is demanding enough. Serving both functions is more than most people can stand, particularly if they are raising children of their own, advancing in their profession, and pursuing their own objectives. Second, having a different person as trustee provides a system of checks and balances (i.e. the trustee will be looking out for your child's financial welfare and the guardian will be keeping an eye on the trustee's money management). Third, combining the roles of Guardian and trustee often creates friction in the fiduciary’s relationship with a child who, as she ages, may want to spend money from the trust. Most Guardians are not offended if their work will be shared with a trustee. Indeed, many are relieved not to have the additional responsibility!
7.Should I have a Testamentary Trust or a Pour-Over Trust?
A Testamentary Trust is contained inside your Will whereas a Pour-Over Trust is a separate document which can be funded during your lifetime. We usually prepare Pour-Over Trusts for particular reasons.
A Pour-Over Trust can be used as a living trust during your lifetime. You can serve as trustee and need not file annual accounts with a court. A Pour-Over Trust provides more privacy because the accounts are not public documents as they would be with a Testamentary Trust.
A Testamentary Trust does not exist – and therefore, is not funded -- until the Testator dies. The trustee must file annual accounts with the Probate Courts, and the assets which flow into the trust are available to pay the creditors of your estate.
On the one hand, filing annual accounts forces the trustee to be accountable. But in reality, if no one follows up with the trustee every year (such as the guardian or the children themselves) the trustee may not ever file accounts and there is no automatic penalty for failure to do so. In addition, by using a testamentary trust you make all your estate assets available to creditors of your estate. This means that all your life insurance money, your home, and all your probate assets will first be expended to pay your credit card debt, medical expenses, liability for a judgment in a lawsuit, or a malpractice action.
If you have medical insurance, your home and cars are well insured, and you have a low-liability career, then a Testamentary Trust would be preferable. If you have no medical insurance, low insurance, and a high-liability career such as a doctor, then a pour over trust will work best for you.
ELDER LAW● ESTATE P L A N N I NG ● LITIGATION ● MEDICAID● P R O B A T E
1340 Centre Street, Suite 205, Newton Center, MA02459 ● Phone: 617.244.4373 ● Fax: 617.630.1990