By Michael Ettinger, Esq.
June 2010 Archives
by Michael Ettinger, Esq.
Previously we wrote about the lawyer as co-trustee in the second marriage setting. The main concern there was to protect the share and the interests of the deceased spouse and their family. This was a situation ideally suited for the lawyer as trustee due to inadequate protection if one of the surviving spouse's children acts as co-trustee, and the inevitable conflict that arises if one of the deceased spouse's children acts as co-trustee.
For singles and couples without children, the lawyer as co-trustee fulfills an entirely different function. In the couples setting, we are really referring to the issues that arise after the first spouse dies. From an estate planning point of view, couples without children ultimately have the same issues as singles.
So whether you are single now or eventually become one your key issue is not planning for death, not who you are leaving it to and certainly not having a will. Your key issue is planning for disability. Should you be unable, at some point, to handle your financial and legal affairs due to accident or illness, who will take over? If you don't have a strong plan for disability, which they say eventually happens to about half of all people, you are at considerable risk of having the wrong person or a stranger take over your affairs. In the event of disability, virtually anyone (hospital, doctor, lawyer, social worker, neighbor, relative, friend, etc.) may commence a proceeding to have a legal guardian appointed for you. Once you enter into this bureaucratic process, usually involuntarily, it is exceedingly difficult to extricate yourself and you lose precious control over your affairs. We often say you are only as strong as your back-up plan. If you have set up a living trust, you are in charge now, but the trust says who takes over in the event of disability. You get the person or persons you have chosen, not a court appointed legal guardian, along with the many thousands of dollars in costs that such proceedings entail.
So, who should you choose? Our advice is to choose two people. One a friend or relative who is willing to undertake the responsibility and then the lawyer as co-trustee. The lawyer will see to it that the trust is run properly and that all of your affairs are handled according to law. It takes a considerable amount of the anxiety, pressure and responsibility off of your friend or relative who has so kindly agreed to undertake this task. Further, you have two people signing off on all decisions, and everyone knows what two heads are better than. Not only is the possibility of a mistake being made greatly reduced, but it also eliminates the risk of misappropriation of assets. In some cases, where clients do not have a friend or relative available for this purpose or where they do not want to burden anyone with the responsibility, the lawyer may act as sole trustee.
New York trustee's fees, which only take effect when the trustee is called upon to act, are 1.05% of the first $400,000, .45% of the next $200,000 and .3% of any amounts over $600,000. So, for example, on a one million dollar trust, the trustee's commission would be $6,300.00 per year.
Perhaps the greatest insight your writer has gained in over thirty years of practicing law, is that planning for disability is more important than planning for death. The lawyer as co-trustee may be an invaluable asset to the childless person in the event of disability.
By Michael Ettinger, Esq.
One of the situations that call for the lawyer to recommend himself as trustee is in second marriage planning.
It is a firmly established legal principal that there is no ethical prohibition against the attorney recommending himself to act as a trustee on behalf of a client or client's estate. And for good reason. In many situations the counselor can provide invaluable assistance that no one else is able or willing to provide.
In second marriage planning, we often recommend that the lawyer act as co-trustee on the death of the first spouse. While both are living and competent they naturally run their trust or trusts together. But when one spouse dies, what prevents the other spouse from taking all of the assets and diverting them to their own children? Nothing at all, if they alone are in charge. While most people are honorable, and many are certain their spouse would never do such a thing, strange things often happen later in life. A spouse may become forgetful, delusional or senile or may be influenced, sometimes unduly, by other parties. Not only that, but what are the children of the deceased spouse going to feel when they find out their stepmother is in charge of all of the couple's assets? They are going to imagine the worst case scenario and feel very insecure and possibly even hostile to the surviving spouse. As my esteemed professor of The Law of Trusts said to us over thirty years ago "you would be surprised by how fast the family glue becomes undone."
Now, if you choose one of the deceased spouse's children to act as co-trustee with the surviving spouse what have you done? Created a potential minefield. The biggest issue is the conflict that exists whereby the stepson may be reluctant to spend assets for the surviving spouse, because whatever is spent on her will come out of his ultimate share. Then what if she gets remarried? How will he react to that event? What if it turns out he liked her when his dad was with her, but not so much or not at all afterwards? These things happen, and often.
Here's where the lawyer as trustee may provide an ideal solution. When husband dies, the lawyer steps in as co-trustee with the wife. He helps her invest for her benefit as well as making sure the principal grows to offset inflation, for the benefit of the heirs.
Wife in this case takes care of all her business privately with her lawyer. The trusts cannot be raided. These protections may also be extended for IRA and 401(k) money passing to the spouse through the use of the "IRA Contract" pioneered by Ettinger Law Firm. Surviving spouse agrees ahead of time that she will make an irrevocable designation of both of the couple's children as beneficiaries when the IRA is left to her and further agrees that any withdrawals in excess of the required minimum distribution (RMD) may only be made on the consent of the lawyer.
What about the deceased spouse's children? When the trust terms are read they now feel very secure that the lawyer their father chose will continue on for the stepmother's lifetime, looking after and protecting their share of the assets. They are relieved by the protection that has been set up for them, have no animosity or concern about the stepmother's sole control of the assets and the relationship between the families continues smoothly and may even continue to grow and flourish. All because the lawyer took the time to explain the advantages to the client and was willing to shoulder the responsibility that acting as trustee entails.
A word about trustee's fees. Trustee fees in New York are 1.05% of the first $400,000, .45% of the next $200,000 and .3% of any amounts over $600,000. So, for example, on a one million dollar trust, the trustee's commission would be $6,300.00 per year. These fees take effect only on the death of the first spouse, when the lawyer as trustee is called upon to act.
As you can see, having the lawyer step in for the deceased spouse can help both of the spouse's families avoid a world of trouble after the first spouse dies.