Posts Tagged ‘revocable living trust’

Some Questions We’re Being Asked a Lot Lately

APRIL 29, 2013 VOLUME 20 NUMBER 17
You probably have read that Congress has made big changes to the estate tax system. More accurately, Congress has made “permanent” the big (but piecemeal and temporary) changes introduced over the past decade. We hear a lot of questions from our clients about what those changes mean. Here are some of the more common questions we get asked:

Should I revoke the living trust I signed a few years ago? The answer is almost certainly no, but it might require some explanation.

Trusts (and here we generally mean revocable living trusts) have been useful for the past few decades, and help address a number of concerns. They can make it easier for you to avoid the necessity of probate of your estate. They can provide more efficient and clear-cut management of your assets if you become incapacitated. They can spell out any limitations on your heirs’ access to your estate after your death. And (especially for married couples) they can help minimize estate taxes — or at least they have traditionally been useful for that purpose.

The federal government’s change in estate tax limits means that very, very, few estates of decedents will pay any estate tax whatsoever. But does that mean that your trust will no longer be helpful?

Even though your estate will likely not be subject to any estate taxes, the other benefits provided by your living trust will continue to be available. Probate avoidance is still easier with a trust. So is protection of your assets in the event you become incapacitated. So is control over your children’s inheritance.

If you had not already created a living trust, the recent changes in tax law might make it less compelling for you to sign a trust today. But if you have already created your trust, there is little likelihood that you will be better off by revoking it. The only real downside to creating a trust (in most, nearly all cases) is the cost (our fees) and the difficulty of transferring assets into the trust (the “funding” process). You’ve already incurred both of those, so it probably makes little sense to undo your trust now.

Do my spouse and I still need a two-trust arrangement? It has been common in Arizona (and other community property states) for a husband and wife to create a single, joint trust that divides into two trusts upon the first death. Those trusts are sometimes called “survivors” and “decedents” trusts, or “family” and “marital”, or more simply A and B trusts. Many practitioners think they are outmoded now — and they might be right.

The recent tax law changes make permanent the concept of “portability” of the estate tax exemption. That means that when one spouse dies, the surviving spouse gets to keep the deceased spouse’s $5 million estate tax exemption (it’s actually even better than that, since the $5 million figure is indexed for inflation and has already risen to $5.25 million). No fancy trusts are necessary to allow a combined estate of up to $10.5 million (or more) to completely escape federal estate tax.

For a number of reasons, though, some lawyers favor keeping the two-trust split in place. There might be a state estate tax to consider (there isn’t in Arizona, but perhaps you have property in another state where there is an estate tax). There is still the generation-skipping tax issue, if you are putting money in trust for your children (which we favor) or leaving money directly to grandchildren.

This issue takes a lot of individualized consideration. The answer may depend not only on the size of your estate, but also who you intend to leave your money to and whether you will be leaving it in trust. Suffice it to say that married couples with combined estates of well under the $5 million threshold probably don’t need the two-trust arrangement, while couples worth more than twice the $5 million figure likely do. But even those generalizations are uncertain — your mileage definitely might vary. Talk to your lawyer.

What if my spouse died several years ago, and an irrevocable trust was set up — do I still need to keep it going? It might well turn out that you don’t, but you may not have control over the question.

For couples worth more than a few hundred thousand dollars a decade ago, the division into two trusts was commonplace. If one spouse has already died the division might well have already taken place. If so, the irrevocable trust files separate tax returns, has its own EIN (Employer Identification Number — the trust’s equivalent of a Social Security Number) and has requirements that some form of accounting information is provided to the ultimate beneficiaries. Would it be advisable (or even possible) to terminate that trust?

It might, particularly if the total value of the irrevocable trust and the living spouse’s own estate does not exceed $5 million. Recent changes in Arizona law might make it easier to terminate the trust and save the cost and hassle of administering it. But it is not always easy to terminate the irrevocable trust, and there may be some costs associated with doing so. Talk to your lawyer. You might find yourself discussing merger, termination or “decanting” of the irrevocable trust.

Are these changes really permanent, or will we be revisiting everything again in two years? This really looks permanent — or at least permanent for the next decade or two. Can Congress revisit the estate tax? Yes, of course. Have they done so over the past fifteen years? Yes, repeatedly. Is there any move afoot to make further changes? Yes, some politicians talk about eliminating the estate tax altogether. But even with all that said, there is little indication that any serious changes are going to be discussed in the next few years. And even if Congress significantly lowered the estate tax limit, the result would be that the tax could affect a handful more than the half-percent (or so) of people who now need to worry about estate taxes.

How To “Fund” Your Revocable Living Trust

APRIL 15, 2013 VOLUME 20 NUMBER 15
We keep bumping into versions of the same story:

“Mom and dad created a revocable living trust. They wanted to avoid probate, and my sister lives in a group home because she is developmentally disabled. The trust named me as trustee, and my sister’s share goes into a special needs trust. Problem is, they named the kids as beneficiaries on their IRAs, and the house wasn’t transferred into the trust. Is that going to cause any difficulties?”

In a word: yes. Two kinds of difficulties, in fact:

  1. Not transferring assets to the trust (like the house) means that the probate avoidance value of the trust is lost altogether. Probably we will have to file a probate proceeding to transfer the house to the trust — and then it can be distributed properly. The good news is that those assets they DID transfer into the trust won’t be subject to the probate proceeding. The bad news: there will still have to be a probate proceeding. Your parents failed in their goal to avoid probate.
  2. The IRA beneficiary designations create a different difficulty. The other kids will get their shares of the IRA just fine, even though your parents didn’t use the trust. But your sister’s share will go outright to her, and will cause her to lose her eligibility for at least some public benefits — and we will probably have to have a court proceeding (in Arizona, a conservatorship) to get you or someone else authority to handle her inherited IRA. Plus we may have to have a related court proceeding to set up a special needs trust (we can’t use the one that your parents created) to receive those funds — and if we do, that trust will get paid back to the state when your sister dies. In other words, your parents also failed in their goal to provide protection for your sister’s inheritance.

How did this happen? Didn’t the creation of the trust address both kinds of problems?

No. Creation of the trust was one thing. Funding of the trust is another.

“Funding” is the term lawyers usually use to describe all the different kinds of things that have to be done to get assets titled in the name of a revocable living trust. It is an essential part of the process, and usually is part of the job taken on by the lawyer who drafted the trust. Not every lawyer agrees, but we at Fleming & Curti, PLC, feel that we have not completed our job unless we have at least initiated the process of getting assets transferred to the trust. The practical effect: even after you sign your estate planning documents, you may still be working with our office for weeks or months to get the “funding” done.

Some assets are fairly easy. The house title (at least for Arizona properties) is easy for us to prepare. If there is out-of-state real property, we may need to involve a lawyer from the state where the property is — but even that is usually a fairly modest cost.A lawyer in, say, Indiana might transfer Indiana property to the Arizona trust at a low cost, hoping that we will return the favor the next time she has an Arizona property to transfer into an Indiana trust (we probably will).

Other assets can be more complicated. Your bank, credit union or brokerage house may resist changing accounts into the trust’s name. Some may flat out refuse. Some will appear to have done it right, but then later decide that the title hasn’t actually been changed at all (and they may not tell us).

Then there are the assets that get changed after the trust is signed. If you have refinanced your home mortgage, or purchased a certificate of deposit from a new financial institution, or talked to your “personal banker” about accounts, you might well have signed new title documents. You often will not even realize that that is what you were doing — no one ever says: “you know, if you sign this document it might just mess up your trust funding — you should talk with your estate planning attorney first.” We wish they would say just that.

Some assets get overlooked. Did you remember that you inherited a 5/24 interest in some oil and gas rights in Texas? Did you tell us about the small bank account you kept in your hometown bank when you moved to Arizona 23 years ago? Did you even remember that you had a life insurance policy from your time in the military at the end of World War II?

Then there are the beneficiary designations. Life insurance, IRAs and other retirement accounts and annuities almost always have them. Bank and brokerage accounts and, in Arizona and a handful of other states, even real estate can have them. Our clients are forever tinkering with them — you go to a seminar, or listen to the bank manager explain the value of annuities, or talk to a tax preparer who assures you that lawyers are overpriced, and then the beneficiary designation gets disconnected from the rest of your estate plan.

Don’t panic. (“Towel Day,” incidentally, is May 25 — go ahead and look it up. We’ll wait.) The problem might not be insoluble.

It would be best, of course, if we could get things right while you’re still alive. Haven’t met with your lawyer in five years? Make an appointment, gather up all the statements, titles and beneficiary designations you can, and sit down to review the funding of your trust. Not every beneficiary designation should name the trust in every situation. Not every account will actually be held the way you believe it is, or the way your lawyer believes it should be.

Even if you don’t get it straightened out while you’re still alive, there may be things your heirs can do. In Arizona, up to a total of $50,000 (that may be changing to $75,000 in a few months, incidentally) can be collected into your trust without having to do a full-blown probate. Up to $75,000 of real property (soon to be $100,000) can be collected in a simplified probate proceeding, too. There are rules and limitations, but many problems of failure to fund trusts can be taken care of through those provisions of law. Not in Arizona? We don’t know for sure (we don’t practice in your state), but there are similar rules in most, perhaps all, states.

Thank goodness your lawyer is such a nice person, and the staff is so pleasant. That makes it easier to follow up, even after you’ve already signed your revocable living trust.

I Just Want to Put My Daughter’s Name On My Deed

NOVEMBER 5, 2012 VOLUME 19 NUMBER 40
We hear that request all the time. “I want to make it easy for her when I die — just put my daughter’s name on the deed,” client after client insists. When we resist, they think we are acting too much like lawyers.

There are no statistics out there, but we think that most of the time this arrangement works out just fine. But most of the time isn’t a very comfortable place to be. We counsel clients not to put their children’s names on the title to their property — any property, but especially real estate and most especially the home — while the client is still alive. Let us try to explain ourselves, and offer up some alternatives.

First, what do clients mean when they say something like “put my three sons’ names on the deed”? Do they mean that they want to put the property in joint tenancy, with the client and three children as co-owners? Or do they mean that they want to continue to own the property themselves, but have it pass automatically to the three sons on the client’s death? Because if they get us to put the property in joint tenancy, that is a completed gift now, not a contingent gift that becomes completed at death. If the client decides in two years to remove one of her sons, or to sell the house, or to leave one son’s share to his kids rather than his wife — it’s too late. The deed has been done, as the saying appropriately suggests. Any later change will require the agreement — and signatures — of all three sons.

That was the problem that faced Hazel Jackson (not her real name) in a case decided by the Arizona Court of Appeals recently. Hazel had asked her lawyers (not our firm) to put her daughter’s name on her deed, and they had prepared a deed transferring her Sun City winter home into joint tenancy between her and her daughter. A decade later, she figured out that she had made a mistake — she had meant, she said, to sign a “beneficiary deed” (more about those later) so that her daughter would receive the property easily at her death. She hadn’t meant to give her daughter a present interest in the home.

Hazel asked her daughter to sign over the interest that Hazel had inadvertently given to her, but the daughter refused. Hazel filed a lawsuit to compel her daughter to return the gifted interest, but the court threw out her lawsuit. The Court of Appeals agreed, ruling that unless Hazel could show that the deed she had signed was actually invalid (e.g.: not properly signed, not witnessed correctly, or the product of duress or fraud) the lawsuit was properly dismissed. Hazel’s “misunderstanding of the legal effect of the warranty deed is not a legitimate basis on which to invalidate the deed,” said the Court. Johnson v. Giovanelli, October 25, 2012.

Note that Hazel was arguing that she had signed a deed different from the one she intended to sign. Her claim would have been even weaker if she had argued “yes, I meant to sign a deed when I did — but things have changed and I no longer want my daughter’s name on the title to my house.”

The Court of Appeals decision does not explain what has changed between Hazel and her daughter to make her want to change the title to the house. We can only report that we see similar concerns raised from time to time — often because family relationships change, or a parent decides a child’s inheritance should be protected from spouses, children, or creditors.

What about the “beneficiary deed” that Hazel claimed she had meant to sign? Would that have solved the problem? Perhaps — it would at least be worth considering, and would have allowed her to change her mind a decade later.

Beneficiary deeds require some explaining, too. They are unfamiliar to many people — the very concept is only about two decades old (that’s very young in property and estate planning law, which was mostly laid down five or six centuries ago). Only about a third of the states have approved the idea — including Arizona, which was one of the early adopters, but not the first. We have written about beneficiary deeds before, and often prepare them for our clients. But they are not the perfect solution for every “put my daughter’s name on the deed” situation.

When is a beneficiary deed not the right answer? It is not the best way to handle children who can not handle money, or who receive public benefits. It can create more trouble than benefit in larger families (eight siblings owning equal interests in a property can be a formula for gridlock that even a Congressperson could admire). It may not deal very well with the possibility that a child dies before you do (would you want his share to go to his wife, his kids or back to your other children? What if he remarries first? What if he is in the process of getting a divorce?). But for Hazel, who apparently had only one child and who intended her daughter to receive everything outright, it might well have been the easiest and best answer.

What’s the other choice? A living trust. They aren’t the answer to all problems, either, but if you have lots of different pieces of property, or lots of children, or a desire to benefit children and others unequally, or a child with special needs, creditors, an unhappy marriage or other reasons not to leave property to them outright — in all of those cases a living trust is more likely to be the right answer for you. Let’s talk. But please understand that if we start the conversation with “I just want to put my daughter’s name on my deed” you’re likely to get a little pushback from us. It’s because we want to do a good job for you, and we have seen some things.

[By the way: much of what we say here also applies to your bank accounts, brokerage accounts, and other assets. We just wanted to focus on the deed to your house right now.]

We Suggest Two Positive Things About Probate — But Not Too Vigorously

SEPTEMBER 24, 2012 VOLUME 19 NUMBER 36
Two weeks ago we wrote about why you might want to plan your estate with an eye toward avoiding probate. We hope you concluded, with us, that the probate process may not be as onerous as one would believe based on its bad reputation. We concluded with a promise that we would next try to identify any reason you might actually want to be sure that your estate “goes through” probate.

Then life (in the form of a family visit and a trip to the fantastic ruins at Chaco Culture National Historic Park) intervened, and we missed getting back to you on this topic. We do hope no readers are inconvenienced by what we are sure was growing dramatic tension.

We’re back and ready to address the positives about probate. “It isn’t as bad as you think” simply is not enough to recommend the probate process, and so we need to lay out all the affirmatively good things that can happen by virtue of having your (or a family member’s) estate subjected to probate. We think we will be brief.

We can think of two positive things arising from the probate process. Others might quibble (and in fact we hope they do — comments are solicited below) and insist that we have overlooked a third, or even a fourth. But the truth is that there are not many affirmatively good things flowing from a probate proceeding. Here are our two:

1. Creditor protection. If your estate goes through the probate process, there is a formal mechanism for giving notice to creditors and giving them a short time — in Arizona, four months — in which to perfect their claims. At least in theory (there are some exceptions) that means you can cut off unknown creditors fairly quickly after a death, and their claims do not linger to be asserted against heirs months or even years later. This feature of probate is often particularly attractive to doctors, lawyers, architects — any professional who might conceivably be sued for malpractice.

This “benefit” is often illusory, however. In Arizona, and in a growing number of other states, you can give creditors notice (by a combination of mailing and publishing in local newspapers) and cut off claims not made within the same four-month period even if no probate has been filed. Check with your local attorney to see if your state has a similar provision.

2. Judicial finality. What we mean by this is that, particularly in contentious family situations, the person administering your estate might actually benefit from the knowledge that once a probate judge has decreed that everything was done correctly, unhappy heirs are cut off from pursuing additional legal proceedings.

This, too, is somewhat illusory. Suppose you choose to establish a living trust to avoid the probate process, and your successor trustee wishes she had access to the courts to make sure her siblings don’t threaten to act for months or years after your estate has been settled. Well, your successor trustee can choose to submit your trust to the probate court’s review, just as if there had been a formal probate proceeding.

In our experience, family members tend to overestimate their ability to get along with siblings and others affected by the handling of your estate. It might be that your daughter, whom you have named as successor trustee, chooses not to seek probate court approval — and later regrets it when your son challenges everything she did months or even years later. But, as we say, this is a fairly faint recommendation for a decision to force your estate through the probate court.

So how do the pluses and minuses stack up, and what do we think you should do about it? Here’s the executive summary:

There are very few cases in which administration of an estate will not be simpler and less expensive if a living trust is established — and fully funded — rather than requiring that the estate go through the probate court and process. Though there are some theoretical benefits to probate, they tend not to be too compelling in individual cases. But the real test is a cost-benefit analysis: will your family save enough (cost and hassle) from your decision to establish a living trust to justify the increased expenditure by you, right now?

As part of that analysis, how likely is it that the estate plan you create today will be the one in place when you die? In making this calculation, remember that most people really do need to revisit their estate planning documents about every five years, or even more frequently.

As you review this material, please remember two things:

  1. We live and practice in Arizona. Not every state has the same relatively simple probate process, but in some states probate is even simpler and less expensive. That means that the cost-benefit analysis we describe has to be made in your state, preferably in consultation with an estate planning attorney familiar with your state’s law and practices.
  2. Reasonable minds can and do differ. Few things generate the heat and passion among estate planning attorneys (we tend to be a pretty mild bunch) that you can get from the “do you need a living trust” question. We’ll post pretty much any response we see from other practitioners or regular folk, but ultimately you need to talk to a local attorney and get the straight scoop from her or him before making a final decision.

Is It Important to Avoid Probate? Why, or Why Not?

SEPTEMBER 10, 2012 VOLUME 19 NUMBER 35
Earlier this year we wrote about how to avoid probate. We told you at the time that we might later address whether to avoid probate. This week we’re going to tackle that topic.

You might be thinking something like: “‘whether to avoid probate’? Isn’t that foolish? Of course I want to avoid probate.” There is simply no question that the whole process of probate (by which we mean the court proceeding required to transfer a decedent’s assets to his or her family or the beneficiaries named in a will) has gotten a bad name. Our purpose here is not to try to rehabilitate the public image of probate, but to give you some of the details about how the process works. Armed with that, you can decide how bad probate really is, and how badly you want to try to avoid it for your estate.

First, a handful of generalizations. Please note that they are generalizations, not absolute truths:

  1. Probate is not as bad as it was a half-century ago. When Norman Dacey published “How to Avoid Probate!” in the mid-1960s, the negative image of the probate process was already widespread. His book galvanized opposition, and popularized the notion of revocable living trusts as an efficient probate avoidance tool. It also woke up the legal establishment; within a decade, a number of states (including Arizona) had adopted the Uniform Probate Code, which had been crafted to simplify the process. Even states which did not adopt the Uniform Probate Code drew a lot of the ideas and processes from it. The result: in most (but not all) states probate has gotten much, much simpler.
  2. Relatively few deaths result in a probate proceeding being filed. For example, the Tucson area probably sees about 10,000 deaths a year (extrapolating from U.S. Census data for Arizona, which reported 46,000 deaths in 2008). Yet only about 1,300 probates were filed in Tucson last year — and that number includes cases where a trust was filed for review, interpretation or supervision. We predict that similar numbers — about 10% of deaths leading to a probate proceeding — will apply in other jurisdictions, too.
  3. Avoiding the probate process does not, by itself, have any effect on taxes and does not prevent family fights. As to the former, there are no income taxes due upon receipt of an inheritance regardless of whether it comes through probate or not. Estate (or inheritance) taxes are a different animal; there is no estate tax in Arizona, and no federal estate tax (in 2012) on an estate of less than $5.12 million. But the value calculation is not based on probate estates — it is applied to trusts, joint tenancy, beneficiary designations and anything else the decedent owned or had control of just before death.
  4. There is tremendous state-to-state variation. There are a number of states in which one item or another from the list below would completely change your analysis. DO NOT use this guide to judge whether you want to avoid probate in California, in Texas, in Ohio — in fact, in any state other than Arizona. Ask your local lawyer about your state. Feel free to share this article and go over the list, but do not be the least bit surprised if his or her answer is completely different, based on your state’s laws. (Incidentally, if you, gentle reader, are an attorney practicing in a different state — please feel free to comment about how, precisely, you would adjust our advice for your state. We’d be happy to include such comments on our website, along with your contact information. We won’t vouch for your accuracy, but you do know your state law way better than we do.)

Let’s get started. We propose to set up a series of the most common objections to probate, and then explain how seriously you should consider those objections.

Probate is expensive. It does cost something to go through the probate process. There are filing fees, publications of notice in local newspapers, and lawyer’s fees. They can be substantial. But one thing about the Uniform Probate Code: it moved states from a fixed percentage of the value of the estate to a “reasonable” fee. In general terms, that has meant average fees about 1/3 of what they were under the old fixed-fee schedules. Still more than some people want to pay, but much less than they have heard about. Did you read that some celebrity’s estate paid 40% of its value in fees and taxes? Well, we bet that (a) most of that was taxes and (b) there was a will contest. If your competence is going to be challenged, avoiding probate may not reduce that cost. If your estate pays taxes, avoiding probate will not change that.

It is also important to remember that avoiding probate does not mean avoiding lawyers — and costs — altogether. Resolving the division and distribution of a living trust (a popular probate-avoidance device) will cost some money. It will probably be considerably less than the probate cost, but it won’t be $0. And accountants are still likely to be involved (there are, after all, the same number of tax returns to file either way).

Probate means public disclosure of private matters. Not any more. Or at least, not in Arizona. No inventory has to be filed in the probate court (a copy gets sent directly to beneficiaries, but it need not be filed in court). No formal accounting is required (assuming, of course, that no one objects to the administration of the estate). Anything with confidential information can be filed in a sealed envelope with the court. In short, the only thing publicly available is likely to be the text of your will itself (plus, of course, the fact of your death). That may be enough of a violation of privacy that you want to avoid the process, but for most people that’s not terribly invasive.

It takes a long time to go through the probate process. It can, but it doesn’t have to. Most probates can be closed once a four-month waiting period is completed. Given ordinary delays in getting things filed, that usually means the probate process is wrapping up at about six months after filing. Of course there are exceptions. We have decades-old probates hanging around in our office. We once took over a probate that had languished for over forty years. It happens. But it is not inherent in the probate process. PS: we closed that 40+-year-old probate with two phone calls and one court filing. It took about two more weeks. We apologized to the now-elderly heirs for an unconscionable delay. They said they had wondered why they’d never gotten their small inheritances. But they had never called to ask the prior lawyer what was taking so long — it wasn’t until the lawyer’s death that that particular sad little file got closed up.

Probate proceedings are easy (easier?) to contest. This one is correct, although not (for most people) a very big deal. If you have disinherited a spouse or child, you might want to consider a living trust. Your will isn’t literally easier to contest than your trust — the same principles apply in both cases. But probate does mean that there’s already a court file, and a letter has to be sent out to the disinherited heir (which might invite a contest that they otherwise wouldn’t get around to filing).

Why isn’t this a big deal for most people? Because most people don’t deviate very much — or even at all — from what would have happened if they did not sign a will or trust. If you don’t leave anything to your long-lost cousin in Colorado, she doesn’t have any basis for contesting your will OR your trust — because she wouldn’t inherit even if you were batty as a bedbug (is that the right metaphor?). If you had no will or trust your estate would go to your spouse and kids in some proportion. Your goofy cousin will never get any part of your estate (unless you die without spouse, children, siblings, nieces, nephews, parents, grandparents, uncles or aunts), so a will contest is pretty much a theoretical idea for most of our clients.

If you own real estate in more than one state, the cost and trouble of probate will be magnified. Yup. And we can’t tell you how hard or expensive it will be to handle the probate in the other state. You’re a good candidate for a living trust. Note, however, that we’re going to have to go to the expense of getting that other state’s real estate transferred into your trust, and that’s going to increase the cost of creating the trust in the first place.

So what does it all mean? Should you be trying to avoid probate? Probably, but maybe not if it’s very expensive to do so, or you aren’t too worried about your heirs incurring some additional costs, or you haven’t decided exactly what you want to do. If you decide probate avoidance isn’t too important we won’t call you foolish or misguided.

But are there any positives about probate? Any reason to want to have your estate go through the probate court? Well, we’re well beyond our usual self-imposed word limit for this week, so we’re going to leave you with that question as a cliffhanger. But we can promise that next week, when we answer it, our weekly newsletter will be shorter.

Living Trust Does Not Prevent Court Involvement After Misuse of Funds

JULY 16, 2012 VOLUME 19 NUMBER 27
Living trusts are increasingly popular and common. One of the principal attractions for most people who execute living trusts is that they can avoid the complication, cost and oversight of the courts and of lawyers. That usually means the trust signer’s family can save money and hassle.

Lack of oversight, of course, can sometimes lead to problems, including abuses. A recent Arizona Court of Appeals decision, though involving a dispute over a relatively small amount of money, can help illustrate the procedural hurdles and complications involved in providing the necessary oversight when trusts do not work out as planned.

Glenda Harrison (not her real name) had created a living trust, naming her daughter Candy and her son Jack as co-trustees. As she became increasingly unable to manage her own finances a guardianship (of the person) and conservatorship (over her estate) were initiated; Jack was appointed as sole guardian and conservator.

Among the reasons Jack was appointed as guardian and conservator was his allegation that Candy and her husband had dealt with the trust improperly. His chief complaint: Candy’s husband had loaned Glenda’s trust $9,264 but had gotten a note for $16,000, and had secured an interest in Glenda’s residence (what we all, inaccurately, call a mortgage) for the higher amount. Though the $9,264 had been repaid, Candy and her husband had not released the mortgage, claiming they were still owed the balance of the $16,000 note. As trustee of Glenda’s trust, Jack then brought a lawsuit against Candy and her husband to force them to release the mortgage, and for damages.

Candy insisted that the lawsuit in the trust’s name should be consolidated with the guardianship and conservatorship proceeding, which was granted. She did not, however, file a formal answer to the complaint itself, and Jack applied for entry of a default judgment against her and her husband. They then filed an answer, but did not hire an attorney.

About two months later, Jack asked the probate court to order Candy and her husband to transfer Glenda’s property to him as conservator, to prepare an accounting for what she had done as trustee, and to return money taken as part of the improper note and mortgage. Jack’s attorney scheduled a deposition for Candy, in order to ask her questions and get her responses on the record.

Candy asked that her deposition be put off, and reported that she had been in an auto accident and was under a doctor’s care. She included a note from her doctor saying that she should be excused “until further notice.” The probate judge agreed and ordered a thirty-day delay of the deposition, but warned Candy that she needed a more precise explanation if she wanted any further delay. She did file a request for another continuance before the new deposition date, but she neither included an updated doctor’s report nor set the request for hearing; as a result, she simply failed to attend her deposition.

Jack’s attorney filed another request with the probate court, this time seeking an award of attorney’s fees, an order that Candy and her husband actually respond and participate in the pending litigation, and payment of the costs associated with the missed deposition and court hearings involving that deposition. Candy filed a written response requesting additional delays, but the court denied the request. Neither she nor her husband showed up at the hearing.

Without any meaningful participation by Candy and her husband, the probate judge had little choice but to grant Jack’s attorney’s request that they be ordered to turn over everything they had relating to management of the trust and Glenda’s care and that they pay costs and attorney’s fees as well. After the order was entered, Candy  wrote to the court asking for reconsideration, arguing that she had not known her request for delay had been denied until the day of the hearing itself, and that she would need to appear telephonically for future hearings. The court denied this request, pointing out that Candy had “a long history” of seeking delays and failing to file required court pleadings. Judgment was entered against Candy and her husband for the underlying debt, for costs and attorney’s fees and for all the relief requested in Jack’s complaint and motions.

Candy appealed (interestingly, her husband did not). The Court of Appeals was not persuaded by her arguments, and upheld the probate court’s decision and judgment. It also added an award of additional costs and attorney’s fees incurred in connection with the appeal itself. Matter of Guardianship and Conservatorship of Horrigan, July 12, 2012.

So what does Glenda’s family’s dispute tell us about trusts, guardianships and conservatorships? Perhaps not a lot, but it does offer a chance for a few relevant generalizations:

  • Signing a living trust does not guarantee that there will be no court involvement in your affairs later. It just makes the precise nature of court proceedings — when they are necessary — a little more complicated.
  • Those of us dealing with family disputes would probably generally agree that lack of court oversight can sometimes encourage abuses by the very people — your family — whom you rely on to protect you. We don’t mean to overstate this, but we will speculate that Glenda would have told her lawyer that HER children got along well and were entirely trustworthy. We hear that a lot.
  • Relatively small disputes (in Glenda’s case, only about $6,000 was involved) can lead to large judgments. The court record does not indicate, but let us guess that the total costs and fees added up to several times the amount originally in dispute.

It might be that there was no way Glenda could have avoided the problems that arose. Perhaps her daughter and son-in-law would have done the same thing regardless of her planning or lack thereof, regardless of her son’s involvement, and regardless of court oversight. It is hard to be sure about what might happen. But when we ask: “do you completely trust your daughter (or son, or grandchild, or whomever you propose to name as trustee) to behave responsibly?” please think of Glenda and understand that we are not impugning your loved one’s integrity or honesty. We have just seen too many variations on this same story.

EINs for Trusts: The Questions Just Keep Pouring In

APRIL 16, 2012 VOLUME 19 NUMBER 15
Tax ID numbers for trusts. When we first wrote about this topic, we did not appreciate how interested our readers would be. We thought that the issue was sort of dry, actually, and that most people would have asked their lawyer or their accountant for direction. It has become one of the most enduringly popular topics at the Fleming & Curti, PLC, website.

Imagine our surprise. The questions just keep coming. We can’t and don’t try to answer them all individually — we are not here to give free legal advice based on incomplete information, and most of the questions leave out at least some of the detail we would need. But we do find your questions instructive for purposes of figuring out the level of interest — and confusion — out there.

Here are a few of the questions we have gotten (edited for space, or to focus the question on the area we want to answer). Please, please, please remember that we are not trying to give specific legal advice here — we only want to help you focus your questions for when you talk with your own lawyer, or when you find yourself arguing with the well-meaning but misinformed support person at a major mutual fund company.

My parents set up a living trust as joint trustees and used my fathers SSN Dad died, Mom survives but is incapacitated, I am the successor trustee. Do I need to get a new TIN?

The key to determining when a trust needs its own EIN (employer identification number — the correct term for a taxpayer identification number for a non-human entity) is whether or not the trust is a “grantor” trust. While your parents were both living the trust was probably revocable and for their joint benefit; it almost certainly could use one or the other parent’s Social Security Number as its TIN. With the death of your father, the question now is whether the trust (a) is still revocable and (b) contains money that was originally your mother’s.

For purposes of determining the trust’s revocability, we can ignore the fact that your mother may not be mentally able to revoke the trust. The test is whether she would have the legal authority to do so, were she competent to attempt it.

More importantly, if the trust consisted of your father’s property (and not joint or community property), then it may not be a grantor trust any longer. In that case it may need its own EIN.

Whether or not it needs to have its own EIN, it is permissible for you to get one. This is true because your mother is no longer the trustee. Many banks and brokerage houses think that the fact that she is not trustee makes a separate EIN mandatory; they are wrong. But there is no harm in getting one, and it might make it easier to deal with the financial industry. What the tax returns would look like in such a case is a separate question — one you probably ought to pose to the accountant who prepares the trust’s and your mother’s tax returns.

What name do you give the “new” trust created after the death of a spouse?

The most common scenario is this: husband and wife have either a joint revocable trust or reciprocal trusts. In either case, upon the death of the first spouse a separate trust is created for the benefit of the surviving spouse. This trust is irrevocable and contains assets that belonged originally to the now-deceased spouse. As we have described before, this new trust (it might be more accurate to call it a modification of the old trust, which is now irrevocable) needs its own EIN. But what is it called?

The trust document itself might give the answer. Mr. and Mrs. Jones’ trust might say something like “the share described herein shall be set aside into the Jones Family Trust Marital Sub-Trust” or “the Jones Family Decedent’s Trust.” If the document names the new (or sub-) trust, use that name. If not, we usually use language that makes clear — and helps us remember — what kind of trust it is. Perhaps “the Jones Family Trust — Decedent’s Share” is clear enough.

There is no particular magic to the language. Clarity is the key. There are no trust policemen waiting to arrest you for getting the name wrong, and sometimes it is easier to let the broker or banker win these arguments — even when they are wrong. But if you are trustee it IS important that you keep track of which funds belong to which sub-trust if there is more than one, and that you not commingle the money between trusts or, worse yet, with your own money.

I have my own revocable living trust, and I know it does not need a new EIN — it uses my Social Security Number. But I’m getting claim forms from the annuity company after my mother’s death, and they want me to have a trust EIN. The form lists the EIN in the xx-xxxxxxx format rather than xxx-xx-xxxx. Can I just put my Social Security Number in that odd format?

Yes, that is what we would do. It likely will work — not so much because there is a clearly right answer, but because there is no easy way for the annuity company to double-check. Their form is wrong to assume that all trusts have an EIN, and you are not even permitted to get an EIN for your revocable trust when you are the trustee and the original owner of all its assets. We encourage you to put your Social Security Number in the xx-xxxxxxx format and see if it works. We have done that before and it has.

I have a trust within my Will naming my son as beneficiary and directing my niece, the trustee, as to when to make distributions. Does she need a EIN?

She certainly will when you die. Until then, the trust doesn’t really exist, so there’s nothing to apply for now.

This suggests a question not really asked: what happens when you die with a will creating a trust? The first part of the answer: we will need to probate your estate. If your intention was to avoid probate by creating a trust, putting it in your will does not accomplish that. We see much confusion about this point among our clients and audiences when we give public presentations. Sometimes they then say something like: “ah, but we took care of that problem — we named our son as POD beneficiary” (or, sometimes, as joint tenant with right of survivorship). Great — no probate. Also — no trust. If you want your son’s money to pass in trust AND to avoid probate, you will need to talk about creating a living trust, not a testamentary trust. But that’s a lecture for another day.

Those were fun questions, but we’re out of time and space for this week’s newsletter installment. But keep sending them in — your questions help us decide where to focus our future articles. Please remember, however, that we are not here to give specific legal advice — we look for questions that raise larger questions that help us explain legal concepts for a lay audience. We hope we have helped you understand exactly why you need a lawyer for your more specific legal question.

Tax Identification Numbers for Trusts After Death of Spouse

MARCH 26, 2012 VOLUME 19 NUMBER 12
Here at Fleming & Curti, PLC, we keep tabs on what brings people to our website. We look at referring pages, at search terms and at a variety of other items. We are intrigued by what persistently tops the search-engine list. The most common search? It’s some variation of: “do I need a new tax ID number for my living trust?” (For those keeping score, the second-most-common question seems to be “can I leave my IRA to a living trust?“)

Why the enduring interest? Because the question is so much less complicated than people think it is. There is a surprising paucity of clear information about when you need to have a new tax ID number (an EIN, if you want to use the correct acronym). And much of the information out there is contradictory.

We have written about the question several times before. In 2009 we asked and answered the question: “Do you need a new tax ID number for your living trust?” Just last year we reviewed the question, along with some other reader questions, and provided a little more detail on when your trust needs an EIN. Since those two explanations the rules haven’t really changed — but your questions have gotten a little bit more sophisticated.

Several of those questions deal with the same basic scenario: what happens when a husband and wife have a joint trust, using one spouse’s Social Security number, and then that spouse dies? The answer will depend on what the trust provides.

First, a word about joint trusts for spouses: they are common in community property states (like Arizona), not as common in those states where community property principles do not apply. Remember, please, that we are Arizona lawyers, and so we write here about Arizona rules. Attorneys from other states are more than free to add their comments; we will post them as we receive them — but we are not vouching for the accuracy of their advice in states other than Arizona.

Let’s set up a scenario, drawn from our common experience: Husband and wife created a joint revocable trust, and their bank accounts, brokerage accounts, insurance — all of their assets, in fact — listed the husband’s Social Security number. They could do that because, as with a joint account outside of a trust, tax rules allow one owner’s identifying number to be used rather than having to use all owners’ numbers. But now the husband has died. What should the (surviving) wife do about the TIN (Taxpayer Identification Number)?

Before we answer, we need to know what happens to the trust on the death of the first spouse. Let’s assume, for a moment, that it remains in one trust, that the wife now has the power to amend or revoke it in its entirety, and that she is the sole trustee. In that case, the direction is easy: tell the bank, the brokerage house and the insurance company to change the name of the trustee from the couple to the wife, and to change the TIN to the wife’s Social Security number. How do you do that? Send them a death certificate and a letter instructing them to make the changes. Assume, incidentally, that they won’t — it will often take you two or three tries, several phone calls, and some wheedling to get the task done. But that’s what should happen.

What if the wife is not the sole trustee? Let’s say, for a moment, that the oldest daughter now becomes co-trustee with her mother, but that the trust remains revocable and amendable by the wife. In that situation, we have the same answer: switch to the wife’s Social Security number.

What if the wife has the power to revoke or amend the trust, but she is now incapacitated? The oldest daughter is the sole trustee, and isn’t sure what to tell the financial institutions. The answer is still the same: the trust is still revocable (even though there may be no practical way to revoke it if the only person with power to do so is incapacitated), and the wife’s Social Security number is the trust’s TIN (expect to have an argument with the financial institutions over this one). Is a bank trust department the successor trustee instead? Same answer — but with the ironic twist that the argument between trustee and financial institution will now occur between two branches of the same organization.

Sometimes a joint revocable trust becomes irrevocable on the death of one spouse. More commonly it splits into two (or sometimes three) portions, one (or two) of which are irrevocable. What happens then? The answer, as you might expect, is a little bit more complicated — and may not be the same in every case.

Generally speaking, an irrevocable trust that does not contain the assets originally belonging to the beneficiary is likely to need its own EIN. That may mean that one (sometimes two) of the trusts resulting from the death of one spouse needs a new EIN, and one just uses the surviving spouse’s Social Security number.

Let’s use a specific example: in our earlier scenario, after the death of the husband the joint revocable trust splits into a “Decedent’s” (sometimes “bypass”) share and a “Survivor’s” share. The Decedent’s Trust is irrevocable. Wife is the trustee, and she is entitled to all the income from the trust. She may even have the ability to distribute trust principal to herself, or to decide how the Trust is divided among the couple’s children at her death. But this trust is not  “grantor” trust — it gets taxed as a separate entity. Hence, it needs its own EIN, and it files its own tax returns.

Mechanically, the process of dividing the trust is a little more complicated than in our earlier scenario. An estate tax return may be required (although it may not). A division of trust assets needs to be completed (the assistance of a competent lawyer and a good accountant is essential here). The share to be assigned to the Decedent’s Trust needs to be identified, and then physically transferred into a new account — often titled something like “The Jones Family Trust — Decedent’s Trust” (yeah, we know — your name isn’t Jones. Stick with us anyway). And that new account needs to use the Decedent’s Trust’s new EIN.

Note that we said that the assets need to be transferred into the new account. Most financial institutions will insist on opening a new account, with a new account number, rather than simply changing the name on an existing account. But when the process is completed — however you and the financial institution get there — the Decedent’s Trust should be physically separated from the Survivor’s Trust, it will have its own EIN, and it will need to file tax returns. Note: it probably will not pay any tax as a separate entity — all its income will  probably be imputed to the surviving spouse.

Meanwhile, the remaining trust assets in our example will continue to use the wife’s Social Security number. It may not be crucial to change the name on that account to “The Jones Family Trust — Survivor’s Trust” (those Joneses — they end up will all the money anyway). If you long for clarity, we would certainly support a transfer of the Surivor’s Trust share into a new account, titled as part of that sub-trust, and bearing the wife’s Social Security number — even if it is not required.

Recall, please, that there are lots of variations on this basic scenario. Be careful about generalizing from this information to your precise circumstances. Our goal here is to give you some general notions about what needs to be done — we do not think of ourselves as a substitute for good, personalized legal advice. We think, in fact, that you should get some of that, because your situation might well be more complicated than you think it is. But we hope we’ve given you some idea of what your attorney will be asking you, and what he or she is likely to tell you.

Trustees Are “Owners” of Home for Lien Protection Purposes

SEPTEMBER 19, 2011 VOLUME 18 NUMBER 33
It’s frankly a little hard to explain why trust lawyers get excited about the subject of this week’s article. After all, it seems to be about who will pay for the new doors in a home renovation in a pricey suburb of Phoenix. The bill was large — $8,276.10 — but hardly astonishing. Let’s see if we can convey some of the excitement.

Richard and Kristen Williamson owned their home in Scottsdale, Arizona, just west of McDowell Mountain Regional Park. They had also created a revocable living trust. Just as they should, they had transferred the title to their home into the trust’s name.

But what does that mean? In Arizona, at least, that usually means that the trust “settlors” (the people who create the trust, sometimes also called “trustors” or “trust creators”) sign a deed from themselves as owners to themselves as trustees. So Mr. and Mrs. Williamson had transferred their home by just such a deed — and the Maricopa County Recorder’s office indicated that ownership of the home now belonged to “Richard M. Williamson and Kristen A. Williamson as Trustees of the Williamson Family Trust.”

Then the Williamsons — again quite properly — went about living their lives. In June, 2005, they decided to construct an addition on their home. They hired a contractor, Freedom Architectural Builders, to do the work. Their contract was unremarkable; it spelled out what the contractor would do and how funds would be released, in stages, as work progressed.

Almost two years later the work had progressed to the point that it was time to put doors on the addition. Freedom Architectural Builders sub-contracted with another company, PVOrbit, Inc. (it was doing business as Fountain Hills Door & Supply), to actually provide the doors and hinges. PVOrbit did what it was supposed to do, delivering doors and hinges to the home and sending its invoice to Freedom Architectural Builders.

Before the bill for doors got paid, however, Freedom Architectural Builders got into serious financial trouble. It notified Mr. and Mrs. Williamson that it could not complete the work on their home, and it walked away from the project. The Williamsons ended up hiring a new contractor to finish the work.

The Williamsons had no separate contract with PVOrbit or Fountain Hills Door & Supply, so they ignored demands for payment for the doors. Besides, they argued that they had already paid Freedom Architectural Builders for the doors, that they had to pay over $30,000 more than the total contract price to get the work done, and that PVOrbit’s complaint was with the contractor.

PVOrbit responded by filing a lien against the Williamsons’ home. The lien — often called a “materialman’s” lien or “mechanic’s” lien — can be unilaterally filed by someone who has provided materials used on real or personal property without having been paid. There are some specific rules about how such liens may be filed, and they vary from state to state. In Arizona, there is one important (for our purposes) limitation: such a lien can not be pursued against a home actually lived in by its owner.

Mr. and Mrs. Williamson sued, asking that PVOrbit be ordered to remove the lien and pay their attorneys fees and costs. At about the same time, PVOrbit sued the Williamsons and Freedom Architectural Builders for the doors they had installed. The two lawsuits were consolidated. Freedom Architectural Builders filed bankruptcy and was dismissed as a party in the consolidated lawsuits.

PVOrbit argued that the Williamsons were not owner/occupants of their home. The home, according to the door supplier, actually belonged to the Williamson Family Trust, not Mr. and Mrs. Williamson. Besides, said PVOrbit, the Williamsons shouldn’t be allowed to get away with not paying for the $8,276.10 worth of doors and hinges — to allow that would be to unjustly enrich them. The trial judge was not impressed with either argument; he dismissed the PVOrbit lawsuit and granted the Williamons $6,000 in fees and costs against the door company.

Admittedly, trust lawyers tend to be easily excited, at least when it comes to arcane issues like this question: who actually owns property titled to a trust? The Arizona Court of Appeals has probably raised the level of excitement (and agitation) among trust lawyers by upholding the trial judge in the Williamson/PVOrbit litigation, but with a slight twist. The appellate court has decided that because the deed says “Richard M. Williamson and Kristen A. Williamson,” the Williamsons are in fact owners of their home — even though the rest of the title qualifies their ownership interest: “…as trustees of the Williamson Family Trust.” It is a technical reading of the relationship of the Williamsons as individuals to the Williamsons as trustees. Williamson v. PVOrbit, Inc., September 1, 2011.

There is actually a perfectly good basis on which the Court of Appeals could have relied. Trust law has for centuries allowed for a distinction between the “legal” ownership of property (what the Williamsons as trustees held) and the “equitable” ownership of the same property (what the Williamsons held as trust beneficiaries). The appellate court could have decided that the statute protecting owner/occupants of homes was satisfied if the ownership interest is a beneficial one. That would have solved the problem.

What difference does it make? Well, what if Mr. and Mrs. Williamson — for whatever reason — decided to let their successor trustees take over. Now ownership might be held as “Skip and Marcy Jackson as Trustees of the Williamson Family Trust.” (Note: we don’t actually know who is successor trustee of the Willaimsons’ trust, and we don’t know anyone named Skip and Marcy — we just like the sound of it.) Would that mean that Skip and Marcy would have to move in with the Williamsons to protect against materialman’s liens? That would be silly — so long as Mr. and Mrs. Williamson are beneficiaries of the trust they created, they have the equitable ownership interest and the right to be, well, owner/occupants.

One other thing about the Williamson case strikes us. It may work to the advantage of people who worry about buyers’ title insurance policies. Some have suggested that transferring your home into a living trust could arguably be a transfer that voided your title insurance coverage. If the Williamson decision is valid, that argument would be a lot easier to strike down.

All right — can you see why we got excited?

How To Revoke Your Revocable Living Trust, Will or Power of Attorney

AUGUST 8, 2011 VOLUME 18 NUMBER 29
Last March we told you a good story about revocation of a living trust, though we cautioned you not to use the same method. A year before that we told you about another colorful character and how he revoked his will. Both of those court cases made us scratch our heads about the behavior of the individuals, but it occurs to us that we might never have told you what you should do to revoke your will or trust. Let us take care of that oversight now.

Please remember that we only practice law in Arizona. What works here might not work, or might not work exactly the same way, elsewhere. Your best bet is always to talk with a competent local attorney about how (and whether) to revoke a will or trust — or, for that matter, a power of attorney or other planning document you might have signed. With that caveat, here are some thoughts on how it might be done:

Revoking a will

The usual way to revoke a will is to sign a new one. It is very uncommon for an individual to want or need to revoke a will without making new arrangements for disposition of his or her property. Somewhere in your will — probably in the first paragraph or two — there is probably language that says something like “I hereby revoke all other prior wills I have signed.” That’s all it takes.

It is also possible to revoke a will by physically destroying the original document. Actually, Arizona law says you can do this by committing a “revocatory act” on the document. That can include burning, tearing, or other physical acts of destruction on the will or on a part of it. There are two keys here: you must intend to destroy the will, and you must do it yourself (though it is permitted to instruct someone else to do it in your presence). It is not an effective approach to call up your brother on the telephone, ask him to go down to the basement where the will is located, tear it up and report back to you — it must be done in your “conscious presence.”

Another way to revoke your will is more subtle: you can misplace it. If after your death no one can find your original will, and it is apparent that it was once in your possession, the law presumes that you must have destroyed it. That is only a presumption — we might be able to overcome it by showing, for instance, that you told everyone your will was completed and in a safe place shortly before your death. Obviously, a better choice is to keep track of your original will, and tell your heirs and family where to find it.

Another way to “revoke” your will: get married, or divorced, or have children. Actually, these life changes do not really revoke your will under Arizona law, but they can effectively rewrite your will — and in some circumstances can change your entire estate plan. There is a presumption in either case that you just didn’t get around to making appropriate changes in your will. Once again, you can overcome that presumption by taking appropriate action. There is a high likelihood that the law’s presumption will not be accurate as applied in your facts, so after marriage, divorce or birth of a child you should get together with a lawyer to make sure your estate plan is in order.

Revoking a trust

When a client asks about revoking a revocable living trust, our first question is not about “how” but “why.” There are very few disadvantages to having a revocable living trust — the two primary problems are the cost of setting one up and the difficulty of transferring assets to the trust. If you have already incurred both the cost and the difficulty of funding, it probably does not make sense to revoke the trust. Instead, let us talk with you about revising the trust to remove whatever provisions trouble you. Is it just that you don’t want your former girlfriend’s name to appear in the document? OK — we can probably “restate” the trust, which will involve replacing the entire trust document with a new one without the offending name.

For whatever reason, perhaps you just want to revoke your revocable living trust. After all, “revocable” is in the name, right? How do you do it?

First, you look at the trust document. Does it tell you how to revoke it? Perhaps it requires a written revocation, and maybe even it calls for the signature of the trustee (these are common but not universal requirements). If the trust tells you how to do it, follow the trust’s instructions.

Is it enough to tear up the trust? No, not under Arizona law. How about misplacing the trust document? No, a missing trust does not create a presumption of revocation in the way that a missing will would do.

How about getting married or divorced, or having children? This one involves a little more nuance. Your trust might take care of the children part — a well-drafted trust will usually make provision for the later birth (or death) of a child, or even a grandchild. Sometimes that provision is by one of the legal shorthand terms “by right of representation,” “per stirpes” or even “per capita.”

Marriage may not be covered in the trust document or Arizona’s default law. Divorce is covered by the same default statute as we described above for wills — but with the added wrinkle that if your trust is a joint trust between you and your spouse, it is a little harder to figure out what happens in individual circumstances. The message here: if you have any of these big life changes (marriage, divorce, birth or death of a child or other beneficiary) get in to your lawyer’s office as quickly as you can to make the appropriate changes to your revocable living trust.

Powers of attorney

How do you revoke your power of attorney? If you have never shared the document with the named agent or anyone else, you can revoke it by simply tearing it up and throwing it away. If you have shared it, you should write a separate letter to everyone who has seen it indicating that you are revoking the power. Make sure any new power of attorney you sign deals with the older one(s): it may not be enough to just rely on the most recent document, since they don’t automatically revoke older powers of attorney in the same way that wills do.

Keeping track of power of attorney documents and formally revoking older ones is important for another reason. Unlike trusts and wills, revoked powers of attorney are still valid to the extent that your agent acts without knowledge of the revocation. Save everyone a lot of heartache, expense and confusion by having an attorney prepare your new powers of attorney and properly revoke older versions.

One final note: you can see that the effect of having older, revoked documents around can be serious and can vary between the different types of documents. Help us keep your estate plan straight, and your life uncluttered. We know that you paid good money for those old documents, and that it is hard to throw them away. Just do it. If we prepare your new estate plan, we will offer to help you revoke and destroy the old documents (and all those drafts and copies we lawyers sent you), and we’ll volunteer our shredder to make it discreet and effective.

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