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Q: The beneficiary of a Special Needs trust recently
died. She was entitled to receive income or principal from the trust as
the trustee determined in the trustee's sole discretion, sufficient to
supplement any public benefits. Over the term of the trust, it was
unnecessary to make any disbursements. The trust was established as an
irrevocable trust by the beneficiary's father. The remainder men are the
siblings of the beneficiary. Are the trust assets included in the
beneficiary's estate for purposes of estate taxes?
A: Unless the beneficiary held a general power of
appointment over the Trust, which it sounds like she did not,
the Trust is not included in her estate for estate tax
purposes. (A general power of appointment is a power that
allows the holder to direct the Trust to be distributed to
anyone they want, including themselves or their creditors.)
Inclusion would only result if the beneficiary contributed her
own assets to the Trust or held such a power. Consequently, the
assets do not receive a new basis for income tax purposes. (In
many cases, inclusion in one's estate for estate tax purposes is
beneficial from an income tax perspective.)
Although not part of the question, I'm more concerned about how
the income earned by the Trust during the term was reported. If
the Trust did not file annual returns, I recommend that the
current Trustee consult with an accountant to make sure that it
was properly accounted for.
Q. I would like to name my son as my Trustee. Do I need his
permission or have him agree to be named?
A. You do not need your son’s permission to name him as your Trustee or
Executor and it is not required that he be told that you have named him.
There are differing schools of thought on this matter. Most attorneys
advise that you speak with your son, ask him if he is willing to serve
and make sure he understands the extent of the commitment before you
name him in your documents. If he lives out of the area or is a busy
professional with a full family life, he may not have the time needed to
perform the duties of Trustee or Executor. Additionally, the duties of a
Trustee or Executor are detailed and somewhat technical. If he is not a
detail oriented person or is not able to dedicate the time needed,
perhaps having a co-trustee, such as a Bank or Private Fiduciary, work
with your son in the administration is an appropriate solution. Or, your
son could engage the services of an attorney who would perform the
day-to-day administration of the trust. Your son should always at least
seek the initial consultation of an estate attorney and a CPA to
determine where their services will be needed.
A second school of thought is that some people are concerned about
telling a child or other individual about their estate plan or naming a
certain person as Trustee in case they change the documents later.
I would recommend the former - speak with the person, make sure they are
willing and able to dispense with the duties of the trustee. Estate
plans can fail when the appointed person or persons decline to act.
Q. I’m concerned that no one will take care of my cat after I’m gone.
How can I make sure Timmy is taken care of for the rest of his life?
A.
Estate planning for your pet is an important part of your overall
planning. There are several excellent ways to address this concern.
Working with your attorney, you can set up a bequest in your Will or
Trust wherein you can give a person a certain sum of money with the
agreement that they will take Timmy and care for him for the rest of his
life. Always speak with the person first to make sure they are willing
to take Timmy in and take care of him for what can sometimes be a long
time. If you have no one who is willing, work with the SPCA or AFRP to
see about doing some pre-need planning. The “Estate Planning for Pets’
Section of the Sidebar of this site gives more detail on arrangements
that can be made for cats and many other types of pets. Also, the SPCA
has provided a very good form that you can complete for the person who
will eventually receive your cat (or other pet) that gives detailed
information about the pet that will make both Timmy’s and the guardian’s
life better.
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