revocable inter vivos grantor trusts
Post on 21-Jan-2017
Embed Size (px)
Revocable inter vivos grantor trusts.
Estate Planning is all about comfort. What estate planning is everything about is discovering theright devices to execute your basic needs. What that implies is that we utilize the most innovativelegal files to correctly execute your desires. We personalize each and every strategy so that you getprecisely what you desire. We do this making use of the most up to date tools so that we can preparea personalized strategy at the lowest possible expense. Please call us today with any concerns.
For some time now, many "estate planners" have been
recommending do-it-your self trusteeships. To one with the disadvantage
of having studied the law of trusts, this is a very dangerous way to
avoid the "time and expense" of "probate."
However, recently one of the finest minds in the estate and trust
fields, Rohan Kelley, has apparently endorsed revocable trusts for
uncomplicated estates (whatever that is). The Kelley article does not
expressly approve one-man (grantor) trusts. All revocable trusts,
without distinction between declarations of trust and transfers into
trust, are apparently approved.
This article shall constitute a dissent to this excellent author.
I do not believe we have begun to see the dangers inherent in attempting
to use a system (trusts) developed and perfected over centuries of use,
to perform another function (wills) developed and perfected over a
comparable period of time.
The difference between a traditional trustee (usually a bank trust
department) and a modern "do-it-yourself" trustee is
Those of us who have served bank trust department clients know
that trust officers frequently call to check as to propriety before
taking action; the self-declared trustee adopted his or her trust to
avoid dealing with an attorney! The modern trust officer has to study
constantly to keep up with a complicated financial and tax world. The
self-declared trustee has not lost a day on the golf course due to
becoming a trustee. Regardless, they are fungible members of this
monolithic concept which we call "trusts."
It is ludicrous to apply the same law to two concepts which are so
different, but with minor exceptions, Florida law does apply the same
rules. This failure to differentiate harms both the traditional trust
and the do-it-yourself "estate plan."
The traditional trust is endangered by two Florida statutes that
obviously had modern "do-it-yourselfers" in mind but were not
restricted to only that type of "trust." F.S. [sections]
737.402 provides for extensive administrative powers for a trustee
(without restricting its application). Under the common law, a trustee
had no administrative powers except those expressly stated in the trust
instrument or necessarily implied by the trustee's duties. It is
very doubtful that [sections] 737.402 will be applied retroactively to
impair existing trust agreements, but a prudent lawyer certainly will
refer to this statute when preparing a trust for traditional purposes
(and clearly adopt or deny [sections] 737.402).
Section 737. 111 requires all trusts to be signed at the end, in
the presence of two attesting and subscribing witnesses, who sign in the
trustor's presence and the presence of each other--or the
"testamentary" provisions are invalid. (One can visualize
thousands of remaindermen gasping their last breaths!)
The 1997 Legislature has partially awakened to this problem. SB
818 (awaiting Governor Chiles' signature as this Journal went to
press) corrects the problem by restricting [sections] 737.111 to trusts
created on or after October 1, 1995. The law still applies equally,
however, to arms-length, traditional transfers into trust as well as
"do-it-yourself" declarations of trust.
The foregoing dangers to traditional trusts pale whencompared to
the disadvantages in using do-it-yourself trusts as an"estate
Ignoring some of the obvious disadvantages such as loss of the
nonclaim procedures and a two-year statute of limitations rather than
three months, the dangers of a do-it-yourself trust/ estate plan can be
summarized as follows:
1) Procedural gaps (will probate solutions be applied to trust
problems of administration?);
2) Priority of expense and claims;
3) Statutory "help" for the do-it-yourselfer.
Contests involving validity of wills follow a well-worn path. The
proponent must establish proper execution. The contestant then has the
burden of proving lack of validity. If undue influence is at issue,
Carpenter's burden of going forward with proof establishes an
orderly method of litigating this issue.
Shall trust litigation be simply a contract action with the entire
burden on the plaintiff?
What provision will govern establishment of a lost trust
instrument? Will the assumption re "last in trustor's
possession" apply? What will happen to assets held in the name of
"John Doe, trustee u/a March 1, 1994" long after John Doe is
dead, without any administration and when no trust document can be
found? (Today's mass use by amateurs assures this problem.) What
procedure (similar to [sections] 733.816) exists to help a trustee who
cannot locate a beneficiary? Section 733.816's provisions to
deposit into the registry of the court can be very helpful.
Priority of Expense and Claims
Only the youngest lawyer reading this article will live long
enough to see the end of litigation that will be caused by [sections]
Unlike the probate code, which provides in [sections] 733.707 for
priority of expenses and claims, the trust administration code has no
such provision. As far as the trust administration code is concerned,
all "expenses of trust administration" are of equal importance
and take priority over all estate administration expenses and all claims
against the grantor's estate. According to [sections] 737.3054(4),
the trustee's bill for stationery, utilities, etc., takes
precedence over the personal representative's filing fee expense.
Although it is difficult to imagine any circumstances comparable,
in order to get an idea of the potential for mischief created by
ignoring priorities (as does [sections] 737.3054), see Midland National
Bank and Trust v. Comerica Trust Co. of Florida, 616 So. 2d 1081 (Fla.
4th DCA 1993). This case holds that guardian expenses, incurred both
prior to and after the death of the ward, plus guardian court-ordered
payment of certain of the ward's debts, take priority over
class-one expenses in the ward's estate!
Years of experience have dictated the priorities of [sections]
733.707; that experience should not be ignored in the trust
Attempt by Legislature to Make "Living Trusts" Viable
These attempts could be properly expressed as attempts to make a
facade into solid reality. If you tend to question that statement, look
at the majority of people who are calling themselves
"trustees." (If you were to ask these trustees to define
"commingling," they would probably guess it was some sort of
Some, but certainly not all, of those abortive attempts are:
* Expansion of "Homestead"
Section 732.4015(2) attempts to expand the restrictions of article
X, [sections] 4, of the constitution by equating "owner" in
art. X, [sections] 4, with "settlor" and "devise" in
art. X, [sections] 4, with "trust disposition." This expansion
of subpart (c) of article X, [sections] 4, ignores that subpart (a)
states that the entire section applies only to .natural persons."
Does a trust fit? If there is any difference, how does a simple
majority of the legislature expand the constitution?
These questions will probably become critical when community
property is involved. Florida's uniform provisions respecting
property rights brought into Florida from community property states
([subsections] 732.216-732.228) exclude property that becomes
"homestead" in Florida. This exclusion is expressly defined by
reference to the constitution ([sections] 732.227), not by reference to
[sections] 732.4015(2). The unwary will use the definition in [sections]
732.4015(2) and raise the interesting question: "What happens to
community property transferred into trust?"
* Allocation of Distributions
Section 737.624, enacted in 1993, was apparently an attempt to
"fill-in" imprecisely drafted do-it-yourself trusts. As
drafted, it is dangerous. The phrase "per stirpes" indicates a
method of allocating benefits among beneficiaries; it does not (when
properly used) designate beneficiaries. When beneficiaries are more than
one generation away from the testator and all share equally, the
distribution is "per capita"; if the amount each takes is
determined by tracing through a parent, the distribution is "per
stirpes," i.e., by the root.
The following example may help: A testator makeshttp://www.nolo.com/legal-encyclopedia/12-simple-steps-estate-plan-29472.html a gift to his
five grandchildren. (The testator has two sons--one with four children,
the other with one child.) A gift to "my grandchildren per
capita" would result in each grandchild taking 20 percent, whi