It seemed like such a good idea at the time.
Your mom goes to an attorney and, after thoroughly analyzing her financial wealth, goals, and family members, signs her will, trust, and funding documents. Satisfied that all is in order, she takes the papers home and carefully places them on a shelf. That is where they sit, undisturbed, for the next 20 years.
What happened during those 20 years? One son became a drug addict. Another son became disabled and qualified for needs-based government benefits. A daughter died, leaving behind two young children. The tax laws changed. Your mom’s brother was diagnosed with dementia.
The only things that did not change were your mom’s will and trust.
Then your mom dies. You go to her house, blow the dust from the documents, and read in stunned horror.
The Consequences of Not Updating a Will
In her will, she left $400,000 outright – $100,000 each to you: the drug-addicted son, the son on government benefits, and her deceased daughter. She also named you her independent executor.
If the drug-addicted son receives his $100,000, he will spend it on drugs. If the disabled son receives his $100,000, he will be disqualified from government benefits. The daughter’s children are minors and cannot receive their share of the $100,000 directly.
Your mom’s will provided that the “rest and residue” of her estate is payable to her trust. Unfortunately, there are problems with the trust.
Unforeseen Issues With a Trust
Your mom’s trust has a funding formula that made sense under the tax laws in effect 20 years ago but will have adverse tax consequences under the current law. If you fund the trust as it is written, it will be unnecessarily costly.
The trust contemplates setting up separate sub-trusts for you and your siblings. You have been named as the trustee, and your mom’s brother as your successor trustee if you cannot or will not serve.
But you do not want to serve as your drug-addicted brother’s trustee. Even if you can find him, you will be in an untenable position when he begs you for money. The successor is your mom’s brother, who has dementia and cannot serve. That leaves your brother’s trust without a trustee.
Further, the sub-trust for your disabled brother was not drafted as a special needs trust. His sub-trust, as written, will disqualify him from government benefits as surely as the specific bequest of $100,000 will.
In short, the change in circumstances made your mom’s 20-year-old plan a disaster.
Options to Modify a Will
What can you do not to minimize the damage? You could have several viable options. These need to be viewed through the prism of your fiduciary duties and possible tax ramifications.
- Modify the documents by an agreement with all of the beneficiaries. This is known as a Family Settlement Agreement. For example, the beneficiaries could agree not to probate your mom’s will or fund the trust.
- Request the court to modify the will or trust.
- “Decant” the trust into a new trust.
- Merge a sub-trust with an existing trust
- Request the court to terminate or revoke the trust.
- Request the court to appoint another trustee.
- Defund or fully distribute some or all of the sub-trusts.
- Circumvent the will or trust by the use of disclaimers of the beneficiaries or trustees.
I did say there could be tax ramifications, didn’t I? Think income tax, gift tax, estate tax, and generation-skipping transfer tax.
Mom, of course, could have side-stepped all of this by simply reviewing her estate plan timely.
Update Your Estate Planning With the Help of Hammerle Finley
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Virginia Hammerle is an accredited estate planner and represents clients in estate planning, probate, guardianship, and contested litigation. She may be reached at legaltalktexas@hammerle.com. This blog contains general information only and does not constitute legal advice.
