When you met with an attorney a few weeks ago, perhaps all you expected was a simple will. Maybe you thought that, with your situation, the work should be easy and the documents should be few. But now that you have finished working with the attorney, your parting gift is a large binder filled with hundreds of pages. You may be wondering, “Why is my trust so long?”

Creating a comprehensive plan for your future involves numerous different and critical elements. Working with a lawyer to create an estate plan, with its various documents, provisions, and pages, is comparable to hiring a plumber to fix a complicated problem. To provide the best possible service for the customer, the plumber will bring a tool kit filled with various tools to the customer’s home because the plumber probably will not immediately know what exactly they will need to do to fix the problem. In this case, your lawyer is the plumber and your estate planning documents are the tools in the kit.

The tools in your kit come in several forms that impact the length and depth of your documents. To best serve you, they must accomplish four things:

• They must accurately reflect your desires.
• They must be enforceable in court.
• They must address unanticipated and unpredicted needs.
• They must communicate a unified meaning to the readers.

As a result of the need to address these four requirements, your trust documents may be lengthy. Here are a few considerations regarding the various legal documents that make up your estate planning:

They must accurately reflect your desires. One of the key reasons your trust document is so long is because it memorializes your wishes with careful precision. Suppose you are unable to make financial decisions regarding yourself or the money and property in your trust because of illness or death. In that case, the words crafted together in this powerful legal document will be your only opportunity to express your priorities for giving the money and property in the trust to the people you love and care about. Failure to consider the proper language and accurately articulate what you have communicated to your attorney can cause results that do not align with your values and wishes.

They must be enforceable in court. Another reason your trust documents are so long is that they must be comprehensive enough to achieve one of the main objectives of a trust: avoiding the probate process. Your trust document ultimately communicates legal rights, obligations, and responsibilities without involving the court. As a result, your attorneys must make sure that they are covering a variety of legal situations that could arise in your future. Though these documents will not be used in probate, they will be used in a legal capacity to communicate to entities such as banks and other financial institutions, medical providers, title companies, and even the Internal Revenue Service and other government agencies.

They must address unanticipated and unpredicted needs. Your trust is a comprehensive document created to anticipate both foreseeable and unforeseeable events. Our practice is to help you think about what you would want to see in multiple scenarios. The trust instructions walk you through potential life situations. For example, sections of the trust are dedicated to what would happen if you were to lose the ability to make decisions for yourself. In other areas, your trust not only names a trustee who will take charge of your trust if you were to pass away but also allows you to identify whom you want as a backup, or successor, trustee. This scenario is just one example of many describing how your comprehensive trust plan helps you successfully prepare for unexpected events.

They must communicate a unified meaning to the readers. It is vital to ensure that all the people involved in reviewing and carrying out your wishes have the same interpretation of what you have said. We, as people, interpret ideas based on our subconscious beliefs and personal experiences. This truth means that your lawyers must write this document with clear instructions so that all the different parts of your estate plan can flow together.

We Can Help

If you are reviewing your estate plan and are unsure how comprehensive it is, call our office to schedule a meeting. Our experienced estate planning attorneys will help you create a well-rounded trust that protects you and your loved ones.

The post Trust Extent appeared first on AJ Law Firm.

In the world of estate planning, terms that refer to legal documents such as wills, trusts, powers of attorney, and healthcare directives can be confusing and even overwhelming at times. What is a will, and how does it differ from a trust? What distinguishes a springing power of attorney from an immediate power of attorney? Or are they the same thing? No wonder estate planning can get so confusing!

The concept of trusts is another area within estate planning that can create a great deal of confusion for people unfamiliar with the law. In this article, we hope to clarify some of the different types so that, when you encounter them, you can avoid confusion and better determine which tools are appropriate for your situation and whether they are being used in your own estate planning.

Living Trusts

A living trust is the most common type of trust that you will encounter in estate planning. Many individuals use a revocable living trust as their primary estate planning tool. You may also see living trusts referred to as inter vivos trusts; “inter vivos” is simply the Latin phrase for “between living persons.” A living trust is created during the trust maker’s lifetime rather than at death. To create a living trust, the trust maker enters into an agreement with a trustee that places the trustee under a legal obligation to use the money and property in the trust only for the benefit of beneficiaries named in a trust document, or “instrument,” signed by the trust maker. A trustee who fails to fulfill the terms of the agreement can be held liable for any damages suffered by the beneficiaries and can be removed as the trustee. Living trusts can be either revocable or irrevocable, and they can be designed in limitless ways, precisely customized to achieve the unique goals and objectives of the trust maker.

Testamentary Trusts

Another type of trust is a testamentary trust, which is created under the terms of a decedent’s last will and testament. A testamentary trust comes into being upon the testator’s (the person who created the will) death, because a will becomes effective only when the testator dies. For example, an individual’s last will and testament may instruct the executor of their estate to create a trust after the testator’s death for the specific purpose of receiving some of or all the property owned by the deceased testator’s estate. The will typically has provisions for naming a trustee and contains the terms of the trust, spelling out how the property in the trust will be used or distributed for the beneficiaries’ benefit. Because this type of trust is not created until the death of the trustmaker, it is referred to as a “testamentary” trust as it exists as a result of the trustmaker’s last will and testament.

Constructive Trusts

Constructive trusts rarely have anything to do with estate planning or postdeath administration of an individual’s estate. In fact, a constructive trust is not actually a trust at all. Rather, it is an equitable remedy used by the courts to prevent someone from benefiting from property that has been wrongly obtained. In contrast to a living trust or a testamentary trust, no fiduciary relationship results when the court imposes a constructive trust as a judicial remedy. One might encounter the use of constructive trusts by a judge in a bankruptcy proceeding.

For example, if a debtor who was filing for bankruptcy transferred certain property to their cousin just days before filing but did not disclose that transfer of property to the bankruptcy court, the court could require that property to be held in a constructive trust for the benefit of the debtor’s creditors even though the property’s title may be in the cousin’s name. This action by the court would thereby prevent the cousin from being able to sell or use the property for their own benefit until it can be turned over to the creditors who had a claim on the debtor’s property.

Are These Trusts the Same?

As you can see, even though these three types of trusts all share certain terminology (i.e., the word “trust”), they can be very different in certain respects. And in the case of a constructive trust, they can have almost no relation whatsoever to the other types of trusts discussed above.

So why do our laws insist on using similar terminology to describe such different concepts? Unfortunately, in the law, tradition is a difficult thing to escape. Certain legal terminology has a long history of describing very particular legal concepts, and attempting to create new terminology for concepts known for centuries in the law can create even greater confusion and conflict in the courts. So we sometimes cling to these traditional terms despite the confusion they may cause to the layperson.

That is not to say that legal terminology can never change. It does happen. So, perhaps someday there will be more clarity when talking about the different types of trusts, but in the meantime, I hope we have been able to clarify at least one small corner of the legal world for you.

The post Living, Testamentary & Constructive Trusts appeared first on AJ Law Firm.

There was a time when most people heard about prenuptial agreements only when watching soap operas or Hollywood movies or reading a novel. For many of us, prenuptial agreements seemed to be reserved only for the ultrawealthy, where the continuation of dynastic family wealth was at stake.

Today, however, prenuptial agreements are much more common. In many cases, such as subsequent marriages, they make good sense. Similarly, wills and trusts are no longer reserved only for those with substantial wealth. Having a will or a trust is just something responsible people do. But despite the more common use of these tools today, a certain percentage of the general population still misunderstands the difference between the reasons for creating a will or a trust and the reasons for entering into a prenuptial agreement. What do these different legal documents do? And when should you use them?

Will or Trust

When a married couple wants to ensure that their property passes according to their wishes to their heirs or other beneficiaries, a will or a trust can record those wishes and make it clear to anyone with an interest in the couple’s property who should get what, when they should get it, and how they may receive it. In addition, a trust can help a married couple manage their property if they become incapacitated (unable to make their own decisions) and can allow them to avoid the probate process for passing on their property when they die.

In many cases, a will or a trust provides adequate legal authority to carry out the deceased individual’s wishes for passing their property to their heirs or beneficiaries. This is particularly true when most of or all the couple’s wealth was accumulated during their marriage and as a result of their joint efforts to share the responsibility of earning an income and managing their domestic obligations. Wills and trusts may also be all that is needed to pass property on to children, particularly when those children are offspring of that marriage.

In some cases, however, wills or trusts may be inadequate to carry out the married couple’s wishes. This is particularly true when one of the spouses has significant wealth that they consider to be their own separate property and they want to leave it to someone other than their spouse.

Elective Share Rights of Spouses

Every state has laws designed to protect a surviving spouse from being completely disinherited by their deceased spouse. For example, imagine that a faithful spouse spent thirty years working at home, caring for children, running the household, and ensuring that the income-earning spouse had every domestic responsibility taken care of while they focused on earning a living for the family and saving for the future. Further, imagine that, during that time, the income-earning spouse never took any steps to jointly title any of their property with the at-home spouse. Then, after thirty years, the income-earning spouse became unfaithful to the at-home spouse and secretly signed a will leaving all their property to a new romantic partner, thereby disinheriting the at-home spouse and leaving them penniless. Most would agree that such a result would be terribly unjust and that the surviving at-home spouse should have the right to reclaim some, if not all, of the property passing to the new romantic partner of the now-deceased spouse.

Because this scenario has reared its head enough times in the real world, every state legislature has attempted to address this potential problem by passing laws typically referred to as elective share statutes. Most of these statutes allow a spouse to “claw back” a certain percentage of any property that passes from a deceased spouse to someone else. The amount that can be clawed back is often referred to as an “elective share” and varies from state to state. But the idea is essentially the same among all the states and is designed to avoid the kind of injustice that would otherwise result from a scenario like the one described above.

Where Application of Elective Share Laws Can Go Wrong

On the other hand, there are some scenarios where elective share statutes can actually produce an unjust result of another kind. For example, imagine that an elderly single individual had worked their entire life to save money and leave their home and savings as a gift to the orphanage that raised them. Further imagine that, as time went on, this individual met a somewhat younger romantic interest who had substantial property of their own as well as a generous income that would provide a comfortable living for the rest of their life. The two individuals decide to marry and verbally agree that the orphan spouse would still leave their property to the orphanage as planned. However, upon the orphan’s death, because of the state’s elective share law, the new spouse changes their mind and files a claim in court against the property that the deceased spouse’s will has directed to the orphanage, thereby overriding the will so that the surviving spouse now inherits a substantial portion of the property that was intended for the orphanage.

This is certainly not what the orphan spouse would have wanted. But unfortunately, the deceased spouse’s ignorance of the law will most likely be an ineffective argument for the orphanage to make in court.

Prenuptial Agreements to the Rescue

A prenuptial agreement can be very useful in such a situation. A prenuptial agreement is essentially a contract between two individuals preparing to marry that details how property will be owned throughout the marriage and what rights each spouse has to the property of the other. The agreement specifies the nature and extent of the property that each spouse is bringing into the marriage as well as how that property will be divided if the couple ever divorce or one spouse dies during the marriage. The agreement can outline the extent to which a spouse has the right to give their property to their children from a different relationship or to charities or other beneficiaries through estate planning. It also allows each spouse to waive certain rights to the property of the other spouse, such as elective share rights.

Why would a spouse ever give up an elective share right in a prenuptial agreement? It could be for a variety of reasons. Perhaps the spouse would like the other spouse to waive their right to certain separate property of their own. Or perhaps the marriage simply cannot move forward unless these rights are waived because the nature and extent of the wealth is so substantial that one spouse (or more commonly, the family of the wealthier spouse) will worry that, without a signed prenuptial agreement, it would be unclear whether the marriage was based on genuine affection for the wealthier spouse or merely affection for that spouse’s money.

In addition, with a prenuptial agreement, both spouses can reserve the right to leave property to each other in their subsequent estate planning via a will or a trust. Thus, a prenuptial agreement does not necessarily require that each spouse waive forever all claims to the separate property of the other spouse. Prenuptial agreements can be renegotiated over time as circumstances in the relationship change and if both spouses agree. Ultimately, a prenuptial agreement allows an individual who plans to marry to settle the uncertainty surrounding property rights issues that often come with marriage and the corresponding legal rights that attach to married couples.

When Should You Consider Getting a Prenuptial Agreement?

In general, a prenuptial agreement is helpful under the following circumstances:

• You are marrying or remarrying and want to keep your finances separate from your spouse’s.
• You want to make sure that your estate plan is not disrupted by the legal rights to your property that your new spouse automatically receives upon your death.
• You want to make sure that your property passes to your children, to a charity, or to someone other than your spouse when you die.
• You want to spell out exactly what property you will give your spouse (or what you will get from your spouse) if you divorce.
• You and your spouse each want to be protected from the other’s individual debts (such as business debts or student loans).
• You want to make clear who will be responsible for what (financially, legally, or otherwise) during your marriage.

Prenuptial agreements, wills, and trusts can be powerful legal documents that can play a crucial role in helping you achieve your financial goals and protect you and your loved ones from unfortunate surprises when it comes to passing on your property to those you care about. Properly implemented, they can provide significant peace of mind. If you would like to learn more about this topic, contact your attorney today to discuss these important legal tools.

The post Prenuptial Agreement vs. Will or Trust appeared first on AJ Law Firm.