Trusts Flashcards
How can a living trust be used to protect the grantor in the event of incapacity?
The LT document can contain language naming a successor trustee who is empowered in the event of incapacity. Language spells out how incapacity is determined (typically one or two MDs must sign letters).
Successor trust can control all accounts owned by the trust, but only for the benefit of the beneficiary (fiduciary duty applies). The successor trustee will first have to obtain the necessary MD letters, and contact the institutions holding custody of the trust account.
If the original trustee recovers, then they can be reinstated as sole trustee, and the successor trustee is removed.
The successor trustee can use to DPOAs control access to any accounts not held in the trust.
What does “HEMS” refer to?
“Health, education, maintenance, and support” - This is typical language for a irrevocable trust that authorizes payments to a beneficiary by the trustee. Note that some of the terms (i.e. health and education) are relatively clearly defined, while maintenance and support are somewhat less so.
In some cases the term “enjoyment” may also be added, which significantly expands the allowable reasons for a distribution.
T or F - Trustees of all kinds are bound by a fiduciary standard with respect to the beneficiaries of the trust
True
For a incapacitated client with a living trust with a successor trustee provision, why would a DPOA still be needed?
The successor trust only as power over assets owned by the trust. For assets outside the trust, the client’s agent will need the DPOA to exercise control. A DPOA also allows the agent to sign tax returns, and other documents.
What problem frequently occurs with DPOA’s?
Financial institutions will not always honor them, at least not without significant effort and possible legal intervention.
