We recently sent out a letter to many of our clients inviting them to come in for a review the funding of their trusts. The program has ended and we had time to evaluate its effectiveness.
By in large, it was a successful program. Many of the clients who came in had substantially or even in some cases wholly funded their trusts. However, there were also a significant number who had not properly funded their trusts, but in most cases, we were able to walk them through the process and explain what they needed to do. We also re-explained why funding a trust is so important.
Avoiding Guardianships and Conservatorships. For those trusts that are not properly funded, it means that upon a disability, which renders you incapable of managing your own affairs, there is a heightened probability that you will have to be declared incapacitated and possibly a guardian and conservator appointed by the probate court to manage your personal and financial affairs. Admittedly, the probability of this type of incapacity is somewhat low, but we certainly have had a number of incapacitated clients over the years.
Guardians are appointed over the person. They more or less act like a parent does with a child. They tell you where you can and can not go and where you will live, just to name a few of their responsibilities. Conservators are appointed to handle financial matters for the incapacitated person. Conservators manage assets and pay bills and work with the guardian on a budget.
Guardianships and conservatorships are ongoing processes that are subject the probate court jurisdiction and supervision. In most cases it is for the rest of your life. This includes annual reporting and sometimes numerous hearings. Naturally, the process is somewhat expensive.
Often guardians and conservators are not the people you would have chosen. They are chosen by the probate court; albeit, usually with input from your family. Families also often fight over who will be your guardian and conservator. It is best not to be in this situation.
In my opinion, an incapacity is much more difficult to manage than a probate proceeding. The reason is that we more or less know where we will end up after a probate proceeding and when. Although somewhat lengthy in time, labor intensive and expensive, postmortem procedures are fairly well defined in most cases.
Incapacities are more dynamic and have much more twists, turns and uncertainly associated with them. After all, you are dealing with taking care, both personally and financially, of a living, breathing, human being for the rest of his or her life; all under the supervision of a probate court.
Over the years, we believe that we have seen significantly fewer cases where we have had to have conservators and guardians appointed for our clients, because most of our clients have planned estates and are able to avoid the guardianship and conservatorship process. To complete the planning, however, the trust should be funded prior to your death or serious disability, which renders you unable to manage your own financial affairs.
Admittedly, most planned estates have built in safeguards that can be used to fund your trust after you become disabled. However, these safeguards are emergency fall-back procedures only. Advance funding is much more preferred.
Also, the use of a durable general power of attorney to fund your trust is subject to the approval or disapproval of third parties. Often banks, stock brokerage firms and insurance companies, just to name a few, are hesitate to honor such powers of attorney; although, many states now have laws that provide for damages if third parties are unreasonable in their failure to honor a power of attorney and you are damaged by their not recognizing the power of attorney. A fully funded trust can avoid this.
Avoiding Probate. Although the number of guardianships and conservatorships is somewhat low as a percentage of the population, death is not. Death is 100% with the possible exception of Enoch and Elijah in the Old Testament.
With a properly planned estate, probate can usually be avoided.
I estimate that I would have been able to retire in the 1990s, if only my clients had unplanned estates and had gone through a full probate proceeding. As it is, most of them took our advice and their estates avoided probate entirely or they had fairly simple probates. Unfortunately, as a result of planning, I still have to work.
Again, a planned estate involving trusts can only avoid probate, if the trust is properly funded.
Our Newsletters Are Not Junk Mail. One comment that we heard in a couple of our recent trust funding review conferences, is that the clients did not know that they were supposed to fund their trusts. Oddly enough, in these cases, there were multiple letters or memos from my office telling the clients that he, she or they needed to fund their trusts.
These were letters or memos specifically addressed to the client. If you have a trust, these letters are also likely in your file.
What grieved me somewhat is when I pointed out that funding your trust is also a common, recurring theme in our newsletters; I was told that they were not read because they were assumed to be “Junk Mail.” We also recently sent out our 5 year planning survey and there were a number of responses to the effect that some of our clients do not read our Newsletters.
I will admit that in order to make sure our clients understand we are sending them a newsletter and not an official letter from their attorney; the envelopes and labels that we use are different for our newsletters. However, this does not mean that they are junk mail.
Summary. If you have not yet properly funded your trust, please do so. If you need to meet with us to review the funding procedures, please call to set up a time to meet.
The cost of the review is modest when compared to the potential savings and the peace of mind that comes with it. The peace of mind is not only your piece of mind, but also the peace of mind of those you have named to carry out the terms of your estate plan in the event of your death or disability.
Again, if you need to discuss the funding of your trust, please give us a call. We will set up the conference and send you a letter or email letting you know what we need from you.