Combining trust assets

[FBN2007]

What is the name of your state (only U.S. law)? MA

My faher has a irrevocable life insurance trust that I am the trustee for. He also has a revocable trust (called a nominee trust in MA) that he holds other assets in (Home, bank accounts, brokerage account). I am co-trustee with him onthe revocable trust. At death the revocable trust becomes a typical family trust. To simplify matters and avoid having to file multiple tax returns for the trusts, at his death can I take the assets from the family trust and distribute them into the insurance trust? I have sole discretion as to how and when to distribute to the beneficiaries of the trusts (which happen to be the same individuals)

 

[tranquility]

What right do you have to give the then-irrevocable trust assets to another person? If you can just gift them away to the other trust, I think the powers may be too broad and cause some problems--especially if any beneficiary objects. But, the main answer will lie in your trust documents.

 

[FBN2007]

I am one of the beneficiaries, and as I stated in my posting; I have total discretionary power over the assets.

 

[tranquility]

I asked:

What right do you have to give the then-irrevocable trust assets to another person?

You replied:

I have total discretionary power over the assets.

Um, no you don't. Well, unless you are the grantor or the sole beneficiary.

Does the trust give you the right to gift beneficiary [brother]'s rights away to Scientology? If it doesn't, please describe what you mean by "total" power. If it does, give the attorney who wrote this trust's number to beneficiary [brother], he may have a malpractice case against the attorney.

 

[curb1]

How soon are you planning to distribute assets following father's passing? How much is involved in the value of the assets?

 

[TrustUser]

it is not uncommon for trusts to have languages in them that allow combining various trusts for simplification purposes, when the beneficiaries are the same.

it is also not uncommon to have language that allows the creation of separate trusts for various assets, most notably real estate. this is done mostly to separate assets that might be subject to lawsuits from assets that are not subject.

since your father is alive, he just needs to add wording in it to accomplish what he wants.

the nice thing about trusts is that you can basically do anything you can think of, if it is not illegal - as long as the trust permits it.

your father must be pretty smart to have his revocable trust become a family trust, as opposed to simply distributing the assets, so the language may already be present.

 

[FBN2007]

I asked:
You replied:
Um, no you don't. Well, unless you are the grantor or the sole beneficiary.

Does the trust give you the right to gift beneficiary [brother]'s rights away to Scientology? If it doesn't, please describe what you mean by "total" power. If it does, give the attorney who wrote this trust's number to beneficiary [brother], he may have a malpractice case against the attorney.

My brother and I are the beneficiaries. When we die, assets go to my children (my brother has none). My brother does not manage money well and recently declared BK. The language in the trust allows me to distribute or not at my discretion. It also has wording to the effect that if my brother challenges this then he loses his share. My father wants me to provide for my brother but not to give him assets outright. But again, he leaves it up to me as to how much I choose to give him and how I do it (such as giving him an allowance or paying his expenses directly). How can that be malpractice? It seems to me that record keeping would be much simpler if I distribute all the assets from the family trust into the insurance trust since the beneficiaries and the terms of the trust are similar. The trusts were drawn up several years apart.

 

[tranquility]

It seems to me that record keeping would be much simpler if I distribute all the assets from the family trust into the insurance trust since the beneficiaries and the terms of the trust are similar.

If the trusts are not exactly the same, you change the rights of someone. Say for instance, Trust A allows distribution for all candy and gum the beneficiary wants and Trust [Insurance] allows distribution for all the candy the beneficiary wants and all the gum the beneficiary needs, that beneficiary has lost something. He lost the difference between the amount of gum he needs and the amount of gum he wants.

Merging the two trusts in that instance would be a fiduciary breach.

So, tell us how "similar". (For now, we will ignore the gift and estate tax issues in the ILIT and the future gift to it.)

But again, he leaves it up to me as to how much I choose to give him and how I do it (such as giving him an allowance or paying his expenses directly). How can that be malpractice?

Are you saying you can choose to give brother money or not at your own discretion? Do you really think you can just not give brother his share so it will pass to your kids?

If dad's intent was to provide for brother and such broad discretion was included in the trust, brother may have a malpractice action against the attorney for the failure to protect brother's rights. (Standing is provides as he was an intended beneficiary and the attorney did not just follow the parents' wishes.)

It also has wording to the effect that if my brother challenges this then he loses his share

Almost all states have a provision where a putative beneficiary can ask for "clarification" of the trust from the court without triggering in terrorem clauses. He will seek clarification of all your actions if he disagrees with them.

 

[TrustUser]

a common example of combining trusts is when the second trustor dies from an a/b trust.

dad dies first, creating an irrevocable trust of his half. when mom dies (assuming she did not make any changes to the trust language for her portion), there would be 2 trusts with the exact same language.

 

[tranquility]

Here, we have someone trying to combine a living trust which has come irrevocable with an ILIT. While I have read neither, I suspect they are not legally the same.

 

[FBN2007]

I will contact the attorney who drew these up to see if the living trust can be amended to allow me to do this. My mother is deceased. When she died, the only assets in her name were some annuities which my father then became the owner of. Her trust was never funded as the amount was below the threshhold where estate tax would have been a concern.

 

[tranquility]

Her trust was never funded as the amount was below the threshhold where estate tax would have been a concern.

I KNOW many do this. But, not funding the trust may be a huge problem. There should be some funds in the irrevocable (mom's) trust with provisions that cannot be changed. (According to the usual way such things are written.) Especially if you try to amend the current, revocable, trust in a way brother does not like, I think he would have cause to sue dad for breach if he were an actual rather than a contingent beneficiary of mom's trust.

Since you are trying to limit the rights of brother (Or, just coincidentally happen to limit the rights by whatever you are trying to do.), I think he has a legitimate grief. If brother is not online with the plan, there will be litigation here. It will be complex with many interacting issues, but I suspect he will win at least something--including the removal of the trustee who is doing the breach. (In this particular case, I assume dad.)

 

[FBN2007]

The limiting of my brother's rights are justified. He squandered his entire net worth to a second wife who he thought loved him when in actuality she only married him to get his money which she did very successfully. I warned him that he was being played to no avail. That is why my parents altered their trusts to make sure it didn't happen again. Both parents documents were changed at the same time that made me trustee and limited his access to assets or distributions. My brother's judgement has not improved in light of his experience. He told me recently that his current girl friend wants to open a restaurant and go to culinary school. I suspect that he has told her that at some point in the near future he will inherit some substantial money since my father is 88. Perhaps I will just avoid any chance that combinig assets could be seen by a judge as trying to screw my brother by leaving the 2 trusts as is and just deal with the extra record keeping. By the way, my intent is to preserve his share and provide for his basic needs, not to have him disinherited. But if money is given to him outright, based on his track record and his present behavior; the money would be lost quickly. It only took his second wife 2 years to blow his entire net worth which was about 600K. Also his ability to earn money currently is limited due to his lifetime learning and emotional problems.

 

[tranquility]

I never made ANY representation as to if limiting the brother's rights is correct per the facts of his life, I only spoke to the legal issues related to your plan.

But, consider this. From the first, even though you wrote the purpose was to simplify things, it seemed more related to controlling brother. It is IRRELEVANT as to if it's true, it is how you come across. With the last post from you, I have profound doubts you will successfully fulfill your fiduciary duties.

From the way brother seems to expect a bunch of money and from the way it seems you will not provide it, I suggest you prepare yourself to be sued. When you get your trust attorney, make sure he is aware of this as you'd probably rather have a litigator rather than someone who does not go to court much as your adviser. The *trust* won't be challenged, it will be your handling of it.

If you don't change your attitude and forget about the past, you will lose that suit(s). Don't mention the past in any way unless or until you are advised by your attorney to do so. (Perhaps in a deposition in the undue influence portion.)

 

[FBN2007]

You may be correct. In anticipation of brother suing me, do you think it may be helpful for father to explain why the trust says what it does in a notarized statement? I would think that may help a judge understand that father didn't want brother to receive large sums of money but only funds for his basic living expenses so that the inheritance is not squandered. Also I can appoint a new trustee if my brother threatens a lawsuit. In that case, I would appoint someone who understands the situation and would act in a way that I would approve of. By the way, father is still competent and manages his own financial affairs and lives independently.