Castle Wealth Group

July 16, 2021

What Is the Function of a Trust Protector? |Weekly Wednesday Wisdom Webinars

Certified Elder Law Attorney and Financial Advisor Chris Berry of Castle Wealth Group answers retirement and estate planning questions every Wednesday at 1pm.

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Castle Wealth Group and Christopher Berry help families with estate planning, elder law, retirement planning, and tax planning from their offices in Brighton, Ann Arbor, Livonia, Bloomfield Hills, and Novi.

On this week’s webinar, attorney and advisor Chris Berry of www.castlewealthlegal.com answers the below questions.

• My dad passed away, leaving us three kids the family cottage, what should we do to protect it, do we need a trust or something for it?
• Please clarify the use of the terms, Executor, Agent, Personal Representative, Trustee. They seem to be used interchangeably when I research online.
• What is the function of a trust protector, what fee does the trust protector charge, is the trust protector the administrator?

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Episode Transcript

Things are submitted ahead of time, I’m going to go ahead and answer those as I get this technology working, really enjoy these and we always start with a positive focus. Something positive happens the previous week and for me, my positive focus is that my parents had taken my kids to Boston for the week. So they got to spend some kid and grandparent time and my kids got to experience Boston. So that’s pretty cool for them so again if you do have questions feel free to put them in the chat or the question and answer section. I do have some emails submitted ahead of time. So I’m going to hit go ahead and address those and if something’s unclear please put it in the question and answer or the chat section and I will try to clarify these aren’t scripted. There’s no PowerPoint or anything it’s really just answering your legal financial and tax questions. So with that let me share my screen to do hit this button hit that button I hit this button and I hit share and do that. All right we should be seeing my whiteboard in just a moment. So again these are always just general information if you want to see how this specifically applies to your situation then make sure to reach out to us by email or give us a call. So the first question here is my dad passed away leaving us three kids the family cottage and with that what should we do to protect it do we need a trust or something. 

So the answer is it depends so this is pretty common especially in Michigan here where we have that family cottage up north that is been in the family and is important. And so let’s say we have dad and dad finally passes away and now let’s say dad leaves it to three kids. So we’ll say three kids right and it’s this kind of family cottage that maybe it’s on one of the lakes or something but the goal is to try to keep it in the family. So if we had met with dad then we’d do some things ahead of time in terms of dad’s estate plan but we didn’t so let’s assume that we haven’t met with dad and now let’s say the kids are inheriting the property. So what do we do with it well then what are the concerns? So the first concern or what is the goal so the goals keep the cottage in the family right. So how do we keep this in the family well and then also we want to understand probably have a goal of how to manage it. So how to manage this kind of joint asset between say three people because what are the concerns well the common concerns what happens if one of the kids gets divorced okay now that cottage might be attacked or what if one of them needs long-term care in the future. 

Now, do they have to sell that cottage to pay for that, or one of them gets creditor action. Right, so we have this kind of common liability concern. So one of the things that we can do is we can set up a trust and asset protection trust may be that all three kids are trustees of and now we assign it or move that property into the trust. So all three kids would basically sign off on this trust and be co-trustees to deed their interest into the trust. Now if any of these bad things happened individually to them it would be held in the trust or what happens if let’s say not a divorce but what if one of the kids were to pass away. Well, the goal is for it to stay in the family stay in the bloodline verse going to a spouse. Where now a spouse who might then remarry in the future and now that family cottage is outside of the scope of the bloodline. The family that’s where again a trust can dictate that no if one of those siblings passes away. It doesn’t go to a spouse but instead, it would stay in the bloodline, and maybe if there were two kids now their share would go to the two children. So it’d flow down to the grandkids.

So that’s accomplished through maybe an asset protection trust. Okay, so that’s how we can protect against creditor’s divorce death long-term care. So really to keep it in the family so that’s one level of planning now the other issue is how do we manage that. Right, so again as attorneys and advisors we’re always trying to look at worst-case scenarios and what are the risks and that type of thing. So those are outside risks what about what I’ll call kind of internal risks. So we have the three kids and let’s say the goal is for all of them to kind of throw in money to manage this. Right, but what if one of the kids or what if there’s an issue with the property and let’s say it needs a new roof or something like that. And then each kid would then have to throw in money to pay for that new roof or if there’s an association or a club membership or just the taxes. What happens if one of the kids doesn’t throw in or what happens if they want to make improvements. How do you manage that? Well, that’s where trust really isn’t going to be sufficient instead what we also might want to do is an LLC a limited liability company because, in reality, these three siblings are now managing an essence of business right. 

They need a set of rules and with that LLC we would probably want to have an operating agreement of okay here’s how we’re going to manage things. As it can be by majority what happens if one of the kids can’t throw in to cover taxes. Is there any penalties or do they get cut kicked out of the LLC or of the of having any say in the property or how do you handle what happens if one family wants to take the cottage for a weekend and another family wants that same weekend. How do you work that out, so those are all things that could be handled through an operating agreement. So depending on what your goals are we might have a trust we might have an LLC an operating agreement and then of course we’d have a deed deeding the property to the trust and then if we do have an LLC and operating agreement also we’d want to assign the LLC to the trust. So sometimes something like really simple like just how do we pass a family cottage or if we would inherit a family cottage seems simple but it’s a little bit more complicated when you think about all the things that could go wrong.

Especially as you start adding multiple beneficiaries. Now ideally we had we would have worked with dad before he passed away. So all of this could have been structured ahead of time and he could lay out the rules of how everything is handled but now the if three kids are inheriting it. That all three kids have to agree on how kind of what are the rules. So it’s an interesting question and it’s a little deeper than it seems on its face. So if you do have a family cottage and you want that family property or second piece of the property stays in the family it doesn’t have to be something. I’m Nora just if you know that there’s a piece of property that can be split amongst multiple people. Some things to consider first of all creditors divorce death long-term care costs and then just kind of the internal family issues that could arise as well. And so these are some of the tools we use to address that. All right that’s the first question by the legal questions. This week it looks like see if any questions or answers nope all right then getting into my next question submitted again if you do have questions or anything you want me to cover or something’s unclear feel free to put it into the chat. So the next one please clarify the use and of executor agent personal representative trustee.

So a person is doing some research online sees them defined kind of differently or used interchangeably. Well, two of these basically go together with an executor and personal representative a lot of these are just talking about what is the role underneath a specific tool. So in a will, you appoint someone to wrap up your final affairs, and depending on which state you’re in that’s either going to be a personal representative which is what we call it in Michigan or an executor. It really this is ex the same term same role same responsibilities it just depends on what state you’re in whether they call it a personal representative or an executor in Michigan we call it a personal representative. As I say that I’m kind of like blanking on it and I’m second-guessing myself we signed I signed I witnessed three wills today but I’m 99 sure we call it a personal representative. I need my afternoon coffee to kick in but it’s in the end it’s the same role. It’s the person who wraps up the affairs if there’s anything going through probate they would manage probate. Then we have the role of a trustee and really it’s basically the same role as that of a personal representative or executor but the power is coming from a different document it’s coming from a trust. So ideally keep in mind that a will only really gives instructions to the probate court. So if you’re looking at avoiding probate you don’t want to rely on a will because only probate court really looks to the will. So if you’re looking at avoiding probate if you want to avoid probate then typically you’re going to look at a trust. So with a trust we don’t have a personal representative or executive. We have what’s called a trustee now in essence. It is the same thing or it’s equal to the same basically the same role or responsibilities. It’s just under a different document the power I can’t spell and type and talk at the same time it’s basically the same thing. 

It’s just where is that person getting the power and then that gives them the then they’re gonna be called something depending on whether they’re acting under the will or the trust same role same responsibility. You wrap up final affairs you distribute the assets where they’re supposed to go. So that’s the executor that’s the personal representative and then trustee now the term agent typically is going to be either under a financial power of attorney or you’re going to have a medical power of attorney and these are really dealing with incapacity. So a trust and will typically is dealing upon death financial power of attorney medical of attorneys typically dealing with incapacity. So you might in the financial attorney you might hear called a general durable power of attorney or durable power of attorney the medical power of attorney. You might hear it called a patient advocate designation which is a technical term in Michigan. You might hear it called a healthcare power of attorney advanced directives.

Really all of those are basically the same thing and when we’re talking about comprehensive estate planning typically we’re talking about having a trust to avoid probate control the distribution. Maybe building asset protection will a financial power of attorney. So if you get a knock in your head who’s going to make financial decisions medical power of attorney and then if you own real estate a deed deeding the property typically to the trust and then you might also have what’s called a personal care plan that gives instructions with regards to long-term care. So really each one of these is our is a tool and with the trust we have the role of the trustee with the will we have the role of the personal representative with the financial power of attorney. We have the agents appointed as financial attorney with the medical power of attorney. We have the agent that’s been appointed to make medical decisions for you and then the deed is just funding your real estate that doesn’t really have any specific roles nor does the personal care plan.

So hopefully that was a little bit of education just on the terms or the technical terms we use. And as you’re doing your online research that should be helpful now the last question that I have submitted. So if you do want anything else covered on our webinar today please put it into the question and answer otherwise I’ll answer this third last question. We have so what is the function of a trust protector what fee does the trust protector charge and is the trust protector the same thing as administrator. I guess administrator could be another term for trustee. So this could be another kind of term for a trustee or even a personal representative executive. It’s more of a general term the person who administers the trust technically we call it a trustee but yeah. So the role of a trust protector it’s really defined by the document but typically the reason why we would build in trust protectors. We don’t always and we don’t always have to and it’s not required but it just gives us more flexibility. So if a trust were to lock down for whatever reason due to incapacity or death and there’s some type of change that should be made you can have a trust protector appointed which could be the person drafting the documents.

Could be someone else but typically it’s the person who drafts the documents who is named as a trust protector because they’re most familiar with what’s going on. But we hardly have ever had to use the role of a trust protector but what it is is it just gives some flexibility to documents to become irreplaceable. I can’t talk irrevocable at some point. So while you’re alive and well typically you can make changes but a lot of times it will become a point or maybe you’ll set up an irrevocable trust where some terms of the trust or provisions are locked down to a certain extent. So by appointing a trust protector rather than having to go to court we can make whatever changes may be necessary probably the best example where we’ve utilized the role of the trust protector. This was a number of years ago I had a client special needs client. We set up a special needs trust a number of years ago mom and dad passed away we had named let’s say bank of America is the trustee of the special needs trust. And then the bank of America decided to stop servicing special needs trusts at this level of assets. And so rather than having to go to court to appoint say another trustee we were able to use the trust protector language to administratively make a change to a document that had become irrevocable upon death. 

So to appoint another trustee so we’re able to affect the goals of the planning without having to spend the time effort money of going to court to get those changes made. So think of it as just one ability to build in the kind of one last chance one last bite of an apple before we would have to go to court to make some changes to documents. So it just gives some flexibility it’s not required or necessary in every document but in certain circumstances it typically makes sense. So that’s the role of a trust protector and now we’ve covered a lot of the roles of a trust or estate plan executor agents trustees trust protectors. So hopefully that was helpful and that’s really all the questions that were submitted or that I’ve seen come across. So let me know if there are any other last questions or anything you want me to cover this week and I will go ahead and answer that. So if you have anything else you can feel free to to put it into the chat Vicky says enjoy your day thank you. It looks like a sunny one out there I wish I could go out and play on the lake but I’m not today. Any other questions going once going twice good to see you Chris thank you Nikhil. All right we’ll call it a day all right thank you so much. If you do have questions feel free to shoot over email otherwise make it a great day keep enjoying the wonderful weather that we’ve been having and I will maybe see you next week if you’ll be online with me, thank you so much, goodbye.