Common Reasons for Creating a Spendthrift Trust

Nearly all of us have relatives who need extra help managing their income and assets. When we can, we try to find ways to help them. In some instances, you might have a grandson or granddaughter who’s having trouble holding down a steady part-time job during college – or trying to make ends meet after battling a lengthy addiction. Your troubled relative might also be older and starting to struggle with handling all his monthly financial affairs.

Whatever the individual’s special needs may be, you can often help by making the person a beneficiary of a spendthrift trust.

How Should You Define This Type of Trust to the Beneficiary?

You may first want to simply say that, because you greatly care for this individual, you want to remove all or most of her current money management problems from her life. You can then say that you’ve named the person as a beneficiary of a special trust account that will be managed by a trustee. You should then quickly point out that you’ll be personally choosing the exact terms governing the trust so the trustee can properly meet specific needs of the beneficiary.

Should the beneficiary ask if she can personally manage the money, you must be ready to say that you have considered that alternative and prefer to disburse the funds over time. You might also note your desire to prevent the funds from being taken by untrustworthy creditors. (Of course, there are legal exceptions that do allow some creditors to reach these funds, and they’ll be briefly addressed below).

It’s also useful to tell the beneficiary that the funds or property that you’ll be placing in the trust as its creator (grantor) are generally referred to as the trust principal.

What Basic Terms and Provisions Are Normally Included in a Spendthrift Trust?

As your Houston estate planning lawyer will tell you, specific language must be included in the trust document, making it clear that you’re creating a spendthrift trust, in keeping with Texas law. This enabling language is designed to fully protect all the property and funds that you’re placing in the trust from others who might try to illegally reach them. All of this is clearly explained in the Texas Property Code, Title 9, entitled “Trusts.”

Your spendthrift trust language will clearly state that since the beneficiary has no right to directly reach and control the funds – neither can most creditors. Most grantors also include some specific language indicating that they are trying to provide for the beneficiary’s general needs.

As the grantor/settlor you must also clearly state all the trustee’s rights, duties and obligations while administering the trust. The trustee’s job can be a very difficult one, especially if the beneficiary decides to legally challenge the trustee by demanding large sums of money for serious medical, educational or basic living expenses not expressly referenced in the trust.

When Can Creditors & Other Parties Successfully Obtain Funds from a Spendthrift Trust?

The laws in most states allow creditors that can prove that a beneficiary owes them money for basic “necessities” (like shelter or food) to win judgments and collect funds from these types of trusts. Other legal obligations that can be paid out of spendthrift trust funds (once legal action has been taken) include child support, alimony or support of a past (or current) spouse and certain government claims.

When funds are periodically released to a beneficiary, creditors can also try to obtain them based on judgments they’ve obtained. 

Please feel free to contact one of our Murray Lobb attorneys to learn more about the various types of trusts and other estate planning tools that we can draft to meet all your needs, including a spendthrift trust.

How Should You Respond to Potentially False I-9 Documentation?

At present, the federal government expects companies to carefully examine all I-9 documents presented by job applicants and to ask questions about required paperwork that looks like it may have been altered. Once you receive proper documents that look valid, you must keep your copy of the completed I-9 form on file, ready to share it with ICE (Immigration and Customs Enforcement) upon request. In some cases, you may be given only three days’ notice to produce these documents for all your employees.

To help employers fulfill their duties, ICE provides general guidelines that describe how all I-9 document reviews should be handled. These guidelines are further referenced below, along with topics you should address with your human resource staff to help them avoid accidentally discriminating against applicants and employees while simply trying to obtain fully updated, accurate documents.

What federal law established the need to obtain I-9 documents from job applicants?

Congress passed the Immigration Reform and Control Act (IRCA) back in 1986. It requires employers to obtain job applicant documents that validate each person’s right to work in this country. This task is handled by fully completing a Form I-9 document for each job applicant. To help establish their legal status, applicants can produce such items as:  a driver’s license, a Permanent Resident Card, a US passport, a birth certificate and a Social Security card.

Can some I-9 documents be acceptable even when they initially look questionable?

The simple answer to that question is “Yes.” However, you should always keep notes in your file concerning any odd documents that you first believed might be false – and keep a copy of them. As ICE notes on its website, there are times when a worker may show you documents indicating different last names – and that may be acceptable if the job applicant can provide you with a reasonable explanation for the varied listings.

While employers must be respectful and open-minded while handling required I-9 tasks, they should be acting in agreement with previously established, written employee guidelines clearly noting that all new hires and established employees can be fired for providing any false job applicant documents. When you haven’t already created such written guidelines and acceptable standards of employee conduct, you may later find yourself accused of discriminating against an applicant or employee based upon his or her immigrant (or special ethnic) status.

This type of scenario often unfolds when an employee informs you after being hired that one or more documents given to you before being hired was fraudulent or invalid. This tends to occur when the employee is trying to provide you with newly updated, valid documents.

This specific type of issue was presented to the Department of Justice (DOJ) back in 2015. Unfortunately, instead of issuing an advisory opinion, the DOJ simply noted that employers should already be prepared to handle these types of issues — based on established employee conduct guidelines. Otherwise, they risk being sued for one of at least four employment-related forms of discrimination.

Is it true that some employers have been heavily fined for I-9 violations?

Yes. One of the largest fines recently imposed by the Office of the Chief Administrative Hearing Officer (OCAHO) involving I-9 irregularities was against Hartmann Studios. That company was required (in July of 2015) to pay $600,000 in civil penalties. (That amount had been reduced from the original penalty sought of $812,665.) When Hartmann was undergoing a new inspection back in 2011, the company employed over 700 workers.

While that large sum of money is quite high, it’s important to recognize that Hartmann Studios was unable to provide any I-9s for some of its employees who had been terminated and needed an extension of time to produce documents for others.

What steps can our office (or company) take now, to make sure were fully complying with all current I-9 document guidelines?

If you haven’t already done so, give serious thought to signing up for the US government’s
E-Verify program that can help you properly process all your I-9 documents. By visiting this government website, you can learn more about how this program works. Your usage of this service may help establish your good-faith attempt to properly handle all I-9 duties.

You may also want to ask your lawyer if you should require all newly hired (and established) employees to sign a form that clearly indicates their awareness that they may be immediately fired for their dishonesty if you ever learn that they’ve provided you with any fraudulent I-9 documents. If you do this, you’ll need to strictly apply this standard.

Please contact our Murray Lobb law office so we can answer any other questions you may have about properly handling all I-9 documents. We can also provide you with advice on drawing up a general employee handbook — that also fully alerts all employees to the possible consequences of supplying your company with fraudulent I-9 documents.

A Basic Understanding of Trust Documents

A Basic Understanding of Trust Documents

Although many people still request Wills from their attorneys, it’s now often best for tax purposes to have the bulk of your estate transfer to others through one or more trusts. To better understand how trusts work, you first need to understand that there are living trusts and testamentary trusts.

Living trusts, also known as “inter vivos” trusts, are created during the grantor’s (or requesting party’s) own lifetime. By contrast, a testamentary trust is created within a Will and doesn’t become legally enforceable until after the grantor has died. As your estate planning attorney will tell you, there are two types of living trusts – those that are revocable and those that are irrevocable.

Revocable trusts let you maintain control over the trust assets, allowing you to revoke or change the trust’s terms whenever you believe it’s necessary. Should you instead create an irrevocable trust, the law no longer views the assets in the trust as yours – therefore, you normally cannot make any changes to the trust without the trust beneficiary’s consent.

While there are many different types of trusts and ways to set them up, the following ones are among those commonly requested by clients.

Frequently Requested Trusts

The Charitable Lead Trust. This type of trust can be created during the grantor’s own lifetime or upon that individual’s death. It provides for a type of annuity to be given to a charity for life or for a specific term of years. If there are any remaining trust assets, they are passed on to non-charitable beneficiaries when the trust terminates.

The Credit Shelter Trust. Many married couples with children often choose this type of trust because the surviving spouse can maintain full rights to the trust assets until his or her death. At that time, the trust benefits can then pass to the children. This trust is also commonly used because it allows the creator to escape estate taxes when passing the trust assets on to heirs.

The Irrevocable Life Insurance Trust. When you move your life insurance out of your estate by having this type of trust created, it’s no longer part of your taxable estate. The funds are then readily available to help pay for any possible estate costs or for other immediate cash needs of your beneficiaries.

Generation-Skipping (or Dynasty) Trusts. Grandparents often like to set these up because they’re designed to allow grantors to give tax-free money to beneficiaries who are two or more generations their junior.

The Qualified Terminable Interest Property (Q-TIP) Trust. If you’re in a second or third marriage and you and your current spouse had children during earlier marriages, you’ll want to learn more about this trust. It helps you not only leave your surviving spouse with income, it also lets you leave specific assets to your various children.

The Qualified Personal Residence Trust. You can use this to remove the value of either your main residence (or a vacation home) from your estate. It’s especially wise to create this type of trust regarding a property that’s very likely to increase in value over time.

The Special Needs Trust.  Many families have at least one member who suffers from some type of serious physical or mental disability. When you set up this type of trust, its terms can be restricted regarding how the assets can be used – thereby still allowing your loved one to qualify for certain types of government benefits.

As this article indicates, there are many different types of trusts that offer distinct advantages and disadvantages. Please feel free to contact our firm with any questions you may have about the specific types of trusts that may best suit your goals and preferences.

Some Pros and Cons of Having an Adult Guardian Appointed

While most middle-aged and older adults recognize their need for a Will and a basic estate plan, far fewer understand when it may (or may not) be in their best interest to have a formal guardian appointed to help them manage all their personal and financial (estate) decisions. In general, if you’re still capable of making fully competent decisions regarding your finances, basic living arrangements, and medical care needs, you probably don’t need a guardian appointed for you.

However, if you’re currently suffering from some form of mental incapacity or dementia that impairs your ability to handle such matters, then you may need to have a guardian appointed to help you manage your affairs (either temporarily or permanently).

This article first reviews some of the dangers that can occur when the wrong person becomes your guardian and then lists the various legal documents that can help all adults provide for their general medical, financial, and everyday needs should they unexpectedly become very ill or need extensive medical treatment.

Can Courts Abruptly Take Away Elderly People’s Rights to Live as They Choose?

The New Yorker magazine recently published an article in October 2017 entitled, “How the Elderly Lose Their Rights.” It details the real-life experience of many seniors who suddenly found themselves under the control of a “questionable” court-appointed guardian in Clark County, Nevada. In some cases, these older Americans were in regular contact with family members – when a local court guardian decided that they could no longer live on their own and required her overbearing control of their lives.

In some instances, all it took was a hired home healthcare aide’s statement that the elderly person could no longer properly care for himself or his spouse, even though appropriate outside care had obviously been employed for such purposes. One court guardian (who’s been indicted for her actions), would simply arrive at an elderly person’s apartment or senior care facility and announce that she had just gotten herself appointed as that person’s (or couple’s) legal guardian. That same day, the individuals were then forced to leave where they had been living and go move in where this previously unknown woman directed.

Immediate attempts by family and other outsiders who tried to help proved futile. Instead of the court allowing the elderly to appear in court to respond to concerns about their mental competency, the court allowed a court-appointed, professional guardian to file emergency ex parte petitions indicating that immediate decisions had to be made regarding the seniors’ best interests. One couple’s daughter who tried to help her parents after they suddenly disappeared from their home had to endure various types of character assassination before she finally won their freedom. By that time, all her parent’s finances had been drained – supposedly spent in their best interests.

Sadly, the article also contains the chilling observation that this type of elder abuse has become far too common in many counties across this nation – especially in areas where seniors tend to congregate. Hopefully, more states will follow Nevada’s current plans to soon pass legislation that will expressly give seniors the right to be represented by attorneys during all guardianship competency hearings.

Conclusions

Since no adult ever wants to be suddenly “kidnapped”  or taken somewhere (at any age) by a court-appointed guardian or “professional” — it makes sense for all older adults to have their lawyers provide them with the following critical documents:  an Advance Directive for Medical Care, a Durable Power of Attorney and a Declaration of Guardian in the Event of Later Incapacity or Need of Guardian. By naming someone you know and trust in these documents, it should make it easier for your relatives and friends to help you in a manner that fully comports with your stated preferences should you one day become very ill or incapacitated.

Please contact our law firm if you need to ask any questions about creating an estate plan or having the types of documents referenced in this article prepared for you and other loved ones.

HB 1974 Provides Useful New Power of Attorney Provisions

The State Bar of Texas often promotes new legislation like HB 1974 that helps people more readily use probate statutes to benefit themselves. This new statute provides changes to durable powers of attorney (POA) that were supported by the Bar’s Real Estate, Probate and Trust Law Section. They became effective on September 1, 2017.

In broad terms, these new provisions (1) clarify certain legal presumptions involving durable powers of attorney, (2) broaden the types of powers that principals can give to designated agents and (3) define when a party can legally refuse to accept someone’s power of attorney.

Penalties for not accepting powers of attorney are also discussed since these documents must usually be accepted as valid (unless clear exceptions set forth in the new provisions are met.)

Legal Presumptions Supporting Texas POAs

  • When properly notarized and signed by the principal who created the document, a durable power of attorney (POA) naming an agent must be considered valid;
  • A POA drafted in another state must be considered valid (once it’s certain that it fully complies with the laws of the other state);
  • The recipient of a faxed, photocopied or emailed copy of a POA can rely upon it like the original without liability.

New Powers and More Agents Can Now More Easily Be Included in POAs

  • If the principal names co-agents, they can act independently of each other – unless the POA specifically forbids such activity;
  • New rights of survivorship can be created or changed by named agents – if this right is specifically set forth in the POA;
  • The designated POA can delegate certain expressly assigned authority to others;
  • An agent can create, terminate or make various changes to an inter vivos trust;
  • Rights of survivorship and certain beneficiary designations can be changed by an agent if the principal included them in the POA document.

Specific restrictions are also set forth regarding the new parties an agent can name when making certain POA changes – they are designed to prevent the agent from naming anyone who the agent already has a legal duty to support.

Limited Facts or Known Events That Can Justify Rejecting a POA

Although this new legislation clearly states that power of attorney documents should normally be accepted and that penalties can apply if this doesn’t occur – the new statutes do list numerous situations that can justify the rejection of a specific POA. Here are some of the many exceptions that can allow someone to reject a proffered POA.

  • The party being given the POA has reason to believe that an SAR (suspicious activity report) has been filed regarding the agent or principal;
  • The person hesitant to accept the POA is aware that a judicial proceeding has already begun that was initiated to determine the document’s validity;
  • A party has a “good faith” belief that the named agent has a criminal record based on financial crimes;
  • The party handed the POA believes in “good faith” that the principal is currently being abused in some manner by the named agent;
  • The party asked to accept the POA has received conflicting instructions from one or more agents named in that same document.

While this list isn’t intended to be comprehensive, it does set forth some of the new provisions justifying a person’s decision to reject a POA document. However, anyone who won’t accept a proffered POA must state this refusal in writing and give the specific reasons for rejecting it.

Since questions may always be raised regarding many powers of attorney, it’s wise to first speak with your Houston probate attorney when trying to decide whether to honor one that’s been tendered to you. Our firm is also prepared to draft any new POA that you may currently need.