PLANNING FOR THE DYSFUNCTIONAL FAMILY · 2013. 10. 17. · A. Attorney role The attorney must identify what makes the family dysfunctional because the estate planning for the family

PLANNING FOR THE DYSFUNCTIONAL FAMILY

GLEN A. YALE Stumpf Craddock Massey & Farrimond PC

112 E. Pecan, Suite 700 San Antonio, Texas 78205

State Bar of Texas 13th ANNUAL ADVANCED

ESTATE PLANNING STRATEGIES COURSE April 19 - 20, 2007

Santa Fe, New Mexico

CHAPTER 1.1 Copyright 2007, Glen A. Yale. All rights reserved.

Planning for the Dysfunctional Family Chapter 1.1

i

I.IDENTIFYING FAMILY DYSFUNCTION..............................................................................................1 A. Attorney role....................................................................................................................................1

B. CLIENT PERCEPTION..........................................................................................................................1 C. Attorney as educator ........................................................................................................................1 D. Identifying limitations on ability to dispose ....................................................................................1

II. BLENDED FAMILY ..............................................................................................................................1 A. Traditional family – typical plan .....................................................................................................1 B. Blended family – no guarantees.......................................................................................................2 C. Blended family – the problem with trusts ........................................................................................2 D. Solutions ..........................................................................................................................................2

1.Separate assets to spouse and children........................................................................................2 2.Establish a unitrust......................................................................................................................2 3.Gifts of family memorabilia and heirlooms................................................................................3

III. FAMILY THAT DOES NOT GENERALLY LIKE ONE ANOTHER ................................................3 A. Planning possibilities .......................................................................................................................3

1. Use of Revocable Living Trusts ...............................................................................................3 2. Separate assets ..........................................................................................................................3

a. Ranches ..............................................................................................................................4 b. Family business.................................................................................................................4

B. Fiduciary appointments....................................................................................................................4 1. Financial power of attorney ......................................................................................................4 2. Medical Power of Attorney.......................................................................................................5

a. When there is no Medical Power of Attorney...................................................................5 b. Medical Power of Attorney Form ......................................................................................6

(1). Co-Agents................................................................................................................6 (2). Agent Qualifications................................................................................................6 (3). Revocation by Guardian ..........................................................................................6

c. Directive to Physicians.......................................................................................................6 (1). Absence of Directive ...............................................................................................6 (2). Statutory Form.........................................................................................................6

d. Declaration of Guardian.....................................................................................................7 (1). Guardians appointed................................................................................................7 (2). Optional provisions .................................................................................................7 (3). Disqualification ......................................................................................................8 (4). Priorities .................................................................................................................8 (5). Effect of declaration ...............................................................................................8

e. Agent for Remains.........................................................................................................8

IV. CHILDREN – FAVORED AND DISFAVORED.................................................................................9 A. Issues with the children ..................................................................................................................9

1. Estranged children ....................................................................................................................9 2. Health issues .............................................................................................................................9 3. Lifestyle issues........................................................................................................................10 4. Financial issues ........................................................................................................................11

B. Sinking the unequal disposition ......................................................................................................11 C. Disinheritance permitted ................................................................................................................11 D. Nominal bequests to disinherited....................................................................................................12


ii

V. GRANDCHILDREN – FAVORED AND DISFAVORED ..................................................................12 A. Extended family dysfunction ..........................................................................................................12

1. Grandchildren disfavored ........................................................................................................12 2. Grandchildren favored ............................................................................................................12 3. Grandparents raising grandchildren........................................................................................12

B.Planning opportunities .....................................................................................................................12 1. Disinherit the child...................................................................................................................12 2. Income interest to the child......................................................................................................12 3. Use a pot trust. ........................................................................................................................13 4. Give shares...............................................................................................................................13

VI. SUBSTANCE ABUSE PROBLEMS..................................................................................................13 A. Abuse within the family..................................................................................................................13

1. Family dynamics.....................................................................................................................13 2. The client and judgment .........................................................................................................13 3. Substance abusers as manipulators ..........................................................................................14 4. Substance abuse and mental illness .........................................................................................14

B. Planning solutions..........................................................................................................................14 1. Disinherit the child...................................................................................................................14 2. Permit or require drug testing ..................................................................................................14

a. Suspend payments ...........................................................................................................14 b. Terminate all payments...................................................................................................15 c. Suspend mandatory distributions ....................................................................................15 d. False positives.................................................................................................................15

3. Incarcerated............................................................................................................................15 4. Power of appointment.............................................................................................................15 5. Incentive trust .........................................................................................................................15 6. Direct provision of necessities ................................................................................................15

ATTACHMENT A......................................................................................................................................16

ATTACHMENT B......................................................................................................................................17

ATTACHMENT C......................................................................................................................................18

ATTACHMENT D......................................................................................................................................19


1

PLANNING FOR THE DYSFUNCTIONAL FAMILY

I.IDENTIFYING FAMILY DYSFUNCTION

A. Attorney role The attorney must identify what makes the

family dysfunctional because the estate planning for the family will vary depending upon the specific types of dysfunction present.

B. Client perception

Clients will sometimes very adequately identify the family problems that the estate plan must address: children from another marriage, family members who do not get along, family members with substance abuse problems, or beneficiaries with special needs.

The problem identified by the testator may be one of misperception. The client may think that one child does not like him or her because another child says that is the case. Elderly clients may have one of several children as the primary or exclusive care giver and that child may be telling the parent that the other children are ignoring him or her, all the while intercepting the attempted communication from the other siblings to the parent.

Beware of situations in which one child brings in an elderly parent for a will and an unequal distribution is proposed. Such adult child may be using undue influence to force the parent to make such disposition. That extreme form of a dysfunctional family is not within the scope of this article.

C. Attorney as educator

Family dysfunction may not be properly identified by the client and the attorney as counselor needs to bring it to the client’s attention. This frequently may arise in the blended family. The client may like all of his family the same but it not occur to the client that when he or she is gone that the family may not like each other. The attorney should advise as to the problems of such a plan.

D. Identifying limitations on ability to dispose

Texas does not have forced share for spouses nor for children, but there may be limits upon the client’s ability to dispose of property as he or she might wish. Freedom to dispose of

property as one might wish is set forth in Texas Probate Code, § 58 (a):

(a) Every person competent to

make a last will and testament may thereby devise and bequeath all the estate, right, title, and interest in property the person has at the time of the person’s death, subject to the limitations prescribed by law.

What are those limitations prescribed by law? One would be that upon death the family homestead must be made available for the surviving spouse or minor children. This obligation may limit the client’s ability to make the desired testamentary dispositions.

A married client cannot dispose of the other spouse’s separate property nor the other spouse’s interest in the community property without the other spouse’s consent. Where property does not all go to the surviving spouse, the need presents itself to properly characterize the property of the marriage.

Pension benefits held in a qualified plan and subject to ERISA cannot be effectively designated for a beneficiary other than the surviving spouse without the consent of the surviving spouse.

Beneficial interests in trusts might not be subject to a power of appointment and the client has no ability to designate where the property goes upon the death of the client. If the client does hold a power of appointment, then there may be an inability to appoint the property to the donees of the client’s choice.

Here again the attorney as advisor must point out the limitations and how they work in the dysfunctional family. II. BLENDED FAMILY

The traditional family with one marriage and all children from that marriage seems to be the exception. The blended family seems to be more typical: married with one or both spouses with children from another marriage. A. Traditional family – typical plan

A typical plan for the traditional marriage would be everything to the surviving spouse and if no surviving spouse, then everything to the children. Such a plan may be with or without trusts. Property in the traditional marriage might have all the property go to the surviving spouse and if there is no surviving spouse then


2

everything outright to the children. With trusts, all the property might go in trust for the surviving spouse with a remainder to the children or all to the children in trust if there is no surviving spouse. B. Blended family – no guarantees

The blended family may not be very blended with little mutual love or affection in the family and the dysfunction is present at the start of the engagement. But, even the very blended family can become dysfunctional when the client as the one binding the family together dies. The husband may love his second wife and his children from the first marriage, but there is no reason to assume that when he is gone that his second wife and his children are going to love each other.

In the blended family, say the estate plan provides everything outright to the surviving spouse and if there is no surviving spouse, then everything to the children. Under such a plan, there is no guarantee that the property will eventually go to the children upon the death of the surviving spouse. Even if there are mirror wills, the surviving spouse can change his or her will and pass the property on to a new spouse or other family members that he or she does not share with the first spouse to die.

Notice that this is not much different than the situation that occurs in a traditional family. If the will provides for everything to the surviving spouse and if there is no surviving spouse, then everything to the children, again there is no guarantee that the property will eventually go to the children upon the death of the surviving spouse. The surviving spouse might remarry and pass the property on to a new spouse or other family members that he or she does not share with the first spouse to die. The traditional and functional family can morph into a non-traditional and dysfunctional family upon the death of the first to die.

In the blended family, having the property of the first spouse to die go to the surviving spouse in trust with a distribution to the children upon the death of the surviving spouse does give assurance that the property, to the extent anything is left, goes to the children of the first to die. A problem arises in giving the surviving spouse and the first to die’s children competing interests in the same asset. C. Blended family – the problem with trusts

If the surviving spouse is named as both the trustee and the income beneficiary, then a level

of tension has been introduced into the situation. The children as remaindermen have an interest in seeing that the trust assets are invested for long term gain rather than production of current income, while the trustee as income beneficiary will want current income and not be as concerned about growth of the principal.

Further, there will be issues about the distributions from the trust. Discretionary distributions are certain to cause concerns by the children. Distributions for health, maintenance and support, also present difficult questions as to whether a particular distribution is within or without the stated standard. While the instrument can provide whether or not other assets are to be taken into consideration in determining income and principal needed for health, maintenance and support, that provision does not completely eliminate the competing interests.

While such tensions are also present if the children remaindermen are the natural children of the surviving spouse, many times the blood ties hold in check the conduct of the trustee – beneficiary as well as the children. A child beneficiary has some interest in seeing that a surviving parent has ample resources and a parent has some interest in passing on an inheritance to his or her own natural children. In the blended family, the danger is that the surviving spouse and the children will become strangers or worse still adversaries

If the surviving spouse is not named as the trustee, even that does not fully address the tensions that are present due to competing interests between the spouse and the children as to investments and distributions.

D. Solutions 1.Separate assets to spouse and children

Give assets to the surviving spouse and other assets to the children of the first to die.

The first solution can be tailored to the particular family situation. Say that the client wants to provide for the surviving spouse, the client’s own children, and children of the surviving spouse and children in common.

The client could provide for the child or children not in common with the surviving spouse outside a trust for the benefit of the surviving spouse and the children of the surviving spouse. 2.Establish a unitrust


3

Establish a unitrust for the surviving spouse with distribution to the children upon death of the surviving spouse.

When there are insufficient assets to provide for the children of the client apart from providing for the spouse, a unitrust can be established with a stated amount of distribution, such as 7% annually, to take away the question of appropriateness of distributions. With the unitrust interest being paid from either income or principal, both the surviving spouse as the current beneficiary and the children as the remaindermen have the same interest in seeing the trust principal increase in value. 3.Gifts of family memorabilia and heirlooms

Consider suggesting to clients that they include a provision in their will giving all family memorabilia with his or her first family to that family. The appropriateness of such a provision will vary as will the items to be included.

Family memorabilia may include family photographs, holiday decorations, children’s art, souvenirs and trophies.

Family heirlooms should also be considered as a gift to the first family. A client’s will might also include first generation family heirlooms: items that were gifts to the client from the children of the prior marriage.

Example: Richard Sample was married to Mary for 30 years and raised a family. Mary died and gave all of her property to Richard. He remarried 20 years ago and has come to you for estate planning. He acknowledges that his children are not particularly close. Plan: Suggest that Richard’s will include a provision giving family heirlooms from Mary and her family and family photos prior to the second marriage to the children. Example: Robert Sample was married to Grace for 45 years and raised a family. Grace died, and he remarried a year ago and has come to you for estate planning. Plan: Suggest that his will include a provision giving family memorabilia and his family heirlooms to his children.

III. FAMILY THAT DOES NOT GENERALLY LIKE ONE ANOTHER A. Planning possibilities

1. Use of Revocable Living Trusts

While wills are favored in Texas because of the availability of independent administration, and revocable trusts are not typically used to avoid probate, a family that does not get along presents an exception and a revocable trust should be used.

Where the children do not get along with the parents or each other, the odds increase that there will be a will contest with allegations of lack of testamentary capacity, undue influence or a technical defect in the execution of the will.

It is generally regarded to be more difficult to set aside a revocable trust that the grantor has lived under during his or her life. Certainly it is more difficult to prove undue influence when the decedent accepted living under the instrument during life. This is particularly the case where the grantor does not serve as trustee in favor of an independent trustee and the trust was funded. The more interaction between the independent trustee and the grantor the more difficult to break the trust.

With a will there is a race to the courthouse. The named executor wants to have the will admitted to probate and obtain letters testamentary, so if a will contest arises, the cost of defending the will can come from the estate and the executor can administer the estate while the will contest is pending.

When a contest to the will is filed before the will has been admitted to probate and the named executor appointed, then the costs of defending the will come out of the named executor’s own pocket, at least until the will can be successfully admitted to probate or it can be proven that the will was defended in good faith

With a revocable living trust, upon the death of the grantor the independent trustee (or any trustee other than the grantor) continues to serve. If a challenge is made to the trust instrument, the trust assets may be used to defend the trust

With probate of a will there is a minimum ten day waiting period from when the will is offered for probate and when the hearing can be held. For a minimum of 10 days, the application to probate the will invites a will contest.

With a revocable living trust, there is no minimum ten day period before the successor trustee can begin to serve and there is also no filing at the court house to draw the contest. A contest requires the contestant to initiate litigation.

2. Separate assets

The family that that does not generally get along, seems to have an easy solution: give the


4

children separate assets so they are not co-tenants or co-owners of anything. If trusts are created, give them separate interests so that they need not be involved in one another’s business.

Depending upon the family and depending upon the degree to which the drafter thinks the interests need to be separated, consider having the interest of a child deceased before the trust is exhausted and without surviving children go to charity rather than to the other siblings. A contingent remainder interest, no matter how remote may make the siblings or their families necessary parties to trust litigation to reform the trust.

While in concept it may be advisable to give separate interests to each child, some assets may make this difficult to implement: there may be a ranch or business that is difficult to partition. a. Ranches

It can be extremely difficult to partition a ranch where the agreement of the co-tenants is required. Co-ownership of a ranch virtually guarantees a family disagreement.

One solution is to give the independent trustee authority to partition the ranch and then have separate portions of the ranch allocated to the children based upon lottery. This solution is only available where the ranch is capable of partition and the ranch is large enough that the siblings can be if not good neighbors at least tolerable.

Where the ranch is incapable of division, a possible solution is for the client to give one child an option to buy out the other children’s interest in the ranch.

Example: Tex Samples has a large ranch that he does not want to partition among his three children. He knows his son wants the ranch and his daughter who lives in Ohio does not, so he gives his son an option to buy the ranch at 50% of its fair market value. The trust will state terms: interest rate, period to pay, and period in which option must be exercised. Example: Marv Samples has a recreational ranch that he knows each of his three children want, but it cannot be easily partitioned. His trust sets forth a method by which one child, determined by lottery, has an option to buy the ranch for 2/3 of its fair market value.

b. Family business

With a family business a succession plan needs to be developed in which one child takes the business and the others take cash. The preferable route is for the client to develop a succession plan for the business while living, but the relatively young age of the client may mean that the client is not ready to develop a plan and to cede control.

If the will must be drafted before a succession plan is developed, the trust must provide the succession plan.

Example: Hal and Mary Samples have a family business of selling cars. They own two dealerships and both of their two children want to carry on the family business. One dealership, goes to the older daughter and the other dealership goes to the younger daughter. Example: Jim and Liz Samples have a family business that both of their children want to run. They give an option to the one child, determined by lottery, to buy the business at its appraised value.

B. Fiduciary appointments

In the family that does not like one another, care should be made in making the fiduciary appointments. If the family does not get along, then it may be unfair to give control of the estate or trust administration to one child. It is unfair to the other children to have the one sibling in control and it is unfair to that child to owe fiduciary responsibilities to litigious parties.

It may be best in such a situation to consider the appointment of a corporate trustee.

Care also must be taken in the appointment of agents under a financial power of attorney or a medical power of attorney 1. Financial power of attorney

Texas law permits an individual to name an agent to handle their financial matters by naming an agent in a power of attorney. Texas Probate Code §§ 481-506.

Where the family gets along, usually there is no problem in naming the children as individual agents to serve in succession or as co- agents.

If the power of attorney names co-agents and they are to act together, then the following language should be included.

The written or oral authorization of both of my agents shall be sufficient indication of their authority to act.


5

If there is a family where they do not get along, then the use of a revocable living trust with an independent trustee to hold the assets may be best with the independent trustee also named as agent in the power of attorney. 2. Medical Power of Attorney

Statutory Durable Powers of Attorney allow the designated agent or attorney-in-fact to conduct financial and business affairs, but no authority is granted to make medical decisions. A Medical Power of Attorney allows the person designated as agent to make medical decisions when the client is incapacitated and unable to make those decisions himself or herself. TEXAS HEALTH AND SAFETY CODE § 166.151 et seq. The agent for health care can decide who will be the attending physician, what hospital will be used or what nursing home will be chosen. Consents to surgery and to drug therapies can also be given under a Medical Power of Attorney.

a. When there is no Medical Power of Attorney

When a person is incapable of making a medical treatment decision and there is no Medical Power of Attorney, sometimes family members and others can give consent for medical treatment under the “Consent to Medical Treatment Act,” TEXAS HEALTH AND SAFETY CODE §313.00 et seq.

For a client in a hospital or nursing home who is comatose, incapacitated, or otherwise mentally or physically incapable of communication, a medical treatment consent can be given by a family member or others with decision-making capacity and reasonably available after reasonably diligent inquiry, in the following order of priority:

(1) spouse; (2) an adult (18 years of age or older or under 18 with disabilities of minority removed) child who has the waiver and consent of all other qualified adult children to act as the sole decision-maker; (3) a majority of reasonably available adult children; (4) parents; or (5) the individual clearly indicated to act for the incapacitated person before that person became incapacitated, or the nearest living (adult) relative, or a member of the clergy.

TEXAS HEALTH AND SAFETY CODE §313.004(a).

The inadequacies of the Consent to Medical

Treatment Act are clear. Consent can only be given when the client is in the hospital or a nursing home. Consent cannot be given for a medical treatment decision made in a home or an out-patient clinic. An adult child must obtain waivers from the other adult children or a majority of adult children must act together. It may be difficult for one child to obtain these waivers or for a majority to act together. It may not be obvious to physicians and others who the adult children are, let alone how to locate them, or who is the nearest living relative other than children and parents. The statute does not say what happens if the parents do not define what makes one who was “clearly indicated” by the patient to make a treatment decision. A minister or priest can make a decision if none of these family members are available. Persons of all sorts of religious persuasions may find that to be unsatisfactory. The statute does not say this is limited to any particular minister; the statute seems to give a priority to any minister. The statute does not indicate who has priority within the class numbered (5), although it is assumed that the person clearly indicated would have priority over the nearest relative and a member of the clergy, and the nearest living relative would have priority over a member of the clergy, but not over a person clearly indicated. Finally, the consent act does not apply in emergency situations. (If a person is incapacitated and needs emergency surgery to save his or her life, the physicians and hospital need not obtain consent.) The statute also appears to invite litigation when it states that any dispute as to the right of a party to act as a surrogate decision maker may be resolved only by a court with probate jurisdiction. TEXAS HEALTH AND SAFETY CODE §313.000(b).

If the Consent to Medical Treatment Act does not apply to a given situation, then the health care provider may not accept the consent of a family member. Without a Medical Power of Attorney, it may be necessary for the family to request a court appointed guardian to make the decisions. A guardianship is a costly procedure in Texas even if limited to guardian of the person to medical treatment decisions. Any guardianship involving the parent when the siblings do not get along will be contentious.


6

A preferable way to handle these unfortunate situations is to complete and sign a Medical Power of Attorney before the onset of incapacity.

Even if the Consent to Medical Treatment Act does designate someone to make a treatment decision, the persons designated to make a treatment decision may not be the incapacitated person's first choice. A Medical Power of Attorney lets a client designate who can serve and in what order of priority. It also permits designation of non-family members to serve. b. Medical Power of Attorney Form (1). Co-Agents

There is one aspect in which the Medical Power of Attorney is more limited than the Consent to Medical Treatment Act. A majority of adult children may together make a decision regarding consent under the Consent to Medical Treatment Act, but the statute that provides for Medical Power of Attorney seems to permit designation of individual agents to serve one at a time consecutively. No provision is made for a group of people, family members or otherwise, to be designated as agents to serve concurrently. (2). Agent Qualifications

The agent designated must be an adult (18 years of age or older) or, if not yet 18, a person who has had the disabilities of minority removed. TEXAS HEALTH AND SAFETY CODE §166.151(1) and (2). (3). Revocation by Guardian

As discussed later, the Medical Power of Attorney may be revoked when a guardian is appointed and the court may consider the preferences expressed in the Medical Power of Attorney. TEXAS HEALTH AND SAFETY CODE §166.156(b). The statutory form may express the preference that the Medical Power of Attorney not be revoked by the following:

In the event a guardian is appointed for me, I request that this Medical Power of Attorney not be revoked and the agent appointed hereunder be permitted to serve as my agent.

c. Directive to Physicians Texas law permits a client to sign a Directive

to Physicians, a document sometimes referred to as a “living will” or the “pull-the-plug thing.” TEXAS HEALTH AND SAFETY CODE, Subchapter B, Title 2.

A Directive to Physicians instructs the physician to withhold or withdraw life-sustaining treatment in the event of a terminal or irreversible condition or it can also instruct that such treatment be administered. TEXAS HEALTH AND SAFETY CODE § 166.031.

(1). Absence of Directive

If a client does not have a Directive to Physicians, then the physicians will consult the patient's legal guardian or an agent under a medical power of attorney for a decision on whether to remove life-sustaining treatment. TEXAS HEALTH AND SAFETY CODE §166.039(a). In the absence of a directive, a legal guardian, or an agent under a medical power of attorney, a treatment decision to withhold or withdraw life-sustaining treatment may be made by the attending physician and one person, if available, from one of the following categories:

(1) the patient's spouse; (2) the patient's reasonably available adult children; (3) the patient's parents; or (4) the patient's nearest living relative. TEXAS HEALTH AND SAFETY CODE §166.039.

The absence of a Directive to Physicians can

result in the emotional burden of making a decision being placed on the family. The statute invites litigation by providing that a family member who desires to challenge a treatment decision made by another family member must apply for a temporary guardianship. Id. (g). Interestingly, the statute does not issue the same invitation to family members in disagreement with a decision made under a directive or by a legal guardian or agent under the medical power of attorney.

(2). Statutory Form State law provides a form for the Directive

to Physicians, TEXAS HEALTH AND SAFETY CODE §166.033, but specifically provides that any form is permitted and a notarized document cannot be required. Id. §166.036(a).

The statutory Directive to Physicians permits the declarant to nominate someone to make a treatment decision, if the Medical Power of Attorney does not name an agent. It is assumed in the statutory form that if a Medical Power of Attorney names an agent, the named


7

agent is to be consulted regarding removal of life-sustaining treatment. This appears to be a limited reading of the statute itself, which states that the declarant may designate in the directive a person to make a treatment decision for the declarant when the declarant cannot. TEXAS HEALTH AND SAFETY CODE §166.0392(c).

The prior statutory form permitted nomination of one or more persons to make a decision to remove life sustaining procedures. The problem with signing such a document is that it placed upon the person nominated the emotional burden of making a decision to remove life-sustaining procedures. However, the client may want to name someone to have the last word on making the decision as a check on the decision making authority of the physicians. If the client definitely believes that he or she does not want life sustaining treatment continued once unconscious and with a terminal condition, then the client should consider signing a Directive to Physicians that requests that such procedures be removed rather than passing the responsibility to make a decision on to their family or friends. That will require additional language being inserted in the directive as well as the Medical Power of Attorney.

d. Declaration of Guardian A Declaration of Guardian, provided for in

TEXAS PROBATE CODE §679, is properly seen as a backup document. It is there to make sure that the other documents, Statutory Durable Power of Attorney and Medical Power of Attorney, are not unnecessarily canceled and to make sure that persons the client does not want appointed are disqualified. (1). Guardians appointed

There are two types of guardians who manage an incapacitated person's affairs. The guardian of the estate is responsible for managing all assets, reinvestment, collection of income, and payment of expenses. The guardian of the person handles personal affairs, such as where the ward will live. The same person usually serves as both guardian of the person and guardian of the estate, but sometimes they are separate.

A guardianship is an expensive procedure, and it is better to avoid a guardianship by providing a Statutory Durable Power of Attorney and a Medical Power of Attorney, so there will be little or no need for a guardian, in the event the client becomes incapacitated.

One interesting aspect of Texas law is that once a person is appointed as permanent guardian, the guardian may revoke both the Statutory Durable Power of Attorney and the Medical Power of Attorney. The powers under a durable power of attorney automatically are terminated upon the qualification of the guardian of the estate. TEXAS PROBATE CODE §485. While suspension or revocation of the authority of the health care agent is optional with the court appointing the guardian, the guardian has sole health care decision-making authority while the court's decision is pending. TEXAS HEALTH AND SAFETY CODE § 166.156(a) and (c). The court is to consider the preferences of the principal as expressed in the Medical Power of Attorney. A family member who is not satisfied with the appointments made in either document can seek to be appointed as the guardian, with the idea of canceling the appointments.

Through a Declaration of Guardian, Texas law permits a client to name the persons who will serve as guardian. To prevent the powers of attorney from being canceled, the client should name in his or her Declaration of Guardian as guardian of the estate the same person or persons named in the Statutory Durable Power of Attorney. The client also should name as guardian of the person the same persons named as agents in the Medical Power of Attorney. The Declaration of Guardian permits the naming of guardians and alternate guardians to serve if the prior named guardians are unable or unwilling to serve, just as successor agents may be named in the Statutory Durable Power of Attorney form, TEXAS PROBATE CODE §490, and in the Medical Power of Attorney form, TEXAS HEALTH AND SAFETY CODE § 166.164.

(2). Optional provisions An optional provision that the attorney may

consider including is a provision stating that simultaneously the declarant has executed a Statutory Durable Power of Attorney and a Medical Power of Attorney and that the declarant wants the powers of attorney to be recognized and no guardians appointed. Here is language that might be used to accomplish this.

#. By separate instrument, I executed a Statutory Durable Power of Attorney naming as my agents, the same persons listed above to serve as the guardian of my estate. I request that, if the actions that need to be performed by me can be performed by my agent, the nominated


8

guardian not seek a guardianship, and that any guardianship sought be a limited guardianship and my Statutory Durable Power of Attorney not be canceled. #. By a separate instrument, I executed a Medical Power of Attorney naming the same persons I named above as guardians of my person. I desire that any guardian appointed not request cancellation of my Medical Power of Attorney and that my agent there under be permitted to continue to serve.

(3). Disqualification Besides naming the guardians, what may be

even more important for a client that is a member of a contentious family, is that it is possible to disqualify a person from serving as either guardian of the person or as guardian of the estate. If someone is disqualified, the probate court is prohibited from appointing that person as guardian “under any circumstances.” TEXAS PROBATE CODE §679(b). The court need not appoint the person named as guardian, but the court cannot appoint a person disqualified.

A client should consider explicitly disqualifying anyone whom the client does not want to serve, that might otherwise have a reasonable possibility of being appointed. This should be done even if it is probable that the persons named in the Declaration of Guardian will be able and willing to serve, because nomination in the Declaration of Guardian does not guarantee that the nominated person will be actually appointed by the probate court. The court may give the appointment to someone with a priority for the appointment, regardless of the nominations made in the Declaration of Guardian. Disqualification should be seriously considered for anyone that has a priority. (4). Priorities

For appointment of guardians, Texas law, under TEXAS PROBATE CODE §677, gives first priority to the spouse. If the spouse does not qualify or the client is not married, the appointment will go to the nearest kin, and failing the nearest kin to qualify then the appointment goes to any interested person. A person can qualify provided the person is not (i) a minor, (ii) a person whose conduct is notoriously bad, (iii) a declared incompetent, (iv) indebted to a proposed ward unless the debt is paid prior to appointment or asserting any claim

to property adverse to the proposed ward, nor (v) a person, who by reason of inexperience or lack of education, or other good reason, is shown to be incapable of properly and prudently managing and controlling the proposed ward or the proposed ward's property. (5). Effect of declaration

There are no reported cases on the designation of guardian statute, but attorneys involved in contested probate matters will confirm that the existence of a declaration of guardian changes the dynamic of the case and gives a decided upper hand to the contestant designated in the declaration of guardian. e. Agent for Remains

For a family where the children do not get along, the fisticuffs may begin at the funeral home. Consider all the items over which the children can disagree: burial, entombment, cremation, embalming, casket and final resting place. The Texas Health and Safety Code sets forth who has a priority to dispose of a person’s remains if the person does leave directions in writing.

Sec. 711.002. Disposition of Remains; Duty to Inter. (a) . . . the following persons, in the priority listed, have the right to control the disposition, including cremation, of the decedent's remains, shall inter the remains, and are liable for the reasonable cost of interment: (1) the person designated in a written instrument signed by the decedent; (2) the decedent's surviving spouse; (3) any one of the decedent's surviving adult children; (4) either one of the decedent's surviving parents; (5) any one of the decedent's surviving adult siblings; or (6) any adult person in the next degree of kinship in the order named by law to inherit the estate of the decedent.

Clearly when the children do not get along, subsection (3) encourages the children to fight it out. Certainly the client with children who do not cooperate should avail themselves of an opportunity to keep disagreements to a minimum by providing who will make the funeral arrangements and what arrangements the client wants.


9

Subsection (b) of Section 711.002 contains a statutory form that a client can use to appoint an agent to control the disposition of his or her remains and eliminate a source of contention. IV. Children – favored and disfavored A. Issues with the children 1. Estranged children

It is not unusual to come across clients where one child is favored over another child. The reasons for favoring one child over another one are not all negative.

There has been a divorce from the other parent of the children and the client has resentment that one or more children sided with the other spouse. An effort to disinherit in these circumstances

may be appropriate or they may be pure revenge. Care must always be taken if the favored

child is somehow participating in the estate planning in this situation because you might have the child exercising influence that post death may be hard to disprove as undue influence.

A child may have left the family years ago and have disappeared. Naming such a child as a beneficiary, even

inadvertently, could cause family tensions as well as difficulties for an executor to locate the beneficiary. Such a beneficiary might be inadvertently named as a beneficiary by simply giving the residuary to the testator’s/testatrix’s children without excluding the child.

The client may want to disinherit a child because of false accusations made by the child against the parent. Your author has dealt with the circumstance

of a false accusation against the client from his adult daughter that he had molested her as a child. Through second hand another instance has arisen of a parent wanting to disinherit a child for a false allegation.

Sometimes these instances are temporary, with the accusation later being withdrawn.

In some of these instances the child may be a victim of incompetent counselors who have caused their patient to develop a false memory. 2. Health issues

A child may have profound mental retardation such that the child is a ward of the estate. Naming a ward of the estate as a beneficiary

will result in the funds going to the state. It makes much more sense to leave the funds to the other children and let them decide to benefit the disfavored child with the occasional luxury that the state will permit them to provide but the state does not provide.

Some clients may have lost all contact with an institutionalized child while some will keep contact. The level of contact will change how they treat the matter.

The client may have more than one child, but one child due to mental or physical condition is dependent upon the client for financial support.

The client may have a moral obligation to

favor the child that has been handed disadvantages in life.

The client’s child may have serious health issues and is not expected to live much longer.

Where the child is childless, the client may

want to look at giving the child an annuity that can be satisfied out of the estate.

Where the child with health issues may be the client’s only child, then the plan might include a testamentary charitable remainder trust or a pooled income fund with the client’s favorite charity.

The client’s child may have mental health issues that can be controlled with medication but sometimes there are periods of residential treatment. The child with mental health issues

sometimes present the same issues that are involved with substance abuse. The child’s situation is typically not one of the child’s own creation. But, the person with a mental health problem’s must want to get better and must take medication.

Typically such a person’s inheritance should be placed in trust and care taken in the choice of a trustee. If there is a family member than can serve, it may be helpful to have someone to act as an advisor to the trustee or as co-trustee to


10

help monitor the situation to see that the beneficiary’s needs are met. 3. Lifestyle issues

Children who have made lifestyle choices that are not appropriate. Clients may want to send a message to a

child who has walked out on his or her own children and whose conduct is inappropriate.

Your author has encountered both sides of this issue. In one instance a child was disinherited in favor of the client’s grandchildren because the son left his wife and children. The son came to his senses and the will was revised several years later.

Your author encountered a son who was disinherited by his father. While angry with what happened at the time that it occurred, years later he said that it helped him realize that he was not acting appropriately and his father did the right thing.

Children who convert to another religion or who do not follow the religion. Disinheritance is sometimes a knee jerk

reaction by a parent when there is conversion or a child is not living a lifestyle that is consistent with their religion. Disinheritance is resorted to because it is an action that the parent can take when there are few other actions available.

Such action may be counterproductive if the parent hopes the child we have a change in lifestyle and return to the parent’s ways. Treating one child differently than another child may result in animosity directed toward the parent’s memory and religious beliefs. But, see above regarding children who made lifestyle choices that are not appropriate.

A different problem presents itself where children become trapped in a religious cult. In that instance, disinheritance may be appropriate because any inheritance will go to the cult and not to the child.

A client may have a child in a toxic marriage or relationship. This might not be something that would

cause a disinheritance of a child, but rather it may cause the client to consider placing the inheritance in trust with terms to prevent the spouse or partner from getting the property or having any control over the property.

The difficulties are particularly acute where the children are in Colorado where an anticipated inheritance from a parent is subject to division by the court in the child’s divorce. In Texas we do not have that problem because an inheritance is separate property and not subject to division by the court in a divorce proceeding.

The relationship may seem toxic only to the parent and may not be perceived that way to the child in the relationship. Love is blind.

A client may have a child who is gay, lesbian, or transgender.

Although there is more general acceptance of

such lifestyles, one may encounter a client who will want to disinherit entirely or at least limit the gift made to such children.

What a parent may have no problem with is providing something for a GLTG child but not providing sufficient wealth that the child channels funds to GLTG advocacy.

Your author would question the appropriateness of disinheriting a child because of sexual orientation alone and the attorney participating in that. Disinheritance should be limited to objective reasons unrelated to sexual orientation.

The client may have a child who is incarcerated.

When dealing with the client with an

incarcerated child you are probably dealing with someone either embarrassed or incredibly disappointed in their child. But, sometimes you will find a parent who is easily manipulated by his or her child.

If the child will eventually be getting out of prison, then consideration should be given to giving that child a share in trust so that child will have necessary funds when prison ends.

If the child is expected to be incarcerated for life, then limited access to funds can provide for necessary legal services or for funds to make purchases through the prison commissary. Just because the child gets provided “three hots and a cot” one should not expect there to be no need for funds for “necessities.”

Yet the ready availability of funds could also be a problem for the child while incarcerated. If that is known, the child could become subject to extortion and manipulation by the other prisoners.


11

Funds held in trust for an incarcerated child should not have mandatory distributions. The trust should only provide for discretionary distributions.

Consider giving another family member a power of appointment to appoint to the child in prison. Another possibility is to permit discretionary distributions to a family member so gifts can be made to the incarcerated child.

Your author heard from a long-time minister to prisoners that most prisoners are children in adult bodies. They act first and think later. That is what got them into prison.

Many prisoners have serious mental health issues. If incarcerated for life, financial resources will make no difference in the care the person receives, but if the child will eventually be set free from prison, then the same planning considerations for children with metal health considerations apply. 4. Financial issues

One child may already have more wealth, such as marrying well or being very successful in business or investments. The other child may simply have a greater

need for the inheritance. Some children that have significant wealth still see an inheritance from a parent as an entitlement and think it unfair that he or she has received little.

One child might have a greater need for the assistance because that child has a special needs child that places a financial burden on that family.

When a child is disinherited for one of the

previous two reasons, the client might consider naming that child to receive a family heirloom of sentimental as opposed to assets of significant financial value.

A client may have children with creditor issues.

This situation may not be one that calls for

disinheritance, but rather placing the inheritance in a spendthrift trust without mandatory distributions.

But if the child has creditor problems because of a gambling addiction, then the client might want to consider disinheriting the child in favor of the grandchildren.

To obtain funds for gambling, a person can borrow money on credit cards and run up debt. If the trust can be used to pay the credit cards, then the beneficiary will basically have unlimited access to the funds in the account.

A spendthrift trust can only provide limit protection to the beneficiary while also providing distributions. A trust cannot totally save the beneficiary from himself or herself.

Depending upon how severe the creditor problem is, the client may want a spendthrift trust drafted for the child that permits the trustee to acquire and hold in the trust a residence for the child. While a homestead may be protected from creditors, the beneficiary with creditors may find it difficult to acquire a home on their own. By holding the residence in trust it will be easier to sell the residence to acquire another residence and move the transaction through a title company rather than if the residence was held individually.

A client with a ranch may want to give it to children who have property already because he thinks they are more likely to manage it and pass it to their children. Your author has encountered this type of

situation. In planning such a disposition expect a will fight and consider making the gift in trust to increase the ability to defend the effectiveness of the disposition. B. Sinking the unequal disposition

When such uneven dispositions are made, one should be careful to not state a particular reason, because that invites litigation over whether the reason is correct. See the discussion of “Mistake,” in Beyer, TEXAS LAW OF WILLS, §51.32 et seq.

Also, a disinheritance provision should not invite a lawsuit for libel. Limit such a statement to “For good and sufficient reasons known to my family, my will does not make any disposition to my daughter, Mary Jane, or her issue.” C. Disinheritance permitted

Texas law permits disinheritance as to both an amount passing under a will and also as to intestacy. Texas Probate Code § 58(b) provides:

A person who makes a last will and testament may: disinherit an heir; and direct the disposition of property or an interest passing under the will or by intestacy.


12

If a child is to be disinherited, then

inclusion of a provision disinheriting as to interests by intestacy, will help limit any unintended inheritance if the will does not dispose of all of the client’s property and there is a partial intestacy.

D. Nominal bequests to disinherited

In making a disinheritance of a beneficiary, the client should consider making a nominal bequest to the child and include a no contest provision in the will. This will penalize the child with loss of the nominal bequest if they challenge the will. This presents disfavored children with a dilemma: accept the will with a nominal amount and walk away or challenge the will and run the risk of receiving nothing. If the challenge to the will is successful, then the child will have the will set aside and may take a larger share under a prior will or by intestacy.

There is law to the effect that if a named beneficiary accepts a benefit under a will that beneficiary becomes estopped from latter challenging the will under which the gift was accepted. For this reason, the executor will want to make that bequest as soon as the will is admitted to probate so as to have estoppel attach. Consider making such nominal gifts to the beneficiary if the beneficiary survives the testator/trix by thirty (30) days or until the probate of the will, whichever occurs first. V. Grandchildren – favored and disfavored A. Extended family dysfunction 1. Grandchildren disfavored

Your author has encountered persons who are willing to give to their children but do not like the grandchildren. One client did not like the way in which his grandchildren had treated him. His solution was to give his children interests in a pooled income fund at his favorite charitable organization, so the interests will last for the life of each of his children but will terminate upon their deaths.

Another mother did not want to give her daughter a share of the family farm because the daughter was divorced and the daughter’s son was homosexual and had contracted AIDS. She was concerned that her daughter would want to sell her interest. 2. Grandchildren favored

The opposite has been encountered where clients don’t like the children but have no problem with the grandchildren. This may come

where the parents do not like the choices that the child made in their marriage, divorcing a well liked in-law, or do not care for life style choices of the child but do not want to punish the grandchildren.

There will also be instances in which the grandchildren by one child are to be favored over the grandchildren by another child. Your author has encountered instances where one set of grandchildren will inherit significant wealth from another grandparent while the other set of grandchildren will not have a prospect of a significant inheritance from their other grandparents.

3. Grandparents raising grandchildren

There is another situation occurring with more frequency, and that is grandparents raising their grandchildren.

The reasons are varied, and the length of time that the grandchildren are in the grandparents’ home varies also.

Where the grandchild or grandchildren receive their entire upbringing in the grandparent’s home, an issue can arise as to how to divide the family share.

Client and her husband raised their two grandchildren from the age of toddlers. Client divides the estate into thirds, one third each for her daughter, grandson and granddaughter.

Clients have three children and raise their oldest grandchild since birth. The only have temporary custody of the grandchild, but the child will stay with them until they are adults. They sign wills giving each of the three children and the oldest grandchild a one-fourth share.

B.Planning opportunities 1. Disinherit the child

Disinherit the child in favor of the grandchildren. See the caution above regarding nominal bequests instead of complete disinheritance. If the child is estranged from his or her own children, then the child may not think that a gift to his or her own children is sufficient to prevent a challenge to the will. 2. Income interest to the child

Limit the child to an income beneficiary of a trust and give the grandchildren the remainder interest.


13

If the child is estranged from the grandchildren, the conflicting interests between the child as income beneficiary and the grandchildren as remaindermen may create family disharmony. The problems are similar to the discussion above regarding using a trust for a blended family. 3. Use a pot trust.

Put the child and the grandchildren in a pot trust that terminates upon the death of the child. 4. Give shares

Give a share to a child and another share to the grandchildren.

VI. Substance Abuse Problems

Children with drug problems present one of the more difficult planning situations for the client and the attorney. The client will approach the task with frustration and anger and both the client and attorney will find that there is difficulty in crafting a workable solution. A. Abuse within the family

The attorney needs to understand the level of the client’s affection for the child or lack thereof. Substance abuse families have some recurring trends but they are not exactly alike. 1. Family dynamics

The client may want to do everything possible to help the child with the drug problem, but more often than not the parent has burned his or her bridges with the child and is fed up with the situation.

The latter client may have attempted everything they could do to provide a loving upbringing and impart good values only to be repaid with numerous failed attempts at rehab and the loss of wealth for rehab, attorneys’ fees, bail bonds, and theft from the house for the purchase of drugs. Numerous schemes will be deployed to get money from parents. Such parents feel used and abused and they approach the relationship, such that remains, with a combination of frustration and anger. The frustration comes from the inability to control the situation or to affect the situation to bring a good result. The anger comes from the child’s choices and the economic damage done to the family’s resources.

Yet that heroic parent should not be judged as an enabler. All the while recognizing that the user may need to hit bottom before they will change, the parent wants the child to hit the

bottom as a soft landing and not have the arrival at the bottom to mean the death of the child. There is an uneasy tension between not being an enabler yet not setting the child on a course of events leading to death.

The substance abuser has a different way of thinking and dealing with issues. When under the influence this might be considered even non-thinking, all the while trying to give the impression that the abuser understands what is being communicated. Your author’s wife observed that when our daughter was on drugs, between talking to a brick wall and talking to our daughter, we were better off talking to the brick wall, because we knew at least the brick wall was not listening.

Another aspect is that persons who use illegal substances buy their drugs from some unsavory characters. When the substance abuser lives in the home that abuser decreases the degrees of separation between the family members and the unsavory providers. The abuser is in the circle of the family and the abuser’s relationship with the drug provider brings that person into the family circle.

The abuser is also bringing his or her drug abusing friends into the family circle. The anger expressed by the parents in bringing such persons within the family circle, many times provides a benefit to the abuser in finding another way to strike back at the family.

The relationship and the perception of the problem may not be the same for both clients when representing a couple. The father may want to sever the relationship while the mother is stilling willing to make heroic efforts to save the child, and vice versa. Your author knows of one instance in which the couple moved out of the home because the child was doing drugs – and the wife promptly divorced the husband for being too soft on the son and causing their effective eviction.

When the drug abuser is one of several children, there are also the perceptions of what is fair to the other children in how they are treated compared to the abuser. There may be resentment if all the children are treated equally, because of the emotional and financial damage done to the family resources by the abuser. 2. The client and judgment

A sure way to lose a client is to be judgmental about the client. They have yet to right the handbook on how to act as the parent of a substance abuser. So the attorney as counselor


14

cannot say that the parent’s conduct is right or wrong.

One thing the parents of substance abusers have received is judgment: they must not have been very good parents because they have a child on illegal substances.

If the substance abuse started when the child was a minor they have encountered counselors who think that the first thing to be done is to fix the parents.

The client wants planning choices and implementation, not judgment. 3. Substance abusers as manipulators

Clients with a child with a drug problem do not want to see the funds that will be left to the child turn into drug money. Most drug users are very good at manipulating their parents into drug funds. Even funds left in trust with discretionary distributions should expect manipulation of the trustee by the beneficiary. 4. Substance abuse and mental illness

There is another aspect to drug abuse that fuels many of the attitudes by clients toward drug abusing children. Many drug abusers are self medicating because they have serious mental health problems. The core of the drug abuser’s problem that lands many of them in jail, or homeless on the street, is mental illness. To an extent some drug abusers come to their abuse honestly, because they are seeking an inappropriate solution to a problem for which they are not responsible for creating.

A person with mental health problems must want to get better, yet there is a vicious cycle that must be broken in which the mental health of the person leads them to think they don’t need help and they do not need medication. Legitimate mental health care is avoided as unneeded while the self-medication with illegal substances continues. B. Planning solutions 1. Disinherit the child

While a little extreme disinheritance does satisfy a client’s urge to settle past scores and does not result in any funds going to drugs. This attitude is usually accompanied with an attitude by the client that enough has already been done to rescue the child and he or she does not deserve anymore.

Beware that attempting to talk the client out of this approach may result in loss of a client.

See the discussion above about making a nominal gift to such a child so as to avoid a challenge to the effectiveness of the will.

2. Permit or require drug testing

There are several issues that need to be addressed in taking this approach.

Will drug testing be permitted or required?

A corporate trustee might accept a trust that

permits testing, but reject a trust that requires drug testing.

That raises an important point regarding a drug clause. A corporate trustee may refuse to accept a trust because of the particulars of the substance abuse clause, so any such clause should be reviewed carefully with corporate trustee during the drafting of the trust instrument.

Even if a corporate trustee will accept a trust that permits testing for drugs, they might have a policy of not testing. Determine from the trustee how they will use the authority to request a drug test.

What substances will be covered?

If it is limited to illegal substances you need

to have some definition of what is illegal. What is illegal in the jurisdiction that the client lives may not be illegal in the jurisdiction that the beneficiary resides. The client may also want to include alcohol abuse. But, in making any definition, can we anticipate what will be abused in the future?

What kind of testing will be permitted or

required?

It is hard to get an effective method of drug testing that cannot easily be manipulated as to results. Probation offices are not shy about having a substance abuser provide a sample in front of an attendant. A corporate trustee is unlikely to require such on site testing.

What is the consequence of a positive test

for drugs? a. Suspend payments

One consequence could be a suspension of distributions. Attached as Attachment A is a form that provides for cutting off funds in the event of drug use, in the discretion of the trustee.


15

Attachment B is a provision from Lawgic that provides for a permissive suspension of distributions for drug use or failure to obtain testing, but releases the trustee from liability for suspending or not suspending payments. b. Terminate all payments

Attachment C is a substance abuse provision that requires an affirmative finding by the trustee, with reliance on experts, that the beneficiary is not abusing substances for the beneficiary to receive distributions and a termination of the trust for that beneficiary if substance abuse occurs. This provision appears to be directed towards the prospective beneficiary who has a history of substance abuse known to the testator. This provision is for a testamentary instrument.

Henry Christensen III, the author of this provision likens this to a classic in terrorem clause that says that if the beneficiary challenges the will the beneficiary gets nothing. If the child does not stay off of substances or gets back on then the beneficiary gets nothing and the property goes to the abuser’s children.

c. Suspend mandatory distributions

Attachment D provides for suspension of mandatory distributions. This substance abuse provision would be a standard provision for inclusion in all trust instruments including wills creating testamentary trusts. If substance abuse is determined or the beneficiary refuses to submit to drug testing, then mandatory distributions are suspended but discretionary distributions are permitted.

The potential problem with this approach is that the beneficiary may manipulate the trustee to provide enhanced discretionary distributions to make up for lost mandatory distributions. At least, it sets up the trustee to be the target of such manipulation.

d. False positives

One difficulty with testing is that sometimes the tests give a false positive for illegal substances. For example, eating a poppy seed roll may cause a person to test positive for drugs, even though no illegal substances have been used.

The more severe the consequence of testing positive, the more important it is to build in some due process for the possibility of a false positive.

If the consequence is a change from one type of distribution to another that is not so severe to the beneficiary, and a provision

releasing the trustee from liability is probably sufficient to make the clause workable. 3. Incarcerated

Provide for suspension of payments if incarcerated for illegal drug use. That is permitted in Attachment A. 4. Power of appointment

Give a power of appointment to another family member whereby they can suspend payments if the beneficiary is using drugs. This could be a useful provision where the use is on again and off again. It can also be useful where the child otherwise has no other assets for support. 5. Incentive trust

Draft the trust as an incentive trust. Distributions can be made at a multiple of an amount stated on a W-2 or a check stub from an employer. The problem with this approach is that drug users can be very resourceful and can easily produce documents that look authentic but are in fact forgeries. 6. Direct provision of necessities

Include in the trust authority for the trustee to make direct payment of rent, or provide groceries by directly paying the grocery store. A corporate trustee will not want to be in the position of being a babysitter and the resourceful substance abuser will find ways to turn what is provided into cash for drugs.


16

ATTACHMENT A

3. SUSPENSION AND RESUMPTION OF PAYMENTS: a. Suspension of Payments: Notwithstanding the foregoing provisions of Article IV, Article V and paragraphs 1 and 2 of this Article VI, the Trustee shall suspend distributions to or for the benefit of any beneficiary or issue: i. Who the Trustee reasonably believes or suspects is dependent upon or addicted to illegal drugs, any controlled substance (including controlled prescription drugs or other controlled pharmaceuticals), alcohol, or gambling. Such beneficiary or issue, as the case may be, shall submit to a drug test or other test approved by the Trustee and shall consult with such physician as reasonably requested by the Trustee in the case of illegal drugs, controlled substance or alcohol. If the result of such test or tests indicate that the beneficiary or issue is free of illegal drugs, controlled substances and alcohol dependence, or in the case of a gambling addiction the Trustee believes such beneficiary or issue has not participated in any gambling activity for a period of at least one (1) year, the Trustee may then make distributions in accordance with the provisions of Article IV, Article V or paragraph 1 of this Article VI, as the case may be. If any such test or physician detects the presence of any illegal drug or controlled substance in any quantity, or detects alcohol dependency, or if the Trustee is aware of gambling activity participation, and the Trustee reasonably believes or suspects the beneficiary or issue is dependent upon or addicted to such illegal drug, controlled substance, alcohol or gambling activity, or the beneficiary or issue refuses to take such a test, then the Trustee shall suspend any distribution to such beneficiary or issue, until such beneficiary or issue successfully completes a rehabilitation program of the beneficiary's or issue's choice that successfully eliminates such dependency or addiction. Successful completion of a rehabilitation program shall be determined in the sole discretion of the Trustee whose decision shall be final and binding; ii. Who is affiliated with any religious or other cult including but not limited to any terrorist organization and the Trustee believes that it is reasonably likely that the beneficiary or issue, as the case may be, will give, convey, pledge, or transfer to such religious or other cult any significant portion of the money or property which such beneficiary or issue would receive from any trust established pursuant to Article IV, Article V or paragraph 1 of this Article VI, as the case may be. Any distributions to such beneficiary or issue shall be suspended until such time as the beneficiary or issue disassociates with such religious or other cult. The determination of what constitutes a religious or other cult and whether the beneficiary or issue is affiliated with such a religious or other cult shall be determined in the sole discretion of the Trustee. The Grantors intend that the term "religious or other cult" shall refer to a religious or other cult that has not been generally recognized as a formal religion for more than one hundred (100) years or that commits or instigates threats or acts of aggression or terrorist acts. The Trustee may seek advice from any organization or entity that is recognized as possessing knowledge of religious and/or other cults such as a Council of Churches, in making such determination. Furthermore, the Trustee shall be entitled to rely upon such advice; iii. Who is deemed, by a court of competent jurisdiction at the petition of the Trustee or other interested person, incapacitated as to the estate of such beneficiary or issue, as the case may be, so that such beneficiary or issue is at significant risk of financial harm based upon a demonstrated inability to adequately manage property or financial affairs. The Trustee shall suspend any distribution directly to any beneficiary or issue who has been so adjudicated until such time as the adjudication is vacated. Provided however, that during the time such beneficiary or issue is so adjudicated, the Trustee may continue to make distributions or payments for the benefit of or on behalf of such beneficiary or issue; or iv. (A) Who has been convicted or entered a plea of nolo contendere for a felony, or (B) who is deemed by a court of competent jurisdiction at the petition of the Trustee, to be living a lifestyle of moral turpitude. Any distribution to such beneficiary or issue, as the case may be, shall be suspended until such time as the beneficiary or issue is no longer imprisoned in the case of (A) above or until a court of competent jurisdiction determines such beneficiary or issue is no longer living a lifestyle of moral turpitude in the case of (B) above.


17

b. Resumption of Payments: If after any suspension of payments pursuant to subparagraph 3(a) of this Article VI the Trustee subsequently determines that any mandatory and discretionary payments are to resume, the Trustee shall pay as soon as practicable any previously suspended mandatory payments and shall resume any discretionary payments as the Trustee deems advisable in accordance with the other provisions of Article IV, Article V or paragraph 1 of this Article VI, as the case may be. ******************************** The above language was provided by: Stephen L. Pruss Ahrens & DeAngeli, p.l.l.c. Seattle, WA Boise, ID

ATTACHMENT B

Article X

Substance Abuse If the Trustees reasonably believe that a beneficiary of any trust: (1) routinely or frequently uses or consumes any illegal substance so as to be physically or psychologically dependent upon that substance, or (2) is clinically dependent upon the use or consumption of alcohol or any other legal drug or chemical substance that is not prescribed by a board certified medical doctor or psychiatrist in a current program of treatment supervised by such doctor or psychiatrist, and if the Trustees reasonably believe that as a result the beneficiary is unable to care for himself or herself, or is unable to manage his or her financial affairs, all mandatory distributions (including distributions upon termination of the trust) to the beneficiary, all of the beneficiary's withdrawal rights, and all of the beneficiary's rights to participate in decisions concerning the removal and appointment of Trustees will be suspended. In that event, the following provisions will apply: A. Testing. The Trustees may request the beneficiary to submit to one or more examinations (including laboratory tests of bodily fluids) determined to be appropriate by a board certified medical doctor and to consent to full disclosure to the Trustees of the results of all such examinations, as well as of all opinions and suggested treatments by the beneficiary's treating physician, on an ongoing basis. The Trustees shall maintain strict confidentiality of those results and shall not disclose those results to any person other than the beneficiary without the prior written permission of the beneficiary. The Trustees may totally or partially suspend all distributions otherwise required or permitted to be made to that beneficiary until the beneficiary consents to the examination and disclosure to the Trustees. B. Treatment. If, in the opinion of the examining doctor, the examination indicates current or recent use of a drug or substance as described above, the examining doctor will determine an appropriate method of treatment for the beneficiary (for example, counseling or treatment on an in-patient basis in a rehabilitation facility) that is acceptable to the Trustees. If the beneficiary consents to the treatment, the Trustees shall pay the costs of treatment directly to the provider of those services from the distributions suspended under this article. C. Resumption of Distributions. The Trustees may resume other distributions to the beneficiary (and the beneficiary's other suspended rights will be restored) when, in the case of use or consumption of an illegal substance, examinations indicate no such use for 12 months and, in all cases, when the Trustees in their


18

discretion determine that the beneficiary is able to care for himself or herself and is able to manage his or her financial affairs. D. Disposition of Suspended Amounts. When other distributions to the beneficiary are resumed, the remaining balance, if any, of distributions that were suspended may be distributed to the beneficiary at that time. If the beneficiary dies before distribution of those suspended amounts, the Trustees shall distribute the balance of the suspended amounts to the persons who would be the alternate takers of that beneficiary's share (or takers through the exercise of a power of appointment) as otherwise provided in this Trust. E. Exoneration. No Trustee (nor any doctor retained by the Trustees) will be responsible or liable to anyone for a beneficiary's actions or welfare. The Trustees have no duty to inquire whether a beneficiary uses drugs or other substances as described in this article. The Trustees (and any doctor retained by the Trustees) are to be indemnified from the Trust Estate and held harmless from any liability of any nature in exercising their judgment and authority under this article, including any failure to request a beneficiary to submit to medical examination, and including a decision to distribute suspended amounts to a beneficiary. F. Tax Savings Provision. Despite the provisions of this article, the Trustees cannot suspend any mandatory distributions or withdrawal rights that are required for that trust to become or remain a Qualified Subchapter S Trust (unless the Trustees elect for the trust to be an Electing Small Business Trust), or to qualify for any federal transfer tax exemption, deduction, or exclusion allowable with respect to that trust. From Lawgic. www.Lawgic.com

ATTACHMENT C Copyright 2007, Henry Christensen III, all rights reserved. Used with permission. Sample Substance Abuse Clause for Testamentary Trust Whenever in this Will I have directed that an amount or a share of my estate be held, administered and disposed of as provided in this Part (C), I direct my Trustees to hold, manage, invest and reinvest such share as follows: I direct my Trustees to appoint a person of suitable expertise and experience (hereinafter referred to as “the expert”) in a field or fields related, without limitation, to social work, sociology, criminology, psychology or psychiatry, for the purpose of but do not direct, that my Trustees solicit for this purpose [Name] the present medical advisor to [Name]. If for any reason the expert so appointed shall fail to make such determination, then I authorize my Trustees to appoint such additional expert or experts as shall complete the determination herein required. The selection of an expert or a successor expert shall be in the sole discretion of my Trustees and neither the identity of the person so selected nor their judgment that such person possesses the relevant knowledge or experience shall be subject to challenge. The expert so appointed shall have sole discretion to determine, and shall so certify such determination in writing to my Trustees no later than the tenth anniversary of my death, whether [Beneficiary Name] has demonstrated that, for a period of at least five years prior to such determination (which may include a period prior to my death), he is a recovered alcoholic who is no longer drinking, and he has not ingested drugs in any manner or of any kind other than as prescribed by a physician as medically necessary; and that is gainfully employed or, if unemployed for any interval as a result of circumstances which do not bear on the aforesaid conditions, is earnestly seeking employment for which he is able. No distributions shall be made to or for the benefit of [Beneficiary Name] until and unless the expert shall determine that he has met the conditions set forth above, provided that the Trustees may make distributions of current and accumulated income for the benefit of [Beneficiary Name] by direct payment of (i) medical or other bills associated with his institutionalization and treatment for alcohol and drug abuse relating to no more than two such institutionalizations or treatments during the trusts’ terms, (ii) child support obligations


19

of [Beneficiary Name] which have been ordered by a court of competent jurisdiction, and (iii) reasonable rent for a modest apartment for his personal use. No later than the tenth anniversary of my death, if and when it be the determination of the expert that [Beneficiary Name] has met the conditions set forth above, and the expert has so certified this determination to my Trustees, then I authorize and direct my Trustees to begin distributing the net income of the trust, currently, to [Beneficiary Name]. In such event, the trust shall continue for the balance of his life, or until and unless he shall again abuse drugs or alcohol or in any way again fail the conditions set forth above. Upon the earliest to occur of: (i) [Beneficiary Name]’s death, (ii) the passage of ten years from the date of my death without the expert so appointed by my Trustees having made the certification set forth above, or (iii) [Beneficiary Name] having once met the conditions set above, again abusing alcohol or drugs or in any way again failing the conditions set forth above in the opinion of the expert engaged by my Trustees, this trust shall terminate. My Trustees shall thereupon pay over and distribute the remaining principal and income thereof, to [Beneficiary Name]’s issue then living, or if none, to my issue then living, or in none, to [Charity].

ATTACHMENT D Copyright 2007, Henry Christensen III, all rights reserved. Used with permission. Alternate Substance Abuse Clause The following provisions apply to all trusts created under this Trust Agreement, except as expressly provided to the contrary in this Article entitled “Substance Abuse:” A. Dependence. If the Trustees reasonably believe that: (1) a beneficiary of any trust created under this Trust Agreement (i) routinely or frequently used or consumes any illegal drugs or other illegal chemical substance so as to be physically or psychologically dependent upon that drug or substance, or (ii) is clinically dependent upon the use or consumption of alcohol or any other legal drug or chemical substance that is not prescribed by a licensed medical doctor or psychiatrist in a current program of treatment supervised by that doctor or psychiatrist; and (2) as a result of such use or consumption, the beneficiary is incapable of caring for himself or herself or is likely to dissipate the Beneficiary’s financial resources: then the trustees must follow the procedure set forth below. B. Testing. The Trustees will request the Beneficiary to submit to one or more examinations (including laboratory tests of hair, tissue, or bodily fluids) determined to be appropriate by a licensed medical doctor or psychiatrist selected by the Trustees. The Trustees will request the Beneficiary to consent to full disclosure by the examining doctor or facility to the Trustees of the results of all the examinations. The Trustee will maintain strict confidentiality of those results and will not disclose those results to any person other than the Beneficiary without the Beneficiary’s written permission. The Trustees may totally or partially suspend all distributions otherwise required or permitted to be made to that Beneficiary until the Beneficiary consents to the examination and disclosure to the Trustees. C. Treatment. If, in the examining doctor or psychiatrist’s opinion, the examination indicates current or recent use of a drug or substance as described above, the Beneficiary will consult with the examining doctor or psychiatrist to determine an appropriate method of treatment for the Beneficiary. Treatment may include counseling or treatment on an in-patient basis in a rehabilitation facility. If the Beneficiary consents to the treatment, the Trustees will pay the costs of treatment directly to the provider of those services from the income or principal otherwise authorized or required to be distributed to the Beneficiary. D. Mandatory Distributions Suspended. If the examination indicates current or recent use of a drug or


20

substance as described above, all mandatory distributions and all withdrawal rights from the trust estate with respect to the Beneficiary during the Beneficiary’s lifetime (including distributions upon termination of the trust for reasons other than the death of the Beneficiary) will be suspended until: 1. in the case of use or consumption of an illegal drug or illegal substance, examinations indicate no such use; and 2. in all cases of dependence, until the Trustees, in the Trustees’ judgment, determine that the Beneficiary is fully capable of caring for himself or herself and is no longer likely to dissipate his or her financial resources. E. Discretionary Distributions. While mandatory distributions are suspended, the trust will be administered as a discretionary trust to provide for the Beneficiary according to the provisions of the trust providing for discretionary distributions in the Trustees’ discretion (other than an Interested Trustee) and those provisions of the trust relating to distributions for the Beneficiary’s health, education, maintenance and support. F. Resumption of Mandatory Distributions and Withdrawals. When mandatory distributions to and withdrawals by the Beneficiary are resumed, the remaining balance, if any, of the mandatory distributions that were suspended may be distributed to the Beneficiary at that time and the balance of any rights of withdrawal by the Beneficiary shall be immediately exercisable by the Beneficiary. If the Beneficiary dies before mandatory distributions or rights of withdrawal are resumed, the remaining balance of the mandatory distributions that were suspended will be distributed to the alternate beneficiaries of the Beneficiary’s share as provided herein. G. Other Prohibitions During Mandatory Suspension of Benefits. If mandatory distributions to a Beneficiary are suspended as provided above in this Article, then as of such suspension, the Beneficiary shall automatically be disqualified from serving, and if applicable shall immediately crease serving, as a trustee, Trust Protector, or in any other capacity in which the Beneficiary would serve as, or participate in the removal or appointment of any trustee or Trust Protector hereunder. H. Exoneration Provision. It is not the Grantor’s intention to make the Trustees (or any doctor or psychiatrist retained by the Trustees) responsible or liable to anyone for a Beneficiary’s actions or welfare. The Trustees have no duty to inquire whether a Beneficiary uses drugs or other substances. The Trustees (and any doctor or psychiatrist retained by the Trustees) will be indemnified from the trust estate for any liability in exercising the Trustees’ judgment to submit to medical examination and including a decision to distribute suspended amounts to a Beneficiary. I. Tax Savings Provisions. Not withstanding the provisions of the preceding subparagraphs or any other provision of this Trust Agreement, the Trustees shall not suspend any mandatory distributions required for a trust to qualify, in whole or in part, for any Federal or state marital deduction or charitable deduction or as a qualified subchapter S trust. Finally, nothing herein shall prevent a distribution mandated by the provisions hereof relating to the Maximum Duration of Trusts.

Documents

PLANNING FOR THE DYSFUNCTIONAL FAMILY · 2013. 10. 17. · A. Attorney role The attorney must identify what makes the family dysfunctional because the estate planning for the family