27 May My mom wants to lower my brother’s inheritance. Do we need a trust?
Q. I am the durable power of attorney and oldest child of my mother, who is 77, a widow and residing in assisted living. Her income includes Social Security of $1,900 per month, a pension of $800 per month and a VA benefit of $1,800 per month. She has $500,000 in an IRA and my brother and I are the beneficiaries. When we sold her home, the money went into four investment accounts with $240,000 in one for which I am the beneficiary. The other accounts, worth $40,000, are left to her friends. None goes to my brother, who she no longer speaks to. She has another $90,000 in a checking account used to pay her expenses. She wants to reduce the amount my brother will get from the IRA when she dies. She also owns a vehicle. Does she need a trust to avoid complications?
A. It can be difficult to deal with estate planning when you’re anticipating family members may fight over an inheritance.
The question of whether a trust is necessary depends on your mother’s goals and wishes.
There are several items to take into consideration.
The IRA and investment funds will be governed by the beneficiary designations she has made, said Tom Szieber, a trusts and estates attorney at Chiesa Shahinian & Giantomasi in West Orange.
He said this would render a trust useless if directing the disposition of assets is your mom’s sole priority.
Those assets would avoid probate, but the checking account — which you didn’t say has a beneficiary or “pay-on-death” designation — and the vehicle, which we’ll assume is titled in your mother’s name, would not, he said.
“Still, probate in New Jersey is rather streamlined and non-burdensome, so unless the questioner’s mother has privacy concerns, then probate avoidance in and of itself may not justify the creation of a trust,” he said.
If your mom has no instrument in place other than the beneficiary designations on specific assets to express her wishes, then her “probate assets,” which are the ones that are titled in only in her name with no designated beneficiary, would pass via New Jersey intestacy law.
“Since she is widowed and has two children, her probate estate would consequently be distributed equally between her kids upon her death,” Szieber said. “Based on the information provided, if the questioner’s mother leaves her assets titled as they are, then upon the questioner’s mother’s death, the son from whom she is estranged would receive half of the IRA assets, half the value of the SUV and half the value of the checking account.”
If this is in conflict with what your mom wants, the language of the power of attorney would determine whether you have the authority to alter beneficiary designations on your mother’s behalf.
“An attorney-in-fact cannot, however, execute a will for a mentally incapacitated individual, and could only create or amend a trust if the power of attorney specifically authorizes such action, though he could execute them for a person who is physically incapacitated and cannot actually carry out the task of signing the document,” he said.
But even if the power of attorney allows you to make changes for your mom, doing so in a manner that would deprive your brother of an inheritance would certainly increase the likelihood that your brother would challenge those actions in court.
“This is particularly so if the questioner redirected those assets to himself, as self-dealing would surely raise concern about a breach of fiduciary duty,” he said. “If the questioner’s mother possesses the capacity to sign a will and/or trust herself, she should consult with an experienced estate planning attorney to ensure that she executes the proper combination of instruments to accommodate her wishes.”
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This story was originally published on May 27, 2022.
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.