The Legal Play Podcast

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As individuals take steps to prepare for their future, one of the more confusing areas for many are fiduciary roles in estate planning and probate. Questions about this topic can range from, “What is a fiduciary?” to “What are their roles?” To create a proper estate plan and create a trust, it is critical to first understand the answers to these questions to ensure that your wishes are followed and your assets are protected.

Fiduciary Roles in Estate Planning and Probate

Before we begin talking about fiduciary roles in estate planning and probate, it is important to review the definition of a fiduciary. This role is filled by a person who is willing to take on the highest legal responsibility one can have when it comes to taking care of another party’s assets and property. This means the fiduciary is a person who is willing to act on behalf of another individual in a legal capacity. A fiduciary agrees to put a client or beneficiary above any interests of their own, avoid related conflicts, and fulfill their legal duty in a manner that can be accounted for in a court of law.

A fiduciary trust involves a trustee who has fiduciary responsibilities to manage an individual’s assets and/or act on behalf of the individual when necessary. This is often used as an estate planning tool designed to help delegate inheritances and arrange for charitable contributions, among other things.

There are two primary types of trusts:

1. Intervivos trust. This type of trust is created immediately by simply transferring property to a trust or trustee for the benefit of one or more beneficiaries. An intervivos trust is created while a person is still alive. For this reason, it is sometimes referred to as a living trust.
2. Testamentary trust. This type of trust does not exist until the grantor dies, at which point there will be a set of provisions stated in the grantor’s will which then constitutes a trust agreement by appointing trustees, funding the trust with corpus or property, and determining how it will be distributed amongst beneficiaries (such as at a certain age, for the purpose of college, for the purpose of maintenance support standards, etc.).

When forming a trust, trustee(s) must be named who will have fiduciary duties.

Other fiduciary roles in probate and estate planning are executors and guardians. The executor is a person named in a testamentary will who will be the person in charge of administering the decedent’s estate – inventorying and dispersing property to decedents, filing tax returns on behalf of the decedent and the estate, and all other miscellaneous tasks. A guardian is typically a person (or a couple) named to take care of minor children, but a guardian can also be responsible for taking care of certain property or the testator, if they are not deceased, but simply incapacitated. It is not possible for a fiduciary to be both a guardian and an executor if the guardian role occurs while the testator or grantor is still alive. It is, however, possible to be an executor of the probate and estate and also be the trustee of a trust that is created out of it.

Responsibilities of a fiduciary in the trust of an estate could include:

• Adhering to all specifications and directions stipulated in the Declaration of Trust.
• Maintaining precise financial records to be used for taxes and to supply to beneficiaries.
• Investing trust assets when needed in a conservative manner that requires only a small risk.
• Relaying actions to the beneficiaries as stipulated in the trust.

The fiduciary does have a responsibility to get someone else involved if investments must be made to keep the money in the trust growing. In this respect, a trustee does have a prudent investor duty that comes with a certain level of discretion.

The duties of the executor include adhering to the decedent’s wishes and prioritizing the interests of the beneficiaries. This includes protecting the decedent’s assets, paying debts and taxes, as well as distributing the estate according to the terms of the will. Proper accounting and reporting to the probate court is also required.

When Fiduciary Duties Are Breached

The above levels of discretion for trustees are where issues can and do occur – and can manifest in the following ways:

• Using the trust’s or estate’s assets for personal gain rather than beneficiary gain.
• Comingling the fiduciary’s funds with the trust or estate funds
• Dispersing funds to one beneficiary more favorably than another beneficiary
• Allowing estate or trust property to be wasted, fall into disrepair, or not be invested wisely

A fiduciary’s responsibility is to protect the trust or estate. Therefore, in the case of a trust, it would be a breach of duty for the trustee to invest trust money into something simply because the trustee has access to it. This is primarily an issue for unsophisticated trustees who are anxious to support pet projects they like. It would also be a breach of duty for a fiduciary to use the trust money to work out their own deals and loan the money back and forth.

When appointing guardians, many individuals choose two guardians as fiduciaries—one to aid the person with doctor appointments, living arrangements, and medications, and the other guardian to control the assets and real property of the incapacitated person’s estate to make sure nothing is wasted. In the case where a fiduciary is the guardian of the estate of an incapacitated person, there may be issues with beneficiaries or family members. For instance, if a mother is allowing her two daughters to spend their mother’s money, a guardian can step in and stop this from happening so the mother will still have enough money left to provide for herself.

Fiduciary duty is the highest level of legal standard that a person can be held to under U.S. law. Fiduciaries are required to uphold a duty of care and a duty of loyalty to the beneficiaries of an estate or trust at all times. That is why it is important to use discretion when choosing who will be named as your executor, trustee, or guardian.

Unfortunately, and in spite of a grantor’s best effort to choose a trustworthy fiduciary, breach of fiduciary duty is not uncommon. These types of situations are handled by law firms annually. Beneficiaries who feel they have been wronged by trustees can make a claim against a fiduciary and enlist legal representation.

How An Attorney Can Help with Understanding Fiduciary Roles in Estate Planning and Probate

Before creating a trust for estate planning and probate, it is wise to consult with an estate planning attorney. Legal counsel can help educate you about the types of trusts and which might be the best for your specific needs and goals. This can go beyond establishment of the trust and extend to other financial areas such as taxes.

All too often, individuals who use inexperienced family members or trustees as fiduciaries can experience unnecessary complications that could potentially have been avoided by enlisting the help of reputable legal counsel.

Beneficiaries of trusts and estates who feel they are not receiving distributions as a grantor intended can also enlist the help of an attorney to determine if the trustee or executor is acting according to legal standards and best practices. An experienced attorney can also help beneficiaries bring claims to remove a trustee or executor, so the beneficiary can access assets that are rightfully theirs.

For more information about fiduciary roles in estate planning and probate, make an appointment for a consultation with a reputable estate planning attorney who has demonstrated proven experience and success in this particular area of law.

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Foreclosure is a legal process in which a borrower or debtor forfeits their right to property by defaulting on payments or other obligations. In Texas, once a debtor is in default, the creditor must send notice to the borrower that they are in default and have 20 days to cure. If, after 20 days, the default continues, the creditor has the right to post notice of a public foreclosure sale. It is during this process that a debtor will file for bankruptcy. The foreclosure process would then be halted by an automatic stay – a provision in the bankruptcy code that kicks in as soon as a debtor files for bankruptcy. While in effect, an automatic stay prevents the creditor from pursuing collections against the debtor – with some limitations.

On the creditor’s side, automatic stays complicate the collections and foreclosure processes. However, creditors may move to lift a stay to resume foreclosure and recover payment.

Automatic Stay Details: What it Prevents and How Long it Lasts

As per Section 361 of the U.S. Bankruptcy Code, an automatic stay goes into effect as soon as a debtor files for bankruptcy – either Chapter 7 or Chapter 13 (or Chapter 11 for business entities). Because it is implemented instantly, it is common for debtors to wait until the last moment before filing bankruptcy to give themselves maximum time to act.

Once an automatic stay is in effect, it will prevent the following actions:

• Moving to foreclose a property
• Creating, perfecting, or enforcing a lien
• Repossessing collateral
• Garnishing wages

Automatic stays only provide temporary protection. If the debts are not discharged in bankruptcy, they remain the debtor’s obligation.

If the stay is not lifted by a court order, it will typically remain in effect as long as bankruptcy proceedings are ongoing. For Chapter 7, this could mean several months. For Chapter 13, this could mean several years.

Debtors must continue making post-petition payments, including taxes, and maintaining insurance on the property. If debtors fail to do so, they risk losing their objection to lift the stay.

Bankruptcy courts may alter an automatic stay if a debtor is potentially “gaming” the system to avoid payment. For example, if a debtor has filed for bankruptcy more than once within the previous calendar year, the stay may be reduced to 30 days total. If the debtor has a history of bankruptcy filings, the court may remove the automatic stay entirely.

When an Automatic Stay is Helpful for Creditors

Automatic stays are primarily a tool for debtors, but they can benefit some creditors, too. If a property has multiple liens against it, an automatic stay freezes collection attempts by all creditors. This gives the court time to organize repayment to all lien holders, giving every creditor a fair chance to attain compensation, though lien priority dictates who is paid back first.

Lifting an Automatic Stay to Continue Foreclosure

Bankruptcy delays the foreclosure process, but creditors may continue foreclosure if they have the stay lifted. The burden of proof falls on the creditor to demonstrate why the automatic stay should be lifted, and reasons given may include:

• Insurance doesn’t adequately cover the property. We recently participated in a case where two hearings were needed to determine whether a particular commercial insurance policy was sufficient for the property in question. After determining that the policy was not sufficient, the stay was lifted.
• The creditor’s business stands to lose money if the stay is not lifted.
• The property is falling into disrepair.
• The property’s value will decline to the point where selling it will not cover costs following bankruptcy proceedings.

Motions to lift an automatic stay are considered on a case-by-case basis by the bankruptcy court. Prior to making a decision, the court will hold a hearing for both sides to make their argument. Sometimes the court will agree with the creditor that the stay should be lifted and foreclosure may continue. Sometimes the court will keep the stay in place.

Courts are more likely to keep the stay in place if the debtor is only a few payments behind and can continue making payments. The debtor must also be able to maintain insurance and tax payments. The court will also be more likely to keep a stay in place if the debtor elects to sell the property and use the proceeds to pay creditors back.

When is the Court Likely to Lift an Automatic Stay?

The court will be more likely to lift a stay and allow foreclosure to continue if:

• The debtor’s equity does not cover the liens held against the property. This is more likely to be the case if there are multiple liens taken against the property. If the liens held against the property are worth more than the property itself, the debtor cannot sell the property unless secured lien holders agree to take less. In this case, the bankruptcy court may force a sale to liquidate the property and pay off lien holders in priority order.
• The mortgage is greater than the property’s worth.
• The debtor is too far behind on payments to catch up within a reasonable timeframe. 

Delayed by an Automatic Stay? An Experienced Real Estate Attorney Can Help

Foreclosure battles can be contentious between creditors and debtors, especially when a bankruptcy stay is involved. And ultimately, whether the stay is lifted or allowed to stand is based on subjective factors. This means either side can win with better preparation and knowledge of the law.

An experienced attorney can provide both for a client. Our practice, for example, specializes in representing creditors involved in bankruptcy proceedings. We can help organize motions to have a stay lifted, allowing creditors to complete foreclosure and recoup what they can on the property.

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Pet trusts allow owners to set aside funds for ongoing pet care, presumably when the owner can no longer provide care themselves. With a pet trust, the grantor – the pet owner in most cases – funds the trust and names a trustee to manage it. This is usually a close family member or friend.

For the purposes of estate planning, pets are considered property. As such, they cannot be given money or assets. Instead, control of those assets must be given to a person or organization who assumes care for the pet. A pet trust is the medium through which this is arranged.

If you are concerned about your beloved pet’s well-being after you can no longer care for them, a pet trust ensures they are provided for.

Why Pet Trusts are Important: A Tale of Two Horses

For this topic, we spoke to friend-of-the-firm and horse veterinarian Ciera Guardia of Guardia Equine. Ciera has worked with horse owners for years and has seen the benefits of establishing a pet trust firsthand. Here are two real-life examples from her practice:

• The horse with a trust – One of Ciera’s clients battled chronic illnesses for years prior to her passing, so she established a pet trust for her beloved horse well in advance. Upon creating the trust, she named her daughter as the trustee. It’s been a few years since Ciera’s client has passed, but her horse remains cared for. In fact, Ciera continues to provide vet services to the client’s daughter, who pays her using a card tied to the trust account. For the horse, quality of life is not a concern.
• The horse with no trust – Many of Ciera’s clients do not set up a pet trust for their horses before they pass. For example, one client had several horses – some with special health needs – who were not provided for in a will or trust. When the client passed, no one in the family was interested (or had the means) to take the horses in. The fate for horses in this situation can be grim. Some may waste away in an abandoned pasture. Some may be redirected to a food chain in another country. To prevent this, and in light of some of the horses having special medical needs, the decision was made to humanely euthanize the animals.

A pet trust gives owners peace of mind, knowing that the resources will be there to care for their pet. However, a trust is only one part of the estate planning equation if a pet is involved. You will also need a will.

Wills and Trusts: Why it’s Important to Have Both for a Pet

Pet trusts provide the funds necessary for ongoing care, but they do not establish how care is to be provided. That’s what a will does. A will allows you to do the following:

• Establish a pet trust upon your death or upon becoming incapacitated
• Name the person who will oversee pet care
• Name the person in charge of your pet trust (the trustee)
• Specify preferences for a veterinarian or pet care team
• Specify preferences for retiring or donating the pet to an animal-focused organization
• Specify the conditions under which it would be appropriate to humanely euthanize the pet
• Specify a disposition method for the pet (burial vs. cremation)

If you are setting up a pet trust, chances are that you have an idea of how care should be administered. A will ensures those desires are known and carried out to the extent that they can be.

Testamentary vs Living Pet Trusts: Which is Better for Pet Care?

There are many types of trusts that can be used for estate planning purposes, but pet trusts generally fall into one of two categories – testamentary trusts or living trusts (sometimes termed intervivos trusts). Here’s a summary of both:

 

• Testamentary trusts – A testamentary trust is a trust that’s established through a will, upon the grantor’s death. In effect, this means the pet trust does not exist until the grantor dies. This can be an issue if the grantor is incapacitated and can no longer care for their pet. Assets designated for a testamentary trust must also pass through probate, which can be expensive and time consuming for families.
• Living, or intervivos, trusts – Living trusts are established while the grantor is still alive and for as long as they are funded. It’s common for grantors to act as the trustee for their own pet trust while alive, and to set conditions for when the trust should be passed on to a successor trustee. This could be when the grantor dies or when they are medically incapacitated. Funded living trusts also do not pass through probate. They’re passed on to the beneficiary or successor directly.

 

Our firm recommends setting up a living trust whenever possible, but every client’s situation is different.

 How Much Money Does a Pet Trust Need?

 The biggest factors to consider when funding a pet trust include:

 

• The pet’s age and expected lifespan
• The pet’s overall health (do they have any chronic illnesses?)
• The types and cost of any medications
• Where the pet will be housed or boarded
• The people you’ll need to continue care (veterinarian, caretaker, etc.)

 

Some pets – horses for example – may be sent to retirement facilities or pastures to live out their golden years. This cost should also be factored in. A veterinarian can provide expert insight into the above, so consulting with your vet before establishing a pet trust is recommended.

 

How Much is Needed to Fund a Pet Trust?

As for funding a pet trust, your accountant can help with that. And it is important to consider how much you are setting aside in the trust.

For example, some people greatly overfund their pet trust. Once their pet passes, there may be a small fortune left in the account. In return for caring for their pet, many grantors decide to give the trustee whatever is left in the account. Consider, though, the potential incentive that this arrangement sets up – the trustee stands to inherit a lot of money when the pet dies. You’ll want someone you can rely on in that role. Alternatively, grantors can avoid overfunding the trust to a large degree.

This and other trust-related considerations can be complex. Your accountant and attorney, though, can make sense of them for your situation.

Your Estate Planning Attorney or Accountant Can Create a Pet Trust in Your Name

Wills and trusts are vital estate planning tools, and a pet trust ensures your furry family members are considered as well. If you have pets that are dear to you, consult with your estate planning attorney to determine how a pet trust can protect your cherished animals.