How much financial influence can be exerted from the grave?
July 29, 2015 7:21 AM   Subscribe

Due to paranoia about and hatred of my spouse of nearly 20 years, my elderly parents have informed me they have set up their estate as a bloodline trust. 50% to me (I'm an only child) and 25% to each of my children once they hit a certain age (I assume 30 or 35). Fine. I'm happy that my kids are being taken care of even if it's years down the road. My question concerns my research into this type of trust.

The use of the money for HEMS "health, education, maintenance, and support" seems to be an underlying theme/term/stipulation in everything I read. I am gathering it is quite vague.

You are not my lawyer. How much actual financial influence can my parents have on me from the beyond with this kind of trust?
posted by teg4rvn to Law & Government (14 answers total) 7 users marked this as a favorite
This depends quite a bit on who they've named as Trustee. The Trustee has a great deal of discretion in determining whether or not a proposed use of funds falls within the HEMS standard. Do you know who they have chosen as Trustee?
posted by amro at 8:08 AM on July 29, 2015 [1 favorite]

How much actual financial influence can my parents have on me from the beyond with this kind of trust?

IAAL (but not yours). No one can answer this question without reviewing the trust instrument. I recommend you speak with the estate planning lawyer who prepared it.

Here is how a trust works in general terms. A person called the "settlor" puts property into the trust. Another person called the "trustee" administrates the trust, and a person called the "beneficiary" receives the benefits of the trust. The trustee has discretion regarding whether or not to distribute money or property to the beneficiary. For example, the trustee might make a distribution to pay for the beneficiary's college textbooks or a medical surgery, but not a solid gold Ferrari. There can be more than one settlor, trustee, and beneficiary.

The HEMS standard of "health, education, maintenance, and support" comes from language used in the Internal Revenue Code. It means a few things (such as transfer tax benefits) but a large part of it is to protect the trust from being forced to distribute funds to a beneficiary's creditor in certain circumstances. A creditor who provides HEMS to the beneficiary has a good shot at collecting from the trust, while a non-HEMS creditor does not.

The degree of your parents' influence after they are dead will depend on how the trust instrument was drafted, so you really need to consult with the trustee on that one. Ultimately, the trustee is the beneficiary's fiduciary, so the trustee will exercise his discretion within the bounds set by the language of the trust instrument. If the trust says, "no money for season tickets for the Lakers", you can't get a distribution for that.

I am a non-estate planning lawyer and a lot of these issues get pretty esoteric for me, so you really need to talk with the drafting attorney rather than doing online research. It's easy to misunderstand something.
posted by Tanizaki at 8:09 AM on July 29, 2015 [9 favorites]

IAAEPL, but not yours. This is relatively standard language. The terms of the trust will govern, and the successor trustee will be the person making the determination (and will have some degree of discretion under the HEMS standard) according to the language of the trust after your parents are gone. Here's some folks at Baker Hostetler on the scope of discretion under HEMS. It'll matter a fair bit who they've named as the successor trustee. Is it a corporate trustee? A friend of the family? Maybe even you? Of course, they don't need to tell you, and you don't have yet a right to know.

Honestly, I wouldn't be concerned just yet. If it's a revocable trust (which it likely is), odds are you don't even have an vested interest yet (only a mere expectancy).

Also, remember everyone, she is NOT the client. I would advise against calling the attorney. The attorney shouldn't be telling her anything without her parent's consent, which they do not need to give. If it's a concern, talk to Mom and Dad.
posted by leotrotsky at 8:11 AM on July 29, 2015 [2 favorites]

Caveat, if the trust is irrevocable, there may be a vested interest (and so some rights enforceable against the trustee), but I suspect that's highly unlikely under the fact scenario described above.
posted by leotrotsky at 8:24 AM on July 29, 2015

Response by poster: I am assuming, but don't know, that I will be named the trustee. Again, it was made explicit that this arrangement was being made to diminish the likelihood that funds would automatically become community property that could then be disbursed to my spouse's family willy-nilly. My parent said, "Look, in the end I probably can't make you do with the money what I want after I'm dead, but this protects you in the case of divorce and gives you control. The wealth that you and your spouse accumulate together is your money, this is my money, your money, and your children's money." Much of this is to sow marital discord, based on history, but I'm also aware that it might have some merit.

Note: my maternal grandmother, decades ago, disbursed a huge percentage of her and her spouse's (my maternal grandfather) wealth to her siblings, both during my grandfather's decline with Alzheimer's disease and after his death. My mother and her siblings were left with a pittance which apparently was not what my grandfather wanted.
posted by teg4rvn at 8:31 AM on July 29, 2015

Mod note: Couple comments removed, please focus on the question asked vs. philosophical end runs on same.
posted by cortex (staff) at 8:43 AM on July 29, 2015

Very, very important: you shouldn't assume that you will be named the trustee. Without going into details, I'm the trustee for a close friend and will have control over the money being disbursed to her family. There are Reasons for this in my circumstance. So, find out about this ASAP.
posted by BlahLaLa at 9:22 AM on July 29, 2015 [1 favorite]

You should assume that your parents will be able effectively to "protect" family assets from your spouse. This is one of the most common goals of wills and trusts and has literally hundreds of years of practice behind it. (The only more common goals are protect assets from the tax man and other creditors, and to protect improvident family members from their own irresponsibility.)

You will be able to disburse from the trust for your own documented HEMS costs, as well as your children, but if the trust is well-formed and -administered you won't be able to take enough money to make any significant gifts to your wife or any members of her family. When you die, your trust will shift to benefit your kids and their kids, with the same rules. If your spouse survives you, s/he won't be entitled to anything that she can use for herself or give or leave to anyone in her family who aren't your kids.
posted by MattD at 9:37 AM on July 29, 2015 [3 favorites]

Also, remember everyone, she is NOT the client. I would advise against calling the attorney. The attorney shouldn't be telling her anything without her parent's consent, which they do not need to give. If it's a concern, talk to Mom and Dad.

I am sorry to respond, but I think this depends. At least in my state, a trust beneficiary has many statutory rights under our probate code, one of which would be to see the trust instrument. I am not an estate planning attorney but I would be surprised to learn that a trust instrument could be held secret from a beneficiary.

To the general issue of who may be named trustee, this is a bloodline trust to keep money in the biological family, so it would be unlikely for the parents to make OP the trustee because she would presumably disburse funds for the benefit of the disliked husband.
posted by Tanizaki at 10:31 AM on July 29, 2015 [1 favorite]

It would be unusual for you to be named as trustee if you're also a major beneficiary. I suppose you sharing those roles would be possible, but it is highly unlikely to occur in any given case. What often happens is that a corporate trustee will be designated -- for instance, a bank, or I guess possibly a law firm. The decisions that the trustee makes will actually be made by an officer of the bank's trust department.

To answer your question, here is the influence that your parents (the settlors) will have on you and your children (the beneficiaries):

Eventually, you or one of your children is going to want some money. You will go to the trustee, who I will assume is male. His job is to ensure that the settlors' wishes are carried out. You're going to say: can I have some money for medical bills, or to pay for tuition, or for general life needs? He's going to look at the guidelines he's been given (would this money go for the beneficiary's health, education, maintenance, and/or support?). Assuming his answer is yes, then in due course, he'll cut you a check. He has a duty to hand over the money for HEMS expenditures, as long as there is money remaining for you and assuming you're not asking for something luxurious/extravagant. (Of course, if you look at the link leotrotsky supplied above, you can see that luxuriousness/extravagance is in the eye of the beholder: apparently, one court found that college education was within the scope of the beneficiaries' wishes, but medical school wasn't.) The trustee (who, again, will likely be an officer of a bank) has to follow the rules that are laid down in the trust document: those rules are very general, but if the beneficiary needs the money for HEMS reasons, the beneficiary will be able to get it.

This is the way it works in general terms, anyway. It would be inadvisable for anyone to give specific legal advice without knowledge of the controlling state law and the details of the trust instrument. Note that the link mentioned above describes some cases that would apparently have different outcomes in different states, with respect to maintenance and support standards as well as the fraught question of whether the trustee should consider non-trust assets of beneficiaries.

If you're really curious about this, I'd recommend reading the trust document (which may specify a trustee), especially if it doesn't harm any of your relationships with your parents to request a copy. It is not uncommon for settlors to show copies of their wills/trusts to future beneficiaries. Of course, it is also not uncommon for settlors to keep things close to the vest, so YMMV.

My general answer is: the way that HEMS works is that it controls disbursement of the estate. So if the beneficiaries have reasonable needs that fall into HEMS, then the beneficiaries will get their money. If the beneficiaries want to buy a nice car for themselves with the estate's money, then maybe the disbursement will take place (could be maintenance and support). If the beneficiaries want to buy a nice car for a spouse, then the disbursement won't take place -- because that disbursement wouldn't attend to the needs of the beneficiaries. In a sentence, the settlors are controlling you only in that they want their property to be transferred to you for what they see as your real needs -- which is hardly oppressive.

You can memail me if you want. I hope this answers your question.
posted by Mr. Justice at 10:32 AM on July 29, 2015 [3 favorites]

I am sorry to respond, but I think this depends. At least in my state, a trust beneficiary has many statutory rights under our probate code, one of which would be to see the trust instrument.

I'm sorry as well, but I doubt that's correct.

If we're talking about a revocable living trust here, I'm at least certain you're wrong in my state (we've got a recent state supreme court decision on this very point) I've pretty sure the UTC aligns with me, as well. I'm willing to be proven wrong, but I'd need to see a citation to believe otherwise.

Remember, we're talking about a Will alternative here, which can be modified or amended at any time and one that generally becomes irrevocable only at death. At any point prior to the death of the grantor, a beneficiary can be struck completely from the trust document, and would have no recourse. If they have no remedy there, what possible interest would a beneficiary have prior to the death of a grantor that would allow them to pursue (for example) an accounting? Can you demand to see a parent's Will before death? If not, why not? The same logic applies.

Vested interests? Contingent interests, even? Whole other kettle of fish.

on edit: California is nuts, so I'm excluding them from the above comments.
posted by leotrotsky at 1:14 PM on July 29, 2015 [1 favorite]

It would be unusual for you to be named as trustee if you're also a major beneficiary.

It happens. It screws up divorce-protection and asset-protection features if they're sole trustee, but it happens. If you've got joint successor trustees and they all need to agree to disburse funds, you can keep those as well. For smaller, simpler estates many folks don't want to pay the fees associated with a corporate trustee.
posted by leotrotsky at 1:24 PM on July 29, 2015

I just wanted to add that from my cultural perspective, what your parents are proposing seems pretty reasonable.They want their money to benefit the people they care about most - their child and their grandchildren.

During your life, if you stay married, your spouse will benefit indirectly from the trust since every dollar spent on you from your parent's estate is a dollar that doesn't have to come out of your joint bank account. If you die before your wife, the money goes to your children. Does your wife have a problem with the kids getting an inheritance from their grandparents? Does she think she has a right to get their support for her old age or pass along their money to people of her own choosing, unknown to your parents? (Obviously, those are meant to be rhetorical questions, my answer would be 'no")

Now, you do have an obligation to worry about your wife's future if you die first. The two of you may need to do some saving/planning/change your own wills to make sure she will have enough to live on, in whatever style you are used to, after you die but that is a problem that would only be worse if you hadn't had use of your parents money in your lifetime.

There may other (good) reasons to think that your parents have malicious intentions towards her or towards your marriage but this, in and of itself, is pretty benign. I would just say "thank you" and forget about it until it happens.
posted by metahawk at 6:11 PM on July 29, 2015 [4 favorites]

Response by poster: Some late follow up here if anyone still cares. Asked father about who is to be trustee and he said there is no trust that it is just a will. I didn't realize a will could stipulate disbursing funds to a party with conditions of age of the recipient (for my kids). He then went on to rant that as soon as he and my mom are dead that I immediately need to make another will to protect this "bloodline" money from my spouse to make sure it would go to my kids upon my death. Through gritted teeth I said, "Of course."
posted by teg4rvn at 12:29 PM on August 10, 2015

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