Introduction and the Challenge of “Harmful” Inheritances
00:00:00
Francisco Sirvent: Well, good afternoon everybody. Welcome to today’s webinar. I believe we’ve met a lot of us. My name is Francisco Sirvent, if we haven’t, and I am the owner of Keystone Law Firm and Lifestyle Planning here in Chandler, Arizona. Today is a really unique topic that Michelle, my partner, is going to put on today about protecting inheritances when there are unique situations. Most specifically, when we have somebody in the family that we love and care about, but they are struggling with some type of addiction or other issue that can make it, honestly, a little bit more harmful for them if they were to receive a pile of money at any time. And as much as this subject can be really hard to talk about, it’s one of those ones that we face with our clients. We face with them when it’s necessary. And, you know, we deal with this stuff without sugarcoating it because that doesn’t help solve the issue. And if there’s anything we care about, it’s making sure that what we do with our clients doesn’t make anything worse.
00:05:26
Francisco Sirvent: I know when I was 18 or 20, you know, I wasn’t struggling with addiction, but if I myself would have received a big chunk of money, it probably wouldn’t have been very good for me. So you can understand how that might be a big challenge and potentially bigger problems for those who do struggle. So, I welcome you here today. We will take questions through chat or at the end; if you want to speak up and unmute your microphone, we’ll open that up towards the end of it. If you haven’t yet seen our YouTube channel, we have been doing a lot of these webinars and they are being recorded. So we post them there afterwards. You can go check that out at youtube.com/keystone. Future dates and topics of these webinars are also at our website, keystonelawfirm.com/events, and you can register there for free. They’re open to the public. So, feel free to come back yourself, feel free to invite somebody you know who might be interested in a topic, and we’d love to see you.
00:06:30
Francisco Sirvent: And with that, I guess Michelle, I turn it over to you.
Setting the Stage: Legal Disclaimers and Personal Expertise
Michelle Dexter: Thanks so much, Francisco. I appreciate everybody giving us your time this afternoon. We’re excited to have these series of educational topics that we’re able to provide to you and record them for our webinars so that other people who maybe can’t attend today also have that opportunity to review them. I know a lot of clients have also mentioned that they appreciate being able to go back to them, stop, and listen to it again. So, just as a matter of legalese, this webinar is for informational purposes only. It’s not intended to provide anybody with specific legal advice. Each family’s situation is unique and it needs to be discussed in detail and in private with an attorney. So hopefully this will give you guys some information that will allow you to understand what you might be talking about, but this isn’t intended to give you a “hey, this is what you need to do in your situation.”
00:07:27
Michelle Dexter: That’s definitely something that you want to discuss with your attorney, or with me, or however that works out for you. Okay. By the way, my name is Michelle Dexter. I’m an attorney here at Keystone Law Firm. I’ve been here about nine years now and I handle almost all of the estate plans as well as probate, trust administration, guardianships, conservatorships, and special needs stuff. So, this is definitely within my wheelhouse and I’m excited to share with you guys the information. So, part of the topics that we’re going to cover today is talking about spousal protections, beneficiary protections, and I’m going to throw in some special needs language in there as well because sometimes, unfortunately, the addictions can turn into a need for government benefits. And so, we want to make sure that we’re talking about that a little bit as well today.
Defining Addiction in Estate Planning
Michelle Dexter: As many of you are probably aware, addictions can come in many forms. The common theme that we find with most unhealthy addictions is an inability to manage money.
00:08:29
Michelle Dexter: So, drug and alcohol addictions, spending or shopping addictions, unhealthy food addictions, internet and social media addictions, gambling addictions, video game addictions, as well as sexual addictions can all be things that can take on poor choices of spending money. And so that’s what we want to make sure that your documents, your estate plan, is addressing and taking care of.
Spousal Protections and Managing Inherited Assets
Michelle Dexter: The first thing I want to talk about is spousal protections. A lot of times we don’t necessarily think about our spouses having addictions, but as people get older, sometimes they are showing mental health signs early in life. Sometimes it’s not until the end of their life that some of those things might happen. So I just wanted to touch on that to make sure that people are taking this into consideration. Spousal protections are usually used in blended family situations when you have an incapacitated spouse, or when you’re concerned about a remarriage. But also, if you have concerns about your spouse’s spending habits, their ability to manage money, or their mental health, those may also be reasons to look at protections and make sure that at least your half of the assets are being managed in a way that you think is appropriate for that person.
00:09:43
Michelle Dexter: Spousal protections allow you to control your one-half of the assets after you pass. Money can still be available for the surviving spouse, but you can limit their access until their one-half is spent. You can name someone else to manage their money for them. You can put certain conditions in there to help make sure that the money lasts them as long as you need it to last them.
Beneficiary Profiles: Abby, Bethany, Charles, and David
Michelle Dexter: When we’re talking about beneficiary protections and when I’m meeting with clients, I tell them all the time, there’s a really wide range of how those beneficiary protections can happen. We’ve got everything from people that we don’t have real specific concerns about and how we are going to handle that for them, all the way over to people that have very serious concerns and how we handle that. So, I’m a big person on examples. I wanted to use examples of four different people, potentially four different children in this situation or four different beneficiaries.
Michelle Dexter: Abby is my first person. She’s thriving as a professional. She’s got her own home. She’s got a good marriage. We don’t know of any financial issues for her.
00:10:42
Michelle Dexter: Bethany, however, is a hard worker. She seems to be unable to maintain steady employment for some reason, and she’s got a little bit of debt that is a little bit concerning.
Michelle Dexter: Charles, on the other hand, is a super smart guy. He’s got a very controlling spouse who tends to overspend. Right? We don’t have confidence in the stability of his marriage and we have concerns about what happens to any money he may receive as long as she’s still in the picture.
Michelle Dexter: And then we’ve got David. David just cannot seem to get it together. He’s not sure what he wants to do in life. He may have an alcohol or drug problem and he cannot manage money. He may still be sleeping on your couch, right? And so we’re going to go through the four different scenarios with these different types of beneficiaries.
Focusing on High-Risk Beneficiaries (The “David” Scenario)
00:11:35
Michelle Dexter: Most of you are here, I think, because the name “Stop Funding the Addiction” is part of your concerns. And so I wanted to start with our most serious concerning beneficiaries. For David with his serious issues, the beneficiary protections have a much higher priority than our other beneficiaries. The things that I want you to consider when we’re looking at adding beneficiary protections for a beneficiary like David is: could he hurt himself if he had access to money? I unfortunately have had a number of clients say to me, “If my beneficiary received what they’re entitled to receive from my share—their inheritance from me—within two weeks they could be dead.” Whether there is a drug problem, whether it’s just dumb decisions, or whether it’s their friends and their dumb decisions. People definitely have those types of concerns.
Michelle Dexter: So, could he hurt himself if he had access to that money? Would he or his so-called friends spend it recklessly? You’d be amazed at how many people and how many friendships get rekindled when there’s a significant amount of money available.
00:12:42
Michelle Dexter: If he can’t manage the money for himself, who should manage it? Is there another sibling that can manage it? Are we looking at an older family member? Are we looking at a third-party fiduciary? There are some things that you want to take into consideration when you’re looking at that, and we’ll talk a little bit about some of that in more depth later. What kind of conditions or limitations would you want to put on the distributions? Typically, I’m not a big fan of saying a certain amount of money is going to come out of the trust every month because people will just wait for that amount. Even if it’s $1,000, even if it’s $100, they’ll just wait for that money to come out to snatch it. But at the same time, to the extent that we want to protect David from himself, we need to make sure that we’re being smart about the wording of the trust and what options the trustee has with regards to the distributions.
Incentive Provisions and Deterrents
00:13:36
Michelle Dexter: The nice thing with these types of beneficiary protections is one of the options is that you can put in there incentive provisions. What kind of improvements might you like to see before David could directly control his assets, before he would have more access to his inheritance? We’ll talk a little bit about some of those options as well. You could also add incentives like income matching. If David can hold down a job, maybe we’re going to let him have 50% of what he earns each year or 25% of what he earns each year as a distribution from the trust to kind of incentivize him to maintain employment.
Michelle Dexter: We can also add deterrents. I’ve done drug testing in beneficiary-protected subtrusts that say the trustee has the right to give 24 hours’ notice of when a drug testing is going to occur, that they can have a minimum of one time a month and a maximum of three times a month.
00:14:43
Michelle Dexter: If a person tests clean for a continuous period of time, maybe those restrictions get released a little bit or loosened a little bit. So that maybe instead of every month we’re testing you, now we’re testing you every six months. And maybe if you are clean for an extended period of time—say three years or something that you feel comfortable with—maybe then again we are giving David or that beneficiary a little bit more control over their money and a little bit more access to it. So there are some different things that you can definitely do.
Michelle Dexter: Like I said, that’s kind of really on one of the far ends of how we handle something like this. But when we’ve got a beneficiary that is potentially going to waste the money, potentially going to hurt themselves if they had access to the money, and that money is just going to be gone before it really benefits them, we want to put provisions in place that are going to protect them from themselves.
Community Resources: PAL (Parents of Addicted Loved Ones)
00:15:41
Michelle Dexter: For those of you that are dealing with a family member—whether that’s a child, a beneficiary, or somebody that you know—and especially adult children dealing with any kind of substance use disorder, one of our clients was kind enough to share this free support parent group: Parents of Addicted Loved Ones. They call it PAL, and they provide hope through education and peer-to-peer support. There’s a QR code there on this flyer to find a meeting. I believe that they’re well spread out. But definitely, if you’re dealing with these types of situations, we encourage you: build your community of other people that understand and can help you.
Michelle Dexter: As a caregiver to those types of people, there’s a lot of benefits from being educated about what you’re dealing with. There’s a lot of benefit to taking care of yourself in this. If you are not healthy because of the stress and anxiety and the things that go into caretaking of somebody who is a little bit out of control, you might be the first to go.
00:16:42
Michelle Dexter: And if you are the first to go, who’s going to take care of them? So self-care is really important, and involvement in these types of groups can be really beneficial. So, we definitely encourage you to look into what’s available here or within your community to help yourself and your family deal with somebody who’s having a substance use disorder.
Protecting Beneficiaries from Toxic Marriages (The “Charles” Scenario)
Michelle Dexter: Our next beneficiary, Charles, has that spendthrift spouse who tends to spend money and gets him into a little bit of trouble. So beneficiary protections may be strongly considered in these types of things. The things we want to consider when we’re adding beneficiary protections for a beneficiary like this is: how much money is he receiving from your estate? There’s a big difference between somebody receiving $10,000 and somebody receiving $500,000. There’s a big difference in what steps you are willing to do to manage those assets and protect them for the beneficiary’s benefit.
Michelle Dexter: If the beneficiary was to receive those funds outright, do you expect him to deposit the money into a joint account and therefore his spouse will have direct access to those funds, or might he utilize state separate property rules?
00:17:57
Michelle Dexter: So here in Arizona specifically, anything that is inherited by a beneficiary, even if they are married, is considered separate property. Where people mess it up—and I used to do family law more so in California, but I’m licensed in California and Arizona—where people mess up that separate property structure is that they take the money and they deposit it into a joint account. Well, by doing that, that money gets commingled with the community property and then it’s hard to trace it. And when you can’t trace it, it’s hard to prove that it still even exists or that you were intended to receive that as a separate property contribution back at a time of divorce or something like that.
Michelle Dexter: If Charles was to go and open up a separate account and maintain that account separately, he can maintain those separate property protections for that inheritance without needing a postnuptial agreement with his wife or needing any kind of super crazy thing. But in most of these situations, the spouse is going to know that there is an inheritance coming and they’re going to be curious about it.
00:19:01
Michelle Dexter: And if that money is not deposited to a joint account, it may cause issues that that beneficiary doesn’t want to deal with. So most likely, most people deposit it to the joint account versus using a separate property rule.
Michelle Dexter: Another question is: are you concerned that this beneficiary might not save money for your grandchildren? If they’re not protecting the legacy that you want to pass on to the grandchildren, that may be a spousal beneficiary protection language that says, “Look, whatever Charles doesn’t use goes directly to the kids.” It may also be something where you say, “You know what, we’re going to take part of Charles’s share and we’re going to distribute that in subtrust for the grandchildren because we want to make sure that the grandchildren are taken care of and that they’re going to have something from you versus depending on Charles to do that.”
Michelle Dexter: Of course, if you’re concerned that your child’s going to predecease their spouse and everything’s then going to go to this spouse who is a bit of a spendthrift and doesn’t manage the money well, that’s a big concern as well because you’re losing control over it.
00:20:08
Michelle Dexter: And if all that money goes into the joint account and then your child passes away, that money is all now rightfully their spouse’s and it’s not intended for your grandchildren the way that you may prefer it to be with that bloodline. And then the other question I always ask is: do you think your child’s actually able to say “no” to their spouse? That can be a difficult thing for some couples, that they’re not willing to have the confrontation and to stand up for themselves and to protect these things. When you’ve got those types of situations, it may be up to you to not leave it to him to make the decisions and have the fights. You just set it up so that there is no discussion about it. This is the way that it’s been set up, and it’s intended to stay bloodline, and the spouse is not involved in receiving the benefits unless the beneficiary takes the money out and they both enjoy a vacation or something along those lines.
Managing Financial Instability and Debt (The “Bethany” Scenario)
00:21:04
Michelle Dexter: When we look at Bethany, who seems to have some struggles with money—generally smart, but has some minimal issues that you may want to monitor until she’s more steady on her feet—you might want to look and see again: how much money is she receiving as an inheritance? Because again, there’s a big difference between $10,000 and $500,000. And that range may be different for you; $10,000 may be a significant enough amount that you want to consider what your options are. You also want to have an idea of: how much debt does she have and what’s her history of debt? Does she continually get herself into debt? Is she good about paying it off, or is she getting to a point where she might have to declare bankruptcy? Because we do not want money coming to her that is just going to be used to pay off her debt or is going to be used and sucked up into a bankruptcy.
00:21:59
Michelle Dexter: So, we definitely want to make sure that we’re being intentionally cognizant of what her issues are and what those look like long and short term. Does Bethany in this case have a spouse that is helping or hurting her financially? Again, like Charles who’s got the spendthrift spouse that spends everything. If Bethany has a spouse that is not good with money either, it may be a reason to consider beneficiary protection subtrusts that allow you to manage that money a little bit more, have a little more control, and put some directions in there with regards to what distributions look like for Bethany.
Michelle Dexter: Finally, do you worry that if given the opportunity, she’d make poor choices with how to spend the money she receives? A lot of times people that struggle with money are so excited that they’re getting some kind of an outright gift or inheritance that they’ll go out and buy the top brand car or they’ll go out and buy something that isn’t really reasonable. Maybe they’re going to go out and try to purchase a house that they really can’t and shouldn’t be affording.
00:23:08
Michelle Dexter: And so if you worry that they’re going to make poor choices with how they spend the money that they receive, that’s also a good reason to put the beneficiary protection subtrust in place.
Asset Protection for Responsible Beneficiaries (The “Abby” Scenario)
Michelle Dexter: Abby is, for most of us, what our beneficiaries look like. It seems like beneficiary protections would be unnecessary in her case. She seems to have it all figured out. Her finances are good, her debts are good, those types of things. But these protections may be nice to secure her future or her retirement.
Michelle Dexter: Things that we want to consider when we’re adding beneficiary protections for Abby: again, how much money is she receiving? Is it worth protecting? Keep in mind, these are not protections that people can give to themselves. I often have clients that come in and say, “I want the asset protection trust.” Well, if you’re in your 30s or 40s or even 50s, an asset protection trust is not necessarily appropriate because you still need direct access to those assets and those funds, and you can’t protect that from your liabilities very easily.
00:24:13
Michelle Dexter: You can, however, protect the inheritance for somebody else more easily, and that’s kind of what this does. And so to the extent that you like that idea of—if she was to get divorced, if she was to get sued, if she was to run into some kind of financial issue—that these funds are protected for her long term, then this might be a good decision to make for this type of beneficiary.
Michelle Dexter: I also often ask, what are their risks of being sued? I have a client whose son works in the prison system. He gets sued, unfortunately, very regularly. And so for them, having the assets coming to him go into a beneficiary-protected subtrust was a smart decision because they don’t have to worry about those assets potentially being subject to any kind of lawsuit that he’s involved in.
Michelle Dexter: If this beneficiary is not married now, reconsider if she’s going to need these types of beneficiary protections later if she gets engaged or married. A lot of times we’ve got beneficiaries that are young.
00:25:17
Michelle Dexter: They haven’t really started their career yet. They haven’t found their “marriage material” person yet. They haven’t started building that longer-term mature adult life. So, when we’re doing these types of estate plans, we’re doing like a two-to-five-year plan. We’re not trying to plan out 20 or 30 years. So if in the next two to five years you don’t think that this is appropriate for her, but over the next two to five years your assets grow, she starts dating somebody you don’t like, or she’s run into some kind of financial hardship, it’s a good time to come back to the attorney and talk to them about what’s going on and determine: is now an appropriate time to consider a beneficiary protection subtrust for somebody like her?
Michelle Dexter: Do you want to direct who would receive the funds if Abby couldn’t use them all herself during her lifetime? For some of us, we want to make sure that if Abby doesn’t use it all, then it’s available maybe for Bethany or Charles or David, but other times we are fine with them directing where it goes.
00:26:21
Michelle Dexter: Sometimes we say to the grandchildren if there are any, and then if not to our other children. But if it just goes outright to her, it’s going to go into her bank account. And if something happens to her and she still has that money, she gets to direct where that goes. And so again, if she’s got a boyfriend you don’t like, if she has beliefs that you don’t agree with and you are concerned about where she’s going to leave that money if she hasn’t spent it all during her lifetime, then that might be a reason to consider a beneficiary protection subtrust.
Michelle Dexter: Keep in mind in these types of situations, Abby could be her own trustee and the assets are protected just in case something happens. I had a client that came in a number of years ago and we had talked about beneficiary-protected subtrusts previously and he didn’t really see the value in that for his beneficiaries, which is completely fine. We’re never trying to push this on anybody; we just want people to be aware of them so that they can make an educated choice for their own family.
00:27:21
Michelle Dexter: He had gone to another town on vacation. He had a rental car and the rental car stalled in the middle of the road. These two Good Samaritans came out to help push the car out of the way for him because he was an elderly gentleman. And while these two Good Samaritans were pushing the car out of the way, somebody came and rear-ended them and they were pretty hurt medically and physically. And he ended up being caught up in a lawsuit as a result of it. The insurance was only going to pay a certain amount—the car rental company, his personal insurance—and so suddenly he found himself in the middle of a lawsuit that he wasn’t expecting. It really made him think to himself, “Wow, these beneficiary protections may be good because you just don’t know what could happen in the future and when your assets might be subject to some kind of lawsuit or something.” So, just something to keep in mind. And again, some of that goes to: am I protecting $500,000 or am I protecting $10,000?
00:28:23
Michelle Dexter: There’s a certain point where it starts to make more of a difference in looking at those beneficiary protections.
The Three Levels of Protection: Liberal, Conservative, and Restrictive
Michelle Dexter: So, when we talk about beneficiary protections, like I said, there’s really kind of a range of how those go: liberal, conservative, to restrictive is kind of the range that we would talk about.
Michelle Dexter: Our liberal people, those are our Abbys of the world. Generally, distributions are intended to provide for the beneficiary’s well-being and happiness. The beneficiary may be their own trustee. There is little oversight on distributions and protections are generally “just in case.” We would want Abby, in the event that she’s got some kind of beneficiary-protected subtrust and then gets sued, to maybe step down from being her own trustee so she doesn’t feel forced to make a distribution. But that’s “just in case.”
Michelle Dexter: With conservative beneficiaries and the language for conservative protections, that’s more of our Bethany and Charles. Distributions may indicate that the goal is to preserve the funds in the trust.
00:29:23
Michelle Dexter: “Hey, we really want you to be spending money outside of the trust first because these funds are going to be protected.” The beneficiary may or may not be their own trustee or a co-trustee. Sometimes we will let them be a co-trustee with a trusted adult until a certain age, at which point maybe then we let them be their own trustee. There may be more oversight in those distributions to those people that are receiving a more conservative beneficiary-protected subtrust. And there’s protections from third parties and a little bit of protection from themselves in this conservative range.
Michelle Dexter: When we get to the restrictive range, that’s where we’re talking about the Davids of the world. Distributions will have conditions that can range from employment to drug testing. I’ve seen lots of different things. For some people, it’s not drugs, it’s alcohol, and so there can be sobriety requirements and things along those lines. It’s unlikely in a restrictive situation that the beneficiary would be their own trustee until conditions are met for a period of time.
00:30:27
Michelle Dexter: Like I’ve mentioned, we did one where it was drug testing periodically—I think it was once a month to begin with. And if they had three or four or six months of being clean, then we would stretch it out to once a quarter. And if they had so many years of clean testing, then we were going to consider letting them act as their own trustee or having a little less restrictions on them. These restrictive subtrusts have a very significant oversight and control by the trustee. And so it’s really important when we are creating these types of restrictive beneficiary-protected subtrusts that we have a lot of conversations about what is your intention to protect the beneficiary from themselves, and from others—which may be their friends.
Michelle Dexter: It’s probably a little less about lawsuits and maybe more from people that are just looking to take advantage of them. But what types of oversight do you want to have in place and what does that look like? And so it takes a lot of conversation around the pros and cons of various things and how they would work, and what it is that you think specifically would benefit your beneficiary to make sure that the money is there for their use to the extent that they need it without being abused or without endangering them.
Specific Restrictions and Distribution Goals
00:31:44
Michelle Dexter: When we’re talking about restrictions, again, these protections can vary depending upon your goals. Sometimes they need to pursue an education. You may be wanting your beneficiary to obtain a degree, to obtain a certification, or to make some step to make sure that they have the tools to be self-supporting. And so maybe distributions are allowed for educational purposes, but they’ve got to provide your trustee with the grades from last semester in order to move forward. It may not be that you need them to have a four-year degree or a Master’s or a PhD in anything. It may be that a welding certificate or license for different types of trades is going to be sufficient for you. But we can say, “Look, the goal of these funds is for you to pursue an education because it’s important to us that you have the ability to be self-supporting, and being self-supporting means having a job.”
Michelle Dexter: You can also have restrictions with regards to making good financial decisions. You may want your beneficiary to avoid wasteful spending, to handle money responsibly, to be self-sufficient, and to donate their time and/or money to charity.
00:32:56
Michelle Dexter: Those types of decisions you can put into place. And so when we put some of those things into place, it can be difficult to really quantify what is “wasteful spending” or what is “handling money responsibly.” But also, we have to make sure that we’ve got a trustee in place that’s willing to enforce those restrictions. So, whoever your trustee is needs to be able to be a little confrontational to say to the beneficiary, “Hey, the expectation is that you’re only getting distributions here if you’re making smart choices there.” So, maybe some of that is sharing bank statements with the trustee to show, “Look, I’ve got some savings. I haven’t bounced any checks. I’m bringing in an income,” some of those types of things.
Michelle Dexter: But again, we can talk about when we get into these restrictions what it is that you’re trying to accomplish and what you think would prove that. I’m always cognizant of the fact that there are lots of ways to manipulate the system.
00:33:57
Michelle Dexter: You know, we had a client a couple of years ago who—grandma was paying for his education at ASU. And a couple of years after paying it, we learned that he never attended ASU. He was just having grandma make checks payable to him and telling her that he was doing that. So, those are the types of things that we want to make sure that we have some kind of protections in place and some kind of authority for your trustee to be able to really get to the truth of the matter and know exactly what it is that is happening with these people.
Michelle Dexter: Especially with people with addictions or with mental health issues, right? They are almost desperate for the money and will do a lot of unsavory things in order to accomplish that. And so we want to make sure that your trustee has the authority to do the things that you want them to do to protect the beneficiary.
Michelle Dexter: “Be law-abiding” is another restriction. And your goal may be to have the beneficiary be a law-abiding, productive member of society who’s developing good relationships, contributing to their family, their community, and their society.
00:35:06
Michelle Dexter: So, again, “Don’t go out and get arrested. You better not get a DUI. I don’t even want a traffic ticket, you know, like you need to be on good behavior. And if we learn of any of these things happening, then we’re going to have a problem and we’re going to further restrict how much money you have access to from this trust.”
Michelle Dexter: Having a healthy lifestyle also kind of goes into those addiction protections, especially drug and alcohol addictions. So you may want your beneficiary to remain sober. You may require drug testing. You may want them to maintain a physically and mentally healthy lifestyle. Some of that can—with some of our beneficiaries that have drug and alcohol problems, you can see it on their face. You can see it in the way they present themselves. You can see it in the way they handle things. Other people—I think I remember it was Dick Van Dyke that said he was a functional alcoholic and he could go to work every day and he could do the things that he needed to do and he always was presentable and well-dressed, but he still had an alcoholism problem.
00:36:07
Michelle Dexter: So, you know, that may again vary on what specifically your beneficiary is doing. You know, there are some people that can “fake it ’til they make it.” And if, you know, in a 10 or 15-minute call, they can look like they’re perfectly normal, but the truth is that they’ve been doing things that they shouldn’t be doing all day or are about to go and do more of those. So again, understanding what specifically your situation is and what your beneficiaries are up to and what your goals are is really important to making sure that we’re setting this up in a way that works for your family.
Michelle Dexter: You may have other specific goals. I’ve had some beneficiaries that have specific conditions on traveling. They wanted their young child to go off to the motherland that all of their heritage came from. And they wanted them to spend a certain amount of time there, and they wanted them to see certain things while they were there. And so those types of things can definitely be restrictions that you can put in for your specific goals.
00:37:05
Michelle Dexter: Other people want their beneficiaries to engage in creative activities, to engage in entrepreneurial activities, to be able to retire on these funds, or to be able to stay at home with their kids and be a homemaker for a while. So whatever your goals are, whatever your dreams are for this money for your beneficiaries, the point is that there is a way within reason to put language within your documentation to try to encourage those things.
Choosing the Right Trustee
Michelle Dexter: When should your beneficiary be their own trustee and when should they not? So if you’re wanting to protect your beneficiary from themselves in, say, a David situation, then no, we don’t want them to be their own trustee. And so we want you to consider certain things when you’re saying my beneficiary is not going to be their own trustee.
Michelle Dexter: So, one: will there be a time in the future when maybe they can prove themselves worthy acting as their own trustee? You know, for some people, that’s an age thing. Sometimes that is accomplishing certain goals or certain things.
00:38:07
Michelle Dexter: And sometimes that’s just a “no, I don’t think that they’ll ever be there.” The second thing is: is the person who will be the trustee comfortable with managing the assets for and saying “no” to the beneficiary? A lot of times when we’re looking at these types of situations, we’ve got siblings. And one sibling is off the rails and you always have that one sibling that’s “perfect”—though maybe the one sibling that’s not perfect. The question becomes: do you want to ask the perfect sibling to suddenly be in control of the money and the management and the decision-making for the child who’s not perfect?
Michelle Dexter: Because a lot of times there are relationships there. And sometimes those relationships are a mutual respect thing and the David beneficiary is going to respect the Abby beneficiary controlling that money for him. And sometimes there’s going to be resentment there. And I am a big believer that I am not trying to create documents that are going to cause additional contention between the kids.
00:39:14
Michelle Dexter: So to the extent that there is already a contentious relationship there, then no, Abby’s not the right person to oversee that money for David. And so then maybe we’re looking at: do we need to use a third-party financial or fiduciary that can oversee those monies from a more neutral standpoint? Because it’s going to be much easier for a company that does this for a living to tell David “no” than it may be for his sister to tell him “no.” And so those are things that we want to kind of balance in terms of who is that person.
Michelle Dexter: And sometimes we’ll have somebody like an uncle. There’s the respect, there’s the maturity, there’s the authority, and David will respect that person more. But how much older than David is that uncle if he’s acting as trustee? What’s the likelihood that he will—you know, he won’t predecease David’s expenditure of all of his trust, and that will end up needing a second person to step in?
Michelle Dexter: So those are things to consider because you may have an uncle for the initial trustee of the subtrust and then you may want to name a third-party fiduciary so that if at some point in time the uncle no longer wants the responsibility or can’t handle it, he’s got somebody to turn it over to and not feel guilty that we’re leaving David without
00:40:40
Michelle Dexter: anybody or costing David more money to go to court to have somebody appointed. We’ve got somebody that the uncle can turn it over to. Finally, if they are their own trustee, will they appoint a different trustee if financial issues arise? If Abby is her own trustee and she gets sued, is she going to be smart enough, willing, proud enough to step away from being trustee of her own money and let somebody else do that so that she’s not tempted to just pay the creditor or pay the liability or use the money to get rid of them? Because we really want to maintain these protections for them.
Special Needs and Government Benefit Eligibility
Michelle Dexter: Now, I have a whole separate webinar that I’ve done on Special Needs and Supplemental Needs Trusts. So, if you are interested specifically in this type of situation, please go to our YouTube channel, Keystone Law Firm, and I’ve got a “Special Needs/Supplemental Needs Trust” video there. But I wanted to make sure that we talked about this here.
00:41:47
Michelle Dexter: One of my very good friends has a brother that has—he’s schizophrenic. He’s bipolar. He deals with a lot of drug issues and just is not in a good place. He is also receiving food stamps. He would qualify for Section 8 housing should he choose to utilize that. He may be receiving Supplemental Security Income (SSI). He’s probably, if I remember correctly, on AHCCCS, which is the Medicaid health insurance program here in Arizona for people that can’t afford health insurance for themselves. If we have a beneficiary that’s like that—in addition to the fact that we’ve got all these drug issues and those types of things—if they actually qualify for these means-based government benefits…
Michelle Dexter: And when I say means-based: for the Medicaid program here in Arizona, you can’t have more than $2,000 in resources. Okay? Those are the means, the resources. If he then inherits $10,000 from his family, he’s going to be disqualified from all of the benefits that he’s receiving.
00:43:05
Michelle Dexter: He’s not going to be able to disclaim those funds. He’s going to have to accept them. He’s going to have to spend them down, and then he’s going to have to re-qualify for the benefits. I’ve talked to people where it takes years to get qualified for those benefits. So, nobody wants to lose them once they have them.
Michelle Dexter: So, who needs this type of Special Needs or Supplemental Needs Trust language? It’s needed for those beneficiaries who qualify for those means-based government benefits. What happens if the language is not included in your documents? Beneficiaries who receive these benefits are not able to disclaim or refuse the inheritance to keep the benefits. The government wants them to use their own money instead of government money to pay for these expenses. So if they have other money, from the government’s standpoint, they should be paying for it themselves. And I completely understand that. But the issue becomes that it’s so difficult to get back on the benefits that nobody wants to get off of them if they know that getting off of them is only a short-term solution.
00:44:10
Michelle Dexter: So they’d have to spend down their inheritance and then reapply for benefits. Now, you may see “Special Needs” and you may see “Supplemental Needs” and oftentimes those are interchangeable, right? They’re very similar.
Michelle Dexter: Supplemental Needs Trusts never require reimbursement to the government for benefits that the government has paid out during the beneficiary’s lifetime if there’s still money in the trust at the termination of the trust. So, for example, if David was receiving benefits and we put his assets into a Supplemental Needs Trust and he was receiving these benefits—if at the time he died there was still $50,000 in his subtrust, the government wouldn’t get reimbursed from that $50,000.
Michelle Dexter: Some Special Needs Trusts will have language in it that says when David dies, they’re going to be reimbursed for whatever they’ve paid out. So that $50,000 would go to pay out the government benefits that have been paid for David’s benefit during his lifetime. If that covers it, then maybe the rest comes back to the trust, but in most cases, it just eats up everything that’s left.
00:45:29
Michelle Dexter: And so we want to make sure that we have the right type of trust in place. And so a lot of times we’re now shifting towards using that Supplemental Needs language versus Special Needs language just to help with the distinction of whether or not there’s any kind of reimbursement to the government agency for that.
Michelle Dexter: Keep in mind that your beneficiaries who may need these types of Supplemental Needs Trusts aren’t necessarily suffering from an addiction. They may be born with special needs. They may qualify for government benefits as a result of medical conditions that happen later in life. I see people that have strokes, that have Parkinson’s, that have dementia that come on later in life. And so, it’s really important to review your documents regularly to account for these types of changes in your beneficiaries’ conditions.
Michelle Dexter: We’ve had a number of cases in the last couple of years where parents created a trust or a will for the benefit of their kids and during their lifetime their kids had these issues and required government benefits.
00:46:33
Michelle Dexter: But because the parents never went back in and updated their documents, these kids—these beneficiaries—are now in a position where they can’t and don’t want to receive the inheritance because it’s going to disqualify them from the government benefits that they’re receiving. So, that’s something that I just want everybody to kind of keep in mind: that you need to review your documents periodically from the standpoint of “has something changed with any of your beneficiaries?” Whether it’s just a financial issue, maybe a bad marriage issue, some kind of concern or some kind of health situation that changes the position that they’re in so that we don’t disqualify them from benefits that are really helpful to them.
Michelle Dexter: And again, like I said, I’ve got that YouTube video that goes a little bit more into detail about Special Needs and Supplemental Needs because you can have backup language, you can have primary language, you could have a standalone trust for that type of thing. And so there’s definitely more detail there than what I’m covering today with regards to that.
Q&A: Selecting Third-Party Fiduciaries
00:47:36
Michelle Dexter: All right. So, I really appreciate everybody’s time. I am more than happy to answer questions for people. You can either use the chat box which is down on the right-hand side of the Google Meet or if you want to unmute yourself, you’re welcome to unmute yourself and ask a question. But I want to remind everybody that this is a public forum and we are recording this for people to watch later. So to the extent that you want to ask a question, please do me a favor and make sure that you’re remaining generic in your question. We don’t want you to share personal information that’s not appropriate to share with everybody on the internet essentially.
Michelle Dexter: Use the chat box on the bottom right or if you want to raise your hand and unmute yourself, I’ll be happy to answer questions if you have them. If you don’t have questions, we certainly appreciate you giving us your time. We want to remind you again about the YouTube Keystone Law Firm webinars that we’ve been doing.
00:48:37
Michelle Dexter: I’ve been doing some. Francisco’s been doing some. And Carmy, our financial advisor, has also been doing some. Jamie, I see you have a question.
Jamie: I do. Thank you. Um, so I have many questions, but the one I’ll ask now is… do you recommend, in the event that hypothetically I have two children, one of whom currently is designated as trustee who has been absolutely clear that she will not be the trustee over the other beneficiary or other child’s portion?
Michelle Dexter: Uh-huh.
Jamie: You know, when we go… and that’s fine. We totally understand that and respect that. But do you recommend then that we begin interviewing and seeking who would be our third-party fiduciary or our trustee that she could… or can we just leave that to her or what do you recommend?
Michelle Dexter: So, I mean, you could kind of do a combination of both, right? You could leave it up to her to make the decision, but if she doesn’t have an opportunity to make that decision, then we ideally have somebody in place.
00:49:52
Michelle Dexter: I do encourage people to talk to some third-party fiduciaries, right? Because you want to know: what services do they provide? You want to know how involved will they be? You want to know do you share similar values with them in terms of how some of these distributions are going to be made. And to put some of that on your daughter may be too much of a burden at a time when she’s trying to get out from under this anyway. Right now, a lot of the companies that we have here in Arizona have been around for a long time.
Jamie: Yeah.
Michelle Dexter: But of course, that doesn’t mean that they can’t change, right? And so to the extent that you’ve maybe named somebody, I would still probably give your daughter the authority to name a successor trustee if she decides that the company you named really isn’t the right fit anymore. And then I would probably give her some guidelines in terms of what it is that you are looking for from a third-party fiduciary.
00:50:47
Michelle Dexter: You know, are you looking for them to be less expensive? Are you looking for them to be more involved? Are you looking for them to be really conservative with the money? Are you looking for them to be really communicative with her about how things are going? There might just be some kind of guidelines that you want to give her with regards to choosing a third-party fiduciary. And the best way for you to know what those guidelines are is for you to interview a few yourself.
Jamie: And lastly… so would I begin this exploration, this process, by contacting like corporate trustees or… I mean, how do I find these people?
Michelle Dexter: Yeah. So, we could give you some recommendations for some third-party fiduciaries to talk to. I try to give kind of a range of, like, the bigger companies down to the smaller companies because they
Jamie: Okay.
Michelle Dexter: both have pros and cons when it comes to them. And so, you know, we do have a few companies—big and small—that we could recommend if you wanted to reach out to us, and we could give you a few names to at least get started with and start some of your own research.
00:51:55
Jamie: Okay, great. Thank you so much.
Michelle Dexter: You are welcome. Anybody else with questions? I’m ready to answer.
Closing Remarks and Upcoming Events
Michelle Dexter: All right. Well, listen, I really again appreciate you guys giving us your time today. I hope that you learned something that you didn’t know before. A big motto of us here in the office is helping people make educated decisions. And so we hope that this helps with getting the education information that you need about what some of the options are when it comes to protecting your beneficiaries from themselves and from others, and some of the different things that you can do.
Michelle Dexter: Like I said, when we’re talking about beneficiary protections, it’s really a wide range and people can fall anywhere in that range. And so it’s important to talk to your attorney and understand what the options are when it comes to sharing what you want to have happen and how you want your assets to be distributed to your beneficiaries and protected for them.
00:53:03
Michelle Dexter: So definitely give us a call if you’re a client and you want to talk about it more. I’ll be happy to dive deeper into your specific situation. Alexis, are you there? Are you able to share with us what our next upcoming webinar is and how people can register for that?
Alexis Rico Cortes: Yeah, of course. So, I just dropped a couple of links on the chat there. First one is the “Intro to Wills and Trusts,” which is on the 18th of March at noon with Francisco. We’re doing this every month. So, if you guys know anybody that doesn’t have their own estate plan in place, forward that link over to them and they can get registered. Pretty simple stuff. You know, we have a couple gifts going on for people that register through that link and attend.
Alexis Rico Cortes: And then on the 27th of March at noon: “Do Capital Gains Disappear at Death?”
00:53:50
Alexis Rico Cortes: Also with Francisco that day, generally talking about the step-up in basis—you know, what to do to prevent any issues while you transfer assets in life, as opposed to doing it through a trust. So, good topics there. Couple more for this month, and that’s all we have planned for now. We do have an events page on our website with a lot more events coming up—total of six. But I don’t want to overbear you here with that today.
Michelle Dexter: Thanks, Alexis. Yeah, and we’ve got a whole range on that YouTube channel of really simple and basic information all the way up to the more complicated stuff. I saw a question about the cost for adding beneficiary-protected subtrusts. So, if we’re just adding a beneficiary-protected subtrust, I believe that that is an additional $1,200 onto the cost of our estate plan. If we’re adding a Special Needs Trust, I believe that is $1,400.
00:54:54
Michelle Dexter: Both of those would come with some specific meetings to talk about what specifically you are trying to accomplish, what some of your options are, and then kind of creating those beneficiary-protected subtrusts to be specific to each beneficiary. Keep in mind, you may have all four of my examples as your beneficiaries. And so everybody can be treated independently and we can have a lot of restrictions for one beneficiary and much easier liberal distributions for another beneficiary all within that. It’s not $1,200 per person; it’s just $1,200 for the beneficiary protection. So maybe everybody’s getting treated the same, maybe they’re not. But that’s all included within that cost.
Michelle Dexter: Thanks for the question, Dale, and thanks for the questions, Jamie. I appreciate you guys asking the questions that other people may have as well. Yeah, keep in mind that, you know, we’re recording this webinar in March of 2026. We do tend to have price adjustments periodically, and so if you’re watching this in 2029, that estimate for cost may not be the same. Yes, Jamie, you have another question for me.
00:56:08
Jamie: Yeah, I was just wanting to inquire as to how I obtain the AI meeting notes. I’m looking at something in the chat but I’m not clear.
Michelle Dexter: Um, Alexis, can you help with that?
Alexis Rico Cortes: Yeah, those notes aren’t ours, so I’m pretty sure somebody else dropped that in the chat there. But we will be submitting this recording to our YouTube channel, and we also upload pretty much a transcript of the whole webinar to our website under the events section. So that’s another place where you can actually look for that information.
Jamie: Okay, great. Thank you very much.
Michelle Dexter: Yeah. And I think probably give us about a week before you’ll see that all posted. I think they need to cut off some stuff at the beginning where everybody’s just waiting and make sure that it all sounds and does all the things that we need it to do before they get it fully uploaded. So, don’t be surprised if it’s not up there tomorrow, but maybe check back towards the end of next week.
Michelle Dexter: All right, everybody. I really appreciate your time this morning. Again, Michelle Dexter with Keystone Law Firm. If you are not a current client and interested in talking with us and having an attorney consultation, please reach out to our office. Our phone number is 480-209-6942. Let them know that you saw our webinar and they’ll be happy to get you connected in the next steps of having an attorney consult or getting started with your own estate plan. So, we really appreciate your time. We appreciate you joining us. We look forward to seeing you again at future events and reach out to us if you have any questions. Thanks so much for your time. Bye.
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