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Inheritance Question

Discussion in 'Estate Planning, Creating Wills & Trusts' started by kitty27, Nov 23, 2020.

  1. kitty27

    kitty27 Law Topic Starter New Member

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    Say a parent has two children and sets up two irrevocable trusts, one for each, and is the trustee of both. The younger child received life insurance from the other parent, as a minor. The parent puts the life insurance funds in a trust account for the younger child. The younger child grows up to be be without capacity/incompetent. Later, the parent disburses what is due to the older child from the older child's trust. The life insurance funds are left on the younger child's trust account. Later, the parent as trustee improperly drains the account of funds for the younger child.

    Can the state go after the older child's disbursed inheritance for what was stolen by the parent from the younger child? If it is now in a new irrevocable trust for the older child's child? If it is wrapped up in equity in a house?
     
  2. justblue

    justblue Well-Known Member

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    What state? Is this an actual situation or hypothetical?
     
  3. kitty27

    kitty27 Law Topic Starter New Member

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    It's a hypothetical that I'm concerned will become true.
     
  4. Tax Counsel

    Tax Counsel Well-Known Member

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    Nothing in your posts suggests that the older child's trust received money/property that it was not supposed to get. Did it ever get anything contributed to it that it was not supposed to get? If the answer is no then no one, whether the state or otherwise, is going to be able to go after that trust for the trustee's breach of fiduciary duty/malfeasance in the handling of the younger child's trust.
     
  5. kitty27

    kitty27 Law Topic Starter New Member

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    Thank you for the reply!

    The younger child's funds were likely commingled into the first trust, and the younger child's trust may not be valid since they are now an adult and the trust has not gone to probate court to approve it now that they are an adult. There may only be the self settled trust set up by the parent for the minor while they were a minor.

    I think that there are bank records that can establish how money has been spent so far and I suspect that the trustee plans to separate out the life insurance proceeds principal into a new account.
     
  6. justblue

    justblue Well-Known Member

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    What state?
     
  7. kitty27

    kitty27 Law Topic Starter New Member

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    Washington
     
    Last edited: Nov 23, 2020
  8. shadowbunny

    shadowbunny Member

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    Who are you in this scenario?
     
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  9. kitty27

    kitty27 Law Topic Starter New Member

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    The older child
     
  10. adjusterjack

    adjusterjack Super Moderator

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    Finally. Maybe we can make some sense of this. Let's talk about you. Apparently, at some point in the past there was a trust with you as the beneficiary of the trust. At some point the funds in that trust were disbursed to you.

    Presumably you took the money and put it in a bank account of some kind in your own name and have either used it or saved it.

    And now you are concerned, because of something happening with your sibling's trust, that somebody might come to you and demand all or part of your money.

    Is that about the long and short of it?

    If yes, what is happening that makes you concerned that somebody will come and demand your money?
     
  11. kitty27

    kitty27 Law Topic Starter New Member

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    Pretty close.

    The minor's funds were commingled, put in the same bank account as the trust for the older child. The older child needs to work with the trustor/trustee to stop being beneficiary of the trust for the older child. They want to re-assign their interest in the trust or have it disburse early to put it in a different trust. How can those funds get separated out so that the older child can do this and not later be liable for what the parent does with the other child's money?

    The big issue is that all the funds are in one bank account right now under the trustee's control. The trustee will work with the older child to separate out the older child's funds and get them to the older child somehow, but the older child will not be able to regulate what the trustee does with the siblings money and doesn't want it to bite them later.

    So to answer your question, the older child has not recieved the funds or put them in the bank somewhere.

    The concern is how to un-comingle the funds, or remove the older child's share while leaving the younger child's, and then not be liable for what the trustee does later.
     
  12. adjusterjack

    adjusterjack Super Moderator

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    Should be easy enough with bank and insurance records.

    The trustee has a statutory duty to perform properly. I don't see you becoming liable for his actions. Why do you think you would be?

    You can't do anything about what the trustee does right or wrong until he actually does it and then, all you can do, if you want to, is hire a lawyer to represent the sibling because you, once you receive your share, no longer have a dog in the race. If he does anything illegal, you get to report him to the appropriate authorities.
     
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  13. zddoodah

    zddoodah Well-Known Member

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    That would be inappropriate. The trustor/settlor may not properly serve as the trustee of an irrevocable trust that he/she has created (although I cannot speak with specificity about Washington law).

    I assume "trust account" means a bank account owned by the trust. Correct?

    Sure, it's possible. However, assuming that "disbursed inheritance" means money that the older child received from the trust (which is not technically "inheritance"), I'm not sure (a) why you think that might be an appropriate thing to do, and (b) why you would think the state might do this (although it's not beyond the realm of possibility if no one steps up to have the parent removed as trustee).

    Not really sure what you're asking because neither of these are complete sentences.

    Sounds like you have quite a mess and would be well-advised to consult with a local attorney for a review of the situation and advice.
     
  14. Zigner

    Zigner Well-Known Member

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    Together with the prior question, it makes complete sense. It is one question with two follow-up, related question.

    Can the state go after the older child's disbursed inheritance for what was stolen by the parent from the younger child? If it is now in a new irrevocable trust for the older child's child? If it is wrapped up in equity in a house?
     
  15. Tax Counsel

    Tax Counsel Well-Known Member

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    I disagree. There are certainly circumstances where having the grantor/settlor as trustee of an irrevocable trust would be unwise, but in general it is not prohibited by the law of at least most states (and I'm not aware of any that prohibit that). There are concerns to be had about the extent to which the trust may be a grantor trust under the Internal Revenue Code (IRC) and the extent to which creditors of the grantor may be able to reach the trust assets if you give that grantor too much control, but that doesn't necessarily preclude the grantor acting as trustee; you simply draft the powers such that he/she doesn't have the sorts of powers that will trigger the particular concern at issue. I've drafted irrevocable trusts for clients with them as the grantor and trustee of the trust without issue.

    Particularly where asset protection is concerned, you often will see recommendations against the grantor being the trustee, but that comes from the concern that the trust will fail as an asset protection device, not from a concern that the trust would be invalid. And if the trust is properly drafted, even that concern might be be dealt with, though it does limit the trustee.


    I agree that meeting with an attorney about this is a great idea.
     

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