Many things go into making an estate plan succeed. One element is good communication, especially with your loved ones who will be beneficiaries of your plan, along with those who will serve in fiduciary roles like trustees and executors. Another element is having clarity of vision regarding the objectives of your plan, such that you do not find the actions you wish to take in contradiction with (and prohibited by) the planning documents you have in place.
As the holidays fast approach, many people will visit jewelry stores to explore gift ideas. Anyone shopping for diamond jewelry likely either knows, or will be educated, about the “four c's of diamonds.” This is a shorthand phrase for the cut, clarity, color and carat weight of the jewel. There are no “four c's of estate planning,” but two c's are definitely essential. They are clarity in your documents and communication with your loved ones.
A court case from Michigan points to what can go wrong with estate plans sometimes, even with good starts to the planning process. Joseph Brooks established a trust for the benefit of his wife, Edwina, and funded it with $467,000. The trust assets were to be used for Edwina's “health, support or maintenance” during her lifetime. When she died, the remaining assets within the trust were to go to Edwina's son, Charles Walker, and three grandchildren (who were not Charles' children). Brooks made himself the trustee of the trust.
During her lifetime, Edwina's trust paid more than $360,000 to finance the educations of the three grandchildren and more than $50,000 to a local Baptist church. Charles, displeased with these payments, sued Joseph, taking the case all the way to the Michigan Court of Appeals, where Charles eventually won. Why was he victorious? Because, according to the court, while paying for the grandkids' graduate degrees and giving a large gift to the church might make Edwina feel good, these payments could not be considered to help Edwina's “health, support or maintenance.”
Communication gaps may have existed within this family. If Joseph meant to allow Edwina to help the church and the grandchildren, he should have communicated this so that the trust agreement could have been written to permit such gifts. It might also have been helpful to communicate this to Charles, as advance communication with loved ones can sometimes stave off lawsuits that would otherwise arise from a beneficiary's surprise and dismay.
On the other hand, it is possible that this plan suffered from problems with another factor - clarity regarding the objectives of the plan. Joseph clearly seemed to begin the estate planning process with the goal of creating a trust that would provide for Edwina's well-being during her lifetime. Only if funds remained in the trust after Edwina died would others, like the grandchildren, receive the benefit of the assets. Nevertheless, after discussing the gifts with Edwina, Joseph made the payments to the church and the grandchildren. In short, by writing the checks to the grandchildren and the church, Joseph as trustee breached his duty to the trust he created. Joseph the trustee and Joseph the trust creator seemed not to be “on the same page.”