Don’t Write in the Margins

While attending law school, I used to take a yellow highlighter and pen, writing in the margins of my textbooks to annotate what I viewed as the important passages related to that day’s assignment.  When a professor called on me in class, I found these highlights and marginalia invaluable.

Many of us are used to taking notes in the margins of written papers. My wife jots down adjustments and additions on her recipe cards. My retired law partner, John Sheppard, writes down his thoughts in the margins of biblical passages.

Nevertheless, I’m here to warn you against putting anything in the margins of your estate planning documents. From time to time, I see wills or trusts that have crossed-out provisions with handwritten changes in the margins.  While some may think that this is an easy (and inexpensive) way to amend or change provisions in your legal documents, those handwritten changes usually cause more problems than they solve.

A few years ago, a client tried to amend her documents by making handwritten changes. She deleted some beneficiaries, reduced some of the gifts to other beneficiaries and added new beneficiaries that didn’t appear in the typed provisions of her documents.

She had also taken the time to initial next to the changes, and, in one change, went so far as to have someone notarize the page. We didn’t know what she intended to do.

When she died, these handwritten changes were discovered. The trustee of her trust wasn’t sure what to do with these handwritten changes, especially since many of them were witnessed and at least one appeared to be notarized.

Florida law is clear on how to change a will or a trust. In order for a codicil to a will or an amendment to a trust to be valid, it must be signed by the testator at the end of the document and two witnesses must also witness the testator’s signature in the presence of the testator and in the presence of each other.

As an example, assume that Denise signs a will in the presence of William. William signs as a witness and then goes home. Denise then takes the will to Beatrice – her neighbor across the street – and tells her that “this is my signature on the will.” Beatrice signs the will as Denise’s second witness.  This is not a valid will. While Denise’s will was signed by two witnesses in Denise’s presence, the document was not witnessed by William and Beatrice in each others presence.

Returning to the story about the lady who wrote changes in her trust – once those handwritten notations were discovered, the beneficiaries hired lawyers to determine whether these notations changed the original provisions. After several thousands of dollars in legal fees and about a year’s worth of depositions and court hearings, the court ruled that the handwritten notations had no legal significance because they were not signed with the legal formalities required by Florida law.

The moral of this story is not to make handwritten changes in your legal documents. If you want to amend your will or your trust, you should have a separate document that is signed and witnessed in accordance with the law.

In order to admit the will into probate without the testimony of the witnesses, it is also necessary that the signatures of the testator and the witnesses be “self-proofed.”  In other words, the signatures should be notarized with special language found in the statutes. That language requires that the notary be a person who is not one of the witnesses and that the notary acknowledges that the testator signed in the presence of the witnesses who signed in the presence of the testator and of each other.

If a proper self-proof does not appear at the end of a will, then it will be difficult, time consuming and more expensive to admit the will into probate.  Since each state’s self-proof statutory language is different, it makes sense to update your documents to comply with the state law in which you currently reside so as not to cause headaches for your loved ones.

This is one of the many reasons why an attorney will tell you to update your legal documents when you move from one state to another. While the documents remain valid so long as they were signed with the formalities that the state in which they were created requires, that doesn’t mean that the documents will be simple or easy to administer upon your death.

So don’t write in the margins of your will or trust. Instead, get a valid amendment in compliance with the state law where you currently reside.  For more information for about Florida’s laws and residency requirements, consult my website felp.estateprograms.com, and request your free copy of The Florida Residency & Estate Planning Guide.


The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Two Hats

When my children were young, I used to read Dr. Seuss books to them. One of their favorites was The Cat in the Hat Comes Back. You may remember the plot where the devious cat covers the interior of the house with pink spots while mother is away.  When the kids are afraid that the mess can’t be cleaned up, the cat reveals one cat after another inside ever-decreasing sized hats, one on top of the other, kind of like a Russian Matryoshka doll. All of the little cats cause an even bigger mess, eventually cleaning it up before mother returns.

Wearing more than one hat can be a problem in an estate plan as well. An example of this is when someone is both a trustee for their deceased loved one’s trust and also a beneficiary of that same trust. Let me explain.

Suppose that Father’s trust is held for the benefit of Victoria, his second wife. Victoria is to receive income for the rest of her life, and, if the income is insufficient for her needs, the trustee can invade the principal of the trust for her health, maintenance, and support. Upon Victoria’s death, the trust terminates back to Father’s children, Sandy and Maria.  Victoria is not Sandy and Maria’s mother, but Victoria is also the trustee of the trust.

Here Victoria is wearing “two hats.”  As trustee of the trust, she has a responsibility not only to her own needs – to provide herself income and possibly invade the principal of the trust for her own benefit – but she is also supposed to be watching out for the needs of the remaindermen beneficiaries – Sandy and Maria. It would appear that Victoria has a conflict of interest, which is quite common in these scenarios.

A trustee would have to balance the investments for both income (which benefits Victoria) and growth (which benefit Sandy and Maria).  As a beneficiary, Victoria would want to weigh the investment portfolio to maximize the income earned so that she has more money to spend every month. But when a trustee invests for income, it is usually at the expense of growth. Sandy and Maria want the trustee to invest for growth, since they want the trust to increase in value during Victoria’s lifetime, if not only to keep pace with inflation.

Keep in mind that every dollar that Victoria spends – especially principal dollars of the trust – is one less dollar that Sandy and Maria will one day receive as inheritance. Even if Victoria has a loving relationship with her step-children, legally she and they have adverse legal interests. What they will want from the trust is in direct conflict.

Victoria, therefore, is vulnerable. If she acts too much in her own favor, then Sandy and Maria could sue her for breach of her fiduciary duties. What if Victoria has a true medical emergency and invades the principal of the trust for many thousands of dollars? The trust seems to indicate that this is okay, but would your opinion change if Victoria had millions of her own outside of the trust?

This is where good drafting comes into play. The trust could read, for example, that when making principal distributions the trustee should consider the other income and resources available to the beneficiary. It may also read that the trustee is to favor the income beneficiary’s needs over those of the remaindermen, or vice versa. It’s not a bad idea for the grantor of the trust to direct his attorney to write an “intent” clause:

“It is my intent that the trustee first consider the needs of my wife should she survive me, over the needs of my children, even to the extent of the exhaustion of the trust funds. In making these decisions, however, my trustee shall consider the outside income and resources available to her,” for example.

Yet another good idea is to name an independent party as a co-trustee to weigh in on investment and distribution decisions. This may serve Victoria well, by taking some of the responsibility off of her shoulders.

There are many ways to “skin the cat” in this type of situation. A “standard” trust that does not delve into the grantor’s priorities and intent could actually cause more problems than it solves. My book, Selecting Your Trustee, is slated to come out later this year, and it will go into much more detail concerning this and topics similar to it. Be sure to continue reading this column for updates.

The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Right Hand Left Hand

It’s frustrating when we receive conflicting advice about a particular topic, and that is as true with estate planning as it is with anything else. Estate planning encompasses so many disciplines – legal, tax, financial – and you might even throw family psychology into the mix. Properly coordinating all of the moving parts requires having a team of professionals who are in regular communication with one another.

This was evident with a person I’ll refer to as “Betty.” Betty’s financial advisor didn’t communicate with her estate planning attorney or her CPA when he invested Betty’s mutual fund accounts into annuities and named the trust as the annuity recipient on Betty’s death. What transpired only came to light upon Betty’s passing. The annuity contract’s payout became subject to high income taxes because taxable income was trapped in testamentary (after death) trusts. Had the financial advisor been in coordination with Betty’s other professionals, this problem may have been avoided.

I can relay another incident involving a person I’ll refer to as “Frank.” Here, Frank’s attorney never coordinated the “funding” or transfer of his brokerage and bank accounts into his revocable living trust. When Frank died, all of those accounts were subject to probate. When his family inquired why a trust was prepared without funding, the attorney simply passed the buck on Frank producing a letter of direction to let his financial advisors and bankers know that he had a trust and that the accounts needed to be transferred into a trust.

Over the years I’ve come across many life insurance policies that had incorrect owner or beneficiary designations. The life insurance agent apparently never asked the client to involve his estate planning attorney in the transaction. When the client died and the life insurance became part of the client’s taxable estate for federal estate tax purposes, one child asked the CPA, “I thought that life insurance wasn’t taxable?”

The CPA’s response, “It’s not taxable as income! But if the life insurance policy’s ownership and beneficiary designations aren’t properly structured, then it may be taxable as part of the insured’s estate for federal estate tax purposes.”

As far as family psychology, I was only partially kidding when I mentioned that discipline needs to be a part of an estate plan. While psychologists are usually not a part of the estate planning process, it’s never a bad idea for you as the client to tell your estate planning attorney about family dynamics. One reason is because many estate plans “marry” individuals together financially, often for the rest of their lives.

An example of this is when a step-parent is the beneficiary of a marital trust for the remainder of her life, with her stepchildren as the ultimate recipients of the remainder of the trust assets upon her death. Every dollar that the stepfather consumes is one less dollar that step-children receive, and this continues on for the lifetime of the stepfather. Moreover, the investment strategy of the trust must balance the income needs of the current beneficiary with the growth needs for the future remainder beneficiaries to keep pace with inflation. This mix of competing economic interests can put the strain on even a good relationship, but consider what happens if and when the stepfather remarries, for example. Add that to the stress on whoever is serving as a trustee, particularly if that trustee is also one of the beneficiaries. In those instances the trustee must be able to intellectually separate his or her fiduciary duties as trustee from his or her own interest as a beneficiary.

To that end, even in families that do not share issues such as the blended family example above, siblings serving as a trustee/beneficiary may encounter psychological difficulties. We all grow up with our own baggage, and sometimes that baggage adversely affects sibling relationships. When those individuals who are serving as trustee work independently with a financial advisor on the trust accounts without sharing direction with the estate planning attorney, important legal and tax considerations may be overlooked.

The bottom line is that more communication is always better than less when dealing with an estate plan, whether during the grantors’ lifetimes, when they become disabled, or after death. When the right hand doesn’t know what the left hand is doing, unnecessary problems often arise.

The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.