In 1994, I started a
publication for the use and information of my
beneficiaries and trust customers at SunTrust
Bank, Chattanooga N.A. This publication was
to keep them abreast of new and interesting
developments in the trust, estate,
environmental and investment areas of law. It
was great fun for me to publish and the bank
was more than enthusiastic about my attempt
to do something extra for my customers. It
kept my name and the bank's name in front of
the customer and was something out of the
ordinary. The selections which follow are
from several of my favorite issues. Dennis
McNamee
From:
Volume 3 Number 3 March 1, 1996
Valuations of Interests in
Subchapter "S" Corporations for
Marital Deduction and Charitable Gifting
Purposes
The Internal Revenue Service has been valuing
partial interests in closely held businesses
passing to a surviving spouse at a value for
marital deduction purposes that is lower or
higher than the property's gross estate
value. This concept could also be applied to
gifts of such partial interests to a charity.
The Probate and Trust Law Division of the
American Bar Association has been tracking
this development relating to the federal
estate tax marital deduction.
The dissimilar treatments arise from the fact
that while the gross estate value of property
depends on its value in the hands of the
decedent, the amount of the marital or
charitable deduction depends on the value of
the property in the hands of the surviving
spouse or charity. This principal has been
reflected by the use of minority discounts or
control interest premiums to determine the
marital deduction or charitable deduction for
gifts to a spouse or charity of only a
portion of the estate's interest in a closely
held business interest. The leading case in
the area is Estate of Chenoweth v.
Commissioner, 88 T.C. 1577 (1987). In
Chenoweth, a decedent's estate included 100
percent of a closely held business. The
business had a gross estate value of
$5,668.07 per share. The decedent's will
passed a 51 percent interest in the business
to the surviving spouse. The estate persuaded
the Tax Court that the value of the shares
passing to the surviving spouse should
include a control premium for purposes of
setting the value of the marital deduction.
Consequently, the shared were valued for
marital deduction purposes at $7,827.60, per
share, a 38 percent premium over the same
shares' gross estate per share value. In a
similar case six years earlier, Ahmanson
Foundation v. United States, 674 F.2d 761
(9th Cir. 1981), held that a minority
interest in property passing to a charity had
a lower
value for charitable deduction purposes than
gross estate purposes. The ruling in Ahmanson
makes sense since in an estate the spouse or
family will likely retain unified control
over the entire business, where gifting a
minority interest to a charity transfers no
control, but allows it to stay with the
majority of the original owners.
More recently, the Chenoweth
principles were applied by the Internal
Revenue Service in several cases to reduce
the marital deduction by applying minority
interest discounts to the value of partial
interests being distributed to the surviving
spouse or a marital trust. PLR 905004; PLR
9403005. The issue remains viable. -dpm
Related Case:
In the Estate of Lauder v. Commissioner,
T.C. Memo 1994-527, the tax court applied a
comparative valuation approach that focused
on the price/earnings ratios of businesses of
similar size and function. The court rejected
the argument that valuations should be based
on the formula found in a buy-sell agreement
because the agreement goal was to pass stock
to the beneficiaries at less than market
value. -dpm
Characterization of Wrongs under
the Law
Actions under laws are generally
characterized in three ways, mala in se, mala
prohibita, and as status crimes. A status
crime is a class of crime which consists not
in proscribed action or inaction, but in the
accused's having a certain personal condition
or being a person of a specified character.
Vagrancy is a status crime. An action that is
"mala in se" is a wrong which is
morally repugnant to society in and of
itself, and offends the conscience of the
populace. Murder and kidnapping are two such
crimes. Mala prohibita wrongs are those which
are made offenses by the enactment of law and
prohibited as such. (They are wrong because
we say that they are.) They are usually not
considered wrong actions by the community in
and of themselves. No criminal intent is
necessary for such offenses and the mere
activity is sufficient for criminal
liability. Jaywalking and other traffic
offenses are mala prohibita.-dpm
Alternative
Dispute Resolution, Part 4: The Pitfalls and
Perils of Arbitration.
As with most legal drafting, a litany of
problems can result from a lack of caution in
drafting the clauses of a contract including
a provision for arbitration. These problems
spring from four major and a host of minor
trends in the law. The four which come to
mind immediately are: the current "hands
off" approach of most courts in
arbitration review (whether the court
appointed the arbitrator or not); contract
clauses in which arbitrator's judgment is
subject to few controls; lack of defined
issues to be arbitrated in a contract; who
will control evidence in an arbitration; and
the lack of actual speed of the proceeding
even when contrasted with litigation.
The "hands off" approach is
illustrated best by two recent decisions in
the California Supreme Court. In Moncharsh
v. Heily & Blase, 3 Cal. 4th 1,
(1992) the court ruled that, absent a
contract provision there could be no judicial
review of an arbitrator's award even if it
was erroneous on its face. This same court
also handed down the decision in Advanced
Micro Devices, Inc. v. Intel Corp., 1994
WL 720289, (Dec. 30, 1994) in which the court
upheld an arbitration award to a plaintiff of
what was effectively a permanent royalty free
license to some of the defendant's
intellectual (patented or trademarked
intangible) property. The award was neither
provided for in the contract nor allowed by
the state's law of contractual remedies. In
both cases the court perceived that the
parties wanted nothing to do with the court
process. This was sufficient justification
for the court to allow the arbitrators
unrestricted freedom to decide their own
case. This points out the need to carefully
tailor an arbitration agreement to the
parties and in doing so, follow a checklist
to prevent the agreement from being
detrimental to the client's objectives.
Clients seem to believe that arbitrators will
be more professional and experienced than a
jury would be. Unfortunately, this is rarely
true, and with the arbitrators subject to
fewer controls in the agreement the
arbitrator may not be well prepared to
handle, the legal or technical aspects of a
particular case. In most non industry
arbitrations, the arbitrator may be solicited
from an unrelated sector of the business
community. This leaves the arbitrator at a
loss to understand the operating procedures
and practices of a particular industry. For
example, consider the difficulties of arguing
the difficult doctrine of attorney-client
privilege to a medical doctor and discovering
that there is no appeal of his decision as in
Moncharsh v. Heily & Blase, 3 Cal.
4th 1, (1992). It would make sense to specify
in the arbitration agreement that certain
types of disputes are to be arbitrated by
specialized and certificated individuals. An
example would be an arbitration involving
valuation of a farm, which would be
arbitrated by a rural real estate broker.
Some issues involved in a dispute may not
lend themselves to arbitration. In other
situations arbitration may not be the best
way to enforce a party's rights. Precision is
critical in defining which issues may be
arbitrated and which should be litigated, for
instance, there may be a necessity for an
injunction against an individual, but if the
issue is to be arbitrated the individual may
carry on with the activities in which he or
she is involved until the arbitration is
settled. The types of relief that the
arbitrator may award should also be specified
to avoid runaway awards as in Advanced
Micro Devices, Inc. v. Intel Corp., 1994
WL 720289, (Dec. 30, 1994). If an agreement
fails to address these items, local law will
do it for the parties involved.
It may come as an unwelcome surprise to many
who have never been involved with an
arbitration that the process may involve
discovery much like litigation in a number of
states or localities. The agreement should
attempt to define the extent to which
document production, depositions, and
interrogatories will be used to control the
damage which may be done by the delays and
expenses involved in these processes. Even
where discovery is not mandatory it is the
practice of some arbitration associations to
permit partial discovery by requiring
production of documents for the arbitration
hearing and then calling an adjournment so
that the documents can be reviewed.
One of the perceived advantages to an
arbitration is the speed with which it
operates when contrasted with litigation.
Increasingly, arbitration is as lengthy as
litigation. Often written pleadings are
required as in litigation, a report of the
arbitrator is needed (which attracts judicial
review), and the hearing procedure involves
the calling of witnesses just as in a trial.
Parties may not want to do away with all of
these just for speed. When substantial sums
of money or contractual rights are at stake,
the integrity and quality of the process will
be of more importance than speed.
Accountability and predictability are
increasingly hard to guarantee. -dpm
The Common Law Doctrine of Laches
and the Statute of Limitations
There is a tradition in the law that a
potential defendant in a civil or criminal
action, except for certain criminal actions
known as "mala in se," should not
be required to look over their shoulder to
see if someone is going to prosecute the
action, forever. The law places the burden of
enforcing a wrong on the person wronged.
These principals have given rise to both the
common law "Doctrine of laches"
(pronounced ‘láchez') and state and
federal Statutes of Limitations.
The common law Doctrine of laches is based
upon the old English common law maxim that
equity aids the vigilant and not those who
slumber on their rights. It is defined as;
the neglect to assert a right or claim which,
taken together with the lapse of time and
other circumstances causing prejudice to the
adverse party, operates to bar action in a
court of equity. Wooded Shores Property
Owners Ass'n, Inc. v. Mathews, 37 Ill.
App.3d 334, 345 N.E.2d 186,189. (A court of
equity deal with property rights, as opposed
to a court of law which deals with civil
legal rights.) State v. Abernathy, 159
Tenn. 175, 17 S.W.2d 17, 19. It is an
apparent abandonment by a potential plaintiff
of an individual right to enforce a claim
against another, in which the potential
defendant may have performed an action after
a reasonable length of time that would place
the defendant in the position of having lost
its defenses against the prior action,
believing that he or she no longer had to
worry about the prior action. This is
particularly true where the potential
plaintiff cannot explain the delay in
bringing the action or deliberately misleads
the defendant into thinking an action will
not be brought. Loveland Camp No. 83
W.O.W. v. Woodmen Bldg. & Benev. Ass'n.,
108 Colo. 297, 116 P.2d 195, 197; Scarbrough
v. Pickens, 26 Tenn.App. 213, 170 S.W.2d 585,
588.
The actual bar to an action which results
from the Doctrine of laches is called
estoppel by laches. It is alternately
referred to as a form of Equitable estoppel
or In pais estoppel. Equitable estoppel
refers to the effect of voluntary conduct,
alone, of a party whereby he is prevented
from asserting legal rights against another
who has justifiably relied on the party's
conduct and changed his position in the
matter so that he will suffer injury if the
former is allowed to repudiate the conduct. American
Bank and Trust Co. v. Trinity Universal Ins.
Co., 251 La. 445, 205 S.2d 35, 40. Laches
differ from Equitable estoppel by including a
"reasonable time" element for
prosecuting an action. In pais estoppel
relies heavily on false representations of
actions involved in the potential prosecution
or concealment of material facts. The
Doctrine of laches, in fact, incorporates
elements of both forms of estoppel.
A Statute of Limitations is a state or
federal written statute prescribing time
limitations to the right of action on
particular civil causes of action or criminal
prosecutions. These statutes declare that no
suit may be brought or any criminal charge
made, unless brought within a specified
period of time after the right accrues. A
right to action accrues either at the time of
the occurrence of the event, or in some
cases, at the time the potential plaintiff
discovers that the event occurred. In some
cases, a minor may have the statutory time
limit after they reach the age of majority to
discover a right of action and file suit.
Statutes of limitations are statutes of
"repose." A statute of repose
laundry lists items in it which must be
followed. They specifically list the
legislative enactment for periods of time
under which claims or rights may be enforced.
In criminal cases, a statute of limitations
is an act of grace or a surrendering by the
state of its sovereign right to prosecute.
Statutes of Limitations are alternately
referred to as "statutes of
repose." -dpm
From:
Volume 3 No. 11
Estate
Planning for Children and Adults With
Developmental and Learning Disabilities.
For clients with developmentally disabled or
learning disabled children planning for care
of that child beyond the productive income
lifetime of both parents and after their
deaths can be an emotionally draining
process. If done incorrectly, the child may
be ineligible for the government programs
necessary for their continuing care, and
support including medical support. For proper
planning, the parents must have a thorough
understanding of the severity of the
disability and how impaired the child will be
in day to day living activities and the
working world. This understanding must be
communicated succinctly to their attorney at
the outset of the estate planning process. It
will make a great deal of difference whether
the child is able to work or requires special
vocational training. It will also make a
difference in the type of living arrangements
that the child will need and their medical
care. Planning for an education for the
disabled child should not be an issue up to
advanced vocational or college work. The
Courts have long recognized the need for such
planning. In recognizing a clause in a trust
called a spendthrift clause the United
States Supreme Court in Nichols v. Eaton,
91 U.S. 716, 727 (1875) said, that there was
a need to protect some beneficiaries from the
"...ills of life, the vicisitudes of
fortune and the (beneficiary's own)
incapacity for self protection."
In the State of Tennessee as well as all
other states, developmentally disabled,
learning disabled and, in some states gifted
children, are entitled, by both Federal and
State Law to a free public (not private or
parochial) education through grade 12,
tailored specifically to their individual
needs with the appropriate resources
necessary to implement that education. This
is not considered a benefit under state and
federal law, but an entitlement by right of
citizenship. In Brown v. Board of
Education, the famous 1954 United States
Supreme Court Case on the right to an equal
education, the opinion of the Court stated,
"In these days it is doubtful that any
child may reasonably be expected to succeed
in life if he is denied the opportunity of an
education. Such opportunity, where the state
has undertaken to provide it, is a right
which must be made available to all on equal
terms." As a result, denial of such an
education is a violation of the child's civil
rights and is enforceable by federal civil
rights enforcement authorities. This
educational entitlement will be discussed
further in a later section of this
newsletter.
For support of the child the general focus is
to maintain the child's continued eligibility
for governmental assistance programs and to
provide the child with the extras that the
programs will not provide such as trips,
toiletries, and clothing. The special needs
trust, sometimes called a supplemental needs
trust or disability trust or regionally, the
lollipop trust, is a management plan designed
to support the disabled child as an adult and
to preserve access to government benefits.
Because the trust is to supplement and not
supplant government benefits it is imperative
to clearly state the objective of the trust
in a section as close to the opening
paragraph as possible. The disabled child or
adult child can have no power over the assets
or the trust so that the assets are not able
to be considered resources or income to the
child. The document must avoid any mention
that it is for the child's support, welfare
or medical treatment, otherwise the trust
will be viewed as a principal source of
support and funding. The document should
indicate the trustee's responsibility to make
payments for any items or services directly
to the provider. The funds must be kept out
of the hands of the child to the greatest
extent possible.
Parents should give ample thought to
selecting reliable persons to serve as
trustee and successor trustee. If there are
no family members who will serve in this
role, the parents should consider a corporate
trustee. The trustee will need information
regarding the child's history, physicians,
psychologist or psychiatrist, and priorities
for care, so that the trustee can make proper
decisions on a daily basis.
In issues of medical support for the disabled
child, OBRA ‘93, the Omnibus
Reconciliation Act of 1993 has tightened the
laws on Medicaid eligibility. While we will
deal with the specifics of the retention of
assets by disabled persons in the next
section, the general view of the new Medicaid
eligibility rules says that: first; it opens
the door to state recovery of assets. This
will apply regardless of the manner of
inheritance (joint tenancy, living trusts,
etc.). Second, the state will have a longer
look-back period to work with. It has been
extended from 30 to 36 months, and up to 60
months for nonexempt trusts. Third, any trust
funded after August 10, 1993 which has assets
that can be applied to or for the benefit of
an individual under Medicaid, is treated as
nonexempt countable resources of the
individual under 42 U.S.C. § 1396p. It does
not matter if the trust is revocable or
irrevocable. If an irrevocable trust cannot
be used for the benefit of the individual, it
will be considered a transfer subject to the
new 60 month transfer penalty. The new rule
does not apply, however, if the trust
contains payback language and the beneficiary
is less than 65 years of age. The language
must state that the State receives all
amounts remaining in the trust on the death
of the individual up to an amount equal to
the total medical assistance paid on behalf
of the individual under a State plan under
this title 42 U.S.C. § 1396p(d)(4)(A). The
age requirement attaches as of the date of
transfer of the assets into the trust.
Although the language permits the State to
recover eventually, it covers the beneficiary
during their lifetime and prevents the trust
from being a countable resource.
The Official Definition of
Disabled Under the Social Security Act.
The Social Security Act (SSA) defines
disability in 42 U.S.C. § 1382(c)(a)(3)(A)
as: ...if he or she is unable to engage in
any substantial gainful activity by reason of
any medically determinable physical or mental
impairment which can be expected to result in
death, or which has lasted or can be expected
to last for a continuous period of not less
than twelve months (or in the case of a child
under the age of eighteen, if he [or she]
suffers from any medically determinable
physical or mental impairment of comparable
severity). This definition seems to indicate
that there would be an inability for the
individual to successfully earn a living and
achieve some sort of financial independence.
The concept of disability trusts is a part of
the history of the spendthrift trust in which
individuals who are disabled have a
recognized inability to be self protective.
Asset Retention by Disabled
Persons and Their Medicaid Eligibility
Sheltering of a disabled person's assets from
consideration from Medicaid is accomplished
by the use of one of two different types of
trusts. One type is a trust which will pay
back the State from the remaining trust
corpus at the death of the disabled
beneficiary in an amount equal to the medical
benefits the state has provided during the
disabled person's lifetime. 42 U.S.C. §
1396p(d)(4)(A). The second trust is one which
distributes its remaining assets to a
nonprofit association which has acted as the
trust administrator during the lifetime of
the disabled beneficiary, unless the trustee
has elected to reimburse the state for its
generosity during the beneficiary's life.
Both of these trusts must pay our a sum equal
to the total medical payments disbursed by
Medicaid for the benefit of the trust's
beneficiary at his or her death to the state
that furnished medical care, unless the
charitable entity that has managed the
disabled beneficiary's funds in a 42 U.S.C.
§ 1396p(d)(4)(C) trust retains them.42
U.S.C. § 1396p(d)(4)(C)(iv).
A trust which is administered by a nonprofit
association does not disqualify the trust
beneficiary from Medicaid eligibility while
the trust holds the assets of a disabled
beneficiary or beneficiaries as long as the
association holds a separate subaccount
holding the assets of each beneficiary
separate from the accounts for other
beneficiaries. These trust accounts must be
established solely for the benefit of the
disabled beneficiary or beneficiaries by
their parents, grandparents, legal guardians
or by the individuals themselves or by a
court of competent jurisdiction. 42 U.S.C. §
1396p(d)(4)(C)(i) through (iii). Once the
trust is established there is a look back
period of 36 months, that is, the beneficiary
may not hold any right to or title to the
trust's assets for 36 months before the trust
can be excluded from the beneficiary's assets
for Medicaid eligibility. 42 U.S.C. §
1396p(c)(2)(B).
It should be noted that although the assets
are sheltered for Medicaid purposes, the
statute about which this discussion is
centered does not protect the beneficiary
from other creditors. It is against public
policy to allow a grantor who is also the
beneficiary to tie up their own property so
that he or she can use it, but can prevent
his or her creditors from reaching it. Vanderbilt
Credit Corp. V. Chase Manhattan Bank, 473
N.Y.S. 2d 242,246 (N.Y. App. Div. 1984). It
may be up to the parents, grandparents or
legal guardians to utilize those spendthrift
measures permitted by state law to protect
the assets from invasion by creditors if the
state allows such measures in this instance.
Assets protected by spendthrift clauses will
not be protected from creditors after the
death of the disabled beneficiary, and
distribution of the amounts of Medicaid
spending by the state is reimbursed to the
state.
Standards for Distributions From
a Disability Trust
An OBRA ‘93 disability trust may either
be restricted by allowing spending to be
discretionary in the determination of the
trustee or explicitely limited to purchases
by the trust beyond what is made available
through Medicaid. Terminology of the trust
needs to be carefully guarded. When a
disability trust has language which allows
for the payment of support or medical care
(key legal wording used in trust documents),
courts may interpret these terms to annul the
shield that the federal statute and similar
state statutes may provide including SSI
(supplemental security income). The agency
providing Medicaid can interpret a trustee's
decision not to pay for support or medical
needs of the beneficiary when the trust
document provides for these standards as an
abuse of the trustee's powers. Frerks v.
Shalala, 52 F.3d 412 (2d Cir. 1995). When
a trustee fails to make any distributions
when the support and medical care standards
language appears, despite other language that
gives the trustee total and sole discretion
in making the distributions, the trustees
failure may be seen as unlawfully arbitrary. In
re Johnson's Estate, 17 Cal. Rptr. 909,
911 (Cal. Dist. Ct. App., 1962) and Matter
of Estate of Dodge, 281 N.W.2d, 447(Iowa
1979).
The wording that a trust uses is very
important. The use of the wrong word, called
a standard of performance in the law, can be
unintentionally harmful, and can cause other
unambiguous language which can be intrepreted
legally to be used to determine the grantor's
intent for the disabled person's assets. Third
Nat'l Bank in Nashville v. Brown, 691
S.W.2d 557 (Tenn. Ct. App 1985). An inspired
court, may apply the intent of the OBRA
‘93 legislation regardless of the
trust's discretionary distributions standards
(wording) and find that the assets are not
intrinsically the property of the disabled
individual. This makes these assets
unavailable (and protected) to the trust
beneficiaries for Medicaid eligibility
because the statutory intent is satisfied. 42
U.S.C. § 1396p(d)(4).
The Sources of Funding for the
Disabled Person's Trust
OBRA ‘93 describes no limitations
relating to sources from which assets come
into the trust for the disabled beneficiary.
42 U.S.C.§ 1396p(d)(2)(A)(iii). Individual
states may not necessarily recognize this
broad grant of power to the disabled and
medically needy community. Assets are defined
at the federal level in 42 U.S.C. §
1396p(e)(1) as: resources of the individual
and of the individual's spouse, including any
resources which the individual or such
individual's spouse is entitled to but does
not receive because of action by a
person...with the legal authority to act in
place of or on behalf of the individual...
The HCFA applies this interpretation to
disabled individual's trusts in HCFA (Health
Care Financing Administration) Transmittal
Letter No. 64 stating, "Resources placed
in an exempt irrevocable trust for a disabled
trust may or may not count as resources to
the individual in determining eligibility,
depending on the circumstances. Resources are
counted as resources only during those months
in which they are in the possession of the
individual, up to but not including the month
in which the resources are placed in the
trust. Beginning with the month the resources
are placed in the trust, they are exempt from
being counted as resources to the
individual." The term resources includes
all assets a person owns or to which the
person is entitled. Any restriction of this
definition from the federal level appears to
ignore federal priority and is a violation of
the Supremacy Clause of the Constitution. In
re Application of Moretti, 606 N.Y.S. 2d
543 (Sup. King's Co. 1993).
Educational Planning
In 1975 the United States Congress enacted
the Education for All Handicapped Children
Act, P.L. 94-142. In 1983 P.L. 98-199 amended
the law and again in 1986 under P.L. 99-457.
With the amendment and reauthorization in
1990 under P.L. 101-476 the law changed names
and became known as the Individuals with
Disabilities Education Act (IDEA). Parents
involved in the planning of a special needs
or disability trust for their disabled child
should be aware that this law requires a free
appropriate public education be made
available for all disabled children and young
adults with disabilities from ages three to
twenty-one. Parents, with the counsel of
their legal advisors should carefully
consider whether a fully funded public
education, a private school education or a
religious school education fits their
priorities for their child. The resources
available to each of these types of education
will vary under IDEA, and therefore, the
amounts and types of resources the parents or
guardians will need will vary in their
disability trust. The most resources will be
concentrated, as you may have already
deduced, in the public school systems. Some
resources will be cooperatively shared with
private schools, primarily if the best
training facilities are private schools and
the public school system actively places
disabled childen in these facilities for
learning purposes. Key provisons of IDEA
include:
The active identification of children with
special education needs and their appropriat
evaluation prio to placement;
The construction of an Individualized
Education Program with parents included in
the planning process, with all appropriate
related services included to support the IEP;
Mainstreaming of the children into classes
with their peers to the greatest extent
possible;
When children are placed in private schools
by state or local education agencies for the
child to receive an appropriate education,
there is no cost to parents and the school
must meet legal standards.
The law encourages pre-school programs by
incentive grants for ages 0 to 5 years of
age.
The amendments to the original Act also
provide for important services to the child
and the parents or legal guardian. P.L.
98-199, the 1983 amendments to IDEA provides
for special services and technical assistance
to the deaf-blind individual. This law also
provides for parent training and follow-up
support for the child's education. Under the
1986 Amendments to IDEA the family became the
focus, and the ages for intervention went
from three years of age to birth and centers
on an interagency approach for assistance.
The Rules for implementation of these
programs may be found in the Combined Federal
Register at 34 CFR 300. et. seq.
Parents and planners should also be aware
that the Rehabilitation Act of 1973,
P.L. 93-112 also has implications for the
education, vocational training and employment
of the disabled. This particular piece of
legislation includes both actual and
perceived handicaps as well as conditions
that are not normally considered handicapping
such as some types of addictions, amputees,
the temporarily handicapped or disabled
individuals who may not necessarily need
special education. Section 504 of the Act
requires nondiscrimination and equal
accessunder federal grants for students and
is monitored by the Office for Civil Rights
of the U.S. Department of Education. Under
Section 504 the definition of handicapped
recognizes a person with a physical or mental
impairment which substantially limits a major
life activity such as: caring for oneself,
performing manual tasks, walking, seeing,
hearing, speaking, breathing, or learning and
working. Section 504 also provides that
children must be educated in the most normal
setting possible and have access to programs
for those with disabilities such as braille
reading materials, sign interpreters for the
hearing impaired, reader services and TDD
machines for telephone communications. Rules
for the Act are contained in 34 CFR 104, et.
seq.
There are other statutes which also impact
training, education, support, and the ability
of the disabled to earn an independent
living. Some of these are: The Americans with
Disabilities Act, P.L. 101-336, The
Handicapped Children's Protection Act,
P.L. 99-372 (which provides attorney fees for
parents or guardians seeking implementation
of programs in court, and who win their
case), the Family Rights and Privacy Act of
1974, and the Carl Perkins Vocational
Education Act, P.L. 94-482.
*Disclaimer*
This sample trust language is for
illustration only and is not a complete trust
agreement. The reader is cautioned that this
is only a sample of some of the provisions
that can be used in a Disability Trust and is
intended to permit the reader to formulate
questions and become informed prior to
beginning their Estate Planning with their
attorney. The language of this sample is the
creation of the publisher.
For purposes of this example I have chosen to
use a fictional nonprofit trustee. Your
attorney may advise that a family member or
corporate trustee such as your personal Bank
be used as well. -dpm.
Sample Trust Language for a fictional
individual named Jane Smith
This Agreement is made and executed at
Chattanooga, Tennessee between Jane Smith
(after this called the "Grantor")
and The First Nonprofit Charity of
Chattanooga, Tennessee, a non profit
association, Trustee, (after this called the
"Trustee").
The Grantor desires to create a trust upon
the terms set forth in this Agreement.
Accordingly, the Grantor now transfers to the
Trustee the property described in the
attached Schedule "A," which the
Trustee shall administer according to the
terms of this Agreement, with any other
property transferred to the Trustee by the
Grantor or by any other person (all of which
is collectively termed "the trust
estate").
ARTICLE
I
DURING THE LIFETIME OF THE GRANTOR
[Grantor provisions could be included to
provide for use of the grantor's assets for
the grantor's benefit during their lifetime,
and may be especially useful in times of
illness.]
ARTICLE
II
DEATH OF GRANTOR
Upon the death of Grantor the Trustee may in
its discretion, but shall not be compelled to
pay or advance to the Executor or
Administrator of the Grantor's estate
sufficient funds to pay, or the Trustee may
itself pay directly, all or any part of the
debts and obligations of the Grantor, or
Grantor's estate (whether secured or
unsecured), bequests under Grantor's will,
costs, charges, and expenses of
administration, family allowance, any
inheritance, estate, succession and other
death taxes, of whatever nature and by
whatever jurisdiction imposed, and interest
and penalties in respect thereto, assessed
against any recipient thereof, provided,
however that if at the time of Grantor's
death, the Trustee holds any United States
Treasury Bonds redeemable at par in payment
of the federal estate tax assessable against
the Grantor's estate, the Trustee shall cause
such bonds to be applied in payment of such
tax.
After the application of the paragraph above,
the remaining trust assets shall be held and
administered as follows:
1. The entire trust shall be held for the
benefit of the Grantor's daughter, Mary
Smith, the "beneficiary."
2. (a) the income and principal held in trust
for the beneficiary shall be administered as
follows.
(b) until the termination of the trust, the
Trustee may from time to time, in its
discretion, pay to or apply for the use of
the beneficiary through the natural or
appointed guardian of the beneficiary, such
part of the income and/or principal as it
deems necessary, advisable or expedient for
the supplemental maintenance needs of the
beneficiary up to the whole corpus of the
trust. not paid or applied may be accumulated
and added to principal. In the event that any
state, federal, local or other governmental
or aid to the beneficiary would be eliminated
or reduced by this provision, then the
Trustee shall make no distribution to or for
the benefit of the beneficiary .
(c) this trust shall be for the express
purpose of providing for the beneficiary's
supplemental maintenance in addition to and
over and above the benefits the beneficiary
receives as a result of her disability from
any local, state, or federal government or
from any private agency, any of which provide
services or benefits to disabled persons.
(d) In applying the Trust for the benefit of
the beneficiary, it is directed that
provision be made for the needs of the
beneficiary over and above those paid for by
departments of Social and Health Services of
any state or federal agency or department.
including those resources and experiences as
will contribute to and make her life as
pleasant, comfortable and happy as possible.
Grantor directs, without limiting the use of
the funds by the Trustee on behalf of the
beneficiary, that sums spent for education
beyond the 12th grade or vocational level,
clothing, recreation, entertainment, vacation
(for the beneficiary and the person
accompanying her, if requested) and
"treats" be deemed proper
expenditures from income or principal of the
Trust, provided, however, that the
furnishings of goods and services shall not
be paid for by the Trustee ,if in the
judgement of the Trustee, such payment will
jeopardize or reduce financial assistance
from the agencies mentioned previously in
this paragraph.
(e) The Trustee in exercising her
discretionary authority shall take into
consideration any income or other resources
available to the beneficiary from sources
outside this Trust that may be known to the
Trustee. The determination of the Trustee
with respect to the advisability of making
payments out of income or principal to the
beneficiary, shall be conclusive on all
persons however interested in the Trust.
(f) Upon the death of the beneficiary, the
Trustee shall pay the expenses of the
funeral, and burial of the beneficiary out of
the principal of the Trust Estate, unless the
Trustee determines that other provisions have
been made for the payment of such expenses.
3. If at the death of the beneficiary there
remains any portion of the Trust created
hereunder, the Trustee shall terminate said
Trust, and, after reimbursement to any state
or federal authority for expenses for support
or medical care for the beneficiary which the
trustee, in its sole discretion deems
prudent, pay over to The First Nonprofit
Charity of Chattanooga, Tennessee, the
nonprofit trustee of this trust, any
remaining trust assets to be used by the
council of the association for the
unrestricted needs and general administration
of association.
4. Should there be no legal entity specified
in paragraph 2. , at the time of final
distribution, the remaining trust assets
shall be distributed to a charitable
institution under section 501(C)3 of the
Internal Revenue Code determined by a court
of competent jurisdiction.
ARTICLE
III
AUTHORITY FOR THE TRUSTEE
Subject to the provisions of these
paragraphs, the Trustee shall have full
discretionary power and authority to control,
manage and administer the trust assets, and
to do any act or thing it, in its sole
discretion, decides is advisable or
expedient, besides the powers conferred by
law, the powers expressly conferred upon the
Trustee by this agreement that are described
in the following paragraphs of this Article
which is shown by way of illustration but not
of limitation:
Trustee powers eliminated for sake of space.
ARTICLE IV
MISCELLANEOUS PROVISIONS
1. The Trustee and any successors of any of
the trusts may resign as Trustee. Such
resignation shall be accomplished by giving
thirty (30) days written notice to the
Guardian of the beneficiary. Such resignation
shall be effective upon appointment of a
successor trustee; provided, however, that if
there is no person then qualified under this
Article to appoint a successor trustee, or if
the person or persons then entitled to
appoint a successor trustee do not so appoint
a successor trustee within forty-five (45)
days of written notice of the Trustee's
declination or resignation, then a court of
competent jurisdiction may appoint a
successor Trustee. The successor Trustee
shall serve with all rights and duties
provided herein for the Trustee.
2. In case of the refusal or incapacity of
the Trustee or any successor to serve as
Trustee of any trust, a successor shall be
appointed by an instrument in writing signed
by the Grantor while living, and after the
Grantor's death, by order of a court of
competent jurisdiction.
3. Any successor trustee appointed by anyone
shall be a non profit association authorized
by law to accept trusts and serving others in
a similar fiduciary capacity. A successor
trustee shall have no duty to probe the
administration of the trust by a predecessor
trustee, and shall have no liability with
respect to its predecessor's administration
for any failure of such predecessor trustee
fully to account for its activities.
4. The corporate Co-Trustee shall be without
liability for any losses that may result if
it shall have taken any action because of the
advice of the special individual Co-Trustee.
[In some cases the family will want some
indidividual in the family to have some
involvement with the trust in an advisory
manner, especially if the beneficiary is
institutionalized. The following Article
could be considered when the inclusion of a
family individual is to be written in as a
part of the trust in such a case.]
ARTICLE V
MISCELLANEOUS PROVISIONS REGARDING POWERS OF
THE CO-TRUSTEES
1. Duties of the Trustee:
(a) While acting under the provisions of this
Trust Agreement, the association Co-Trustee
shall have sole custody of all money,
securities, and other personal property
comprising the trust assets, and of such
records pertaining to the trust as may be
advisable or necessary in the administration
thereof. The association Co-Trustee shall be
the sole paying agent for any and all
disbursements made under this Trust
Agreement; it alone shall perform all
ministerial and accounting duties in
connection with the administration of this
trust; and the association Co-Trustee shall
be the sole depository for all income and
receivables owing to this trust.
(b) In operating under this Trust Agreement,
regarding proposed purchases and disposition
of assets; conduct and management of any
business enterprise; management and
development of real estate; borrowing upon
Trust credit; and discretionary distributions
of income or principal, the association
Co-Trustee shall have sole authority.
(c) Not withstanding the preceding paragraph,
it is incumbent upon the association
Co-Trustee to consult with the individual
special Co-Trustee on distributions of income
or principal on a courtesy basis.
2. Duties of the special individual
Co-Trustee:
(a) This Co-Trustee shall personally visit
the beneficiary at the residence of the
beneficiary, not less that quarterly, to
inspect living conditions;
(b) inquire of the Guardian or those with
whom the beneficiary is residing including
the beneficiary herself in regard to the care
and treatment provided by the Guardian or
residence staff;
(c) determine if any supplemental needs for
which this Trust is established need
additional expenditures;
(d) evaluate the educational, work training,
and social programs for the beneficiary;
(e) assist the association Co-Trustee in
applications for governmental assistance
programs for which beneficiary is eligible;
(f) and assist the association Co-Trustee in
the correction of problems found in
connection with these required visits.
IN WITNESS WHEREOF, Grantor has executed this
Agreement and the Trustee Jane Smith, has
executed this Agreement as well as The First
Nonprofit Charity of Chattanooga, Tennessee,
has caused its duly authorized officer to
execute this Agreement this ______ day of
____________,
199__.
Dennis
P. McNamee, J.D. Research and Instruction
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