• 07
  • October
    2011

One case of a horribly mismanaged estate planning portfolio recently surfaced in New Jersey. A couple, perhaps unknowingly, granted their bank nearly full control of their assets in the event that they died. The couple had an estate valued at nearly $2 million, and they had written their will almost nine years prior.

The will included a bypass trust, which would grant the surviving spouse the deceased spouse's assets. The idea was that the surviving spouse could take advantage of a $1 million exemption. Once both members of the couple were deceased, the assets would be passed to the couple's children.

According to the will, the surviving spouse would have a credit shelter trust, but their bank would serve as the trustee. The bank was permitted to charge a 1 percent interest rate on the trust each year. If the couple had left the trust in the hands of one of their children, they would have avoided that annual fee.

Unfortunately, the trusts set up for the children were also left with the bank as the trustee, which gave the bank full discretion to determine when any portion of the principal could be distributed, whether any amount of the trust could be distributed, and was permitted to approve or deny requests for distribution. The estate would have stayed in the bank's control even after the sons passed away, although the assets would pass to the couple's grandchildren.

According to the couple that had created the estate plan, they were unaware that their former attorney had granted their bank so much control over their estate, but a change in their estate planning documents was able to correct the situation and put the estate back under the control of the family.

Source: Times Herald-Record, "Protecting Your Future: Truly the worst estate plan we ever saw," Bonnie Kraham, Oct. 2, 2011