What Is Your Will, Trust or UBO1 Missing? by Charles Arthur

Although this article addresses those who have taken their first steps to prepare for passing on their wealth to their heirs, we have included definitions of legal terms in the footnotes that may not be familiar to you.

Drawing up a Will or creating a Trust is stressful and often emotional. Deciding what is fair to those left behind, and dealing with thoughts of your own demise are difficult. This article is designed to assist you think through this process, and to help you avoid some of the common pitfalls. The objective is to assure your loved ones can gain by your careful planning, because what you design will be a turning point for them.

Few transitions go smoothly, though, whether it is a small or large legacy left for heirs. Even if all the goods pass to one person, and there are no family squabbles or jealous outbreaks, the recipient is still left holding the “bag.” The bag may be loaded with oodles of goodies, yet there can be many unresolved issues. These range from how to manage the estate to the emotionally charged separation from the one who died. Usually, the reaction is overwhelm, and sometimes bewilderment, by the responsibilities thrust on the recipient of the goods. Unless the heir has been working side-by-side with the Trustor² or Grantor³ while he or she administered this pile of cash, there is likely to be confusion about what the estate consists of and how to handle investments and property. This gap can be costly, as original documents may become lost, while names of brokers and deeds might be kept in places no one suspects.

The event leading up to this transfer of wealth begins with paperwork. Cold, hard and flat, words written thereon are either technical, boring or a shocking revelation to those receiving the goods. All the comfort, hugging and hand-holding is absent. With the human touch gone, the heir and executors are left with lifeless words and instructions to be carried out. This task of distribution⁴ or disbursement⁵ may take a day, weeks, months or years. Because of lack of clarity or squabbles among the heirs, this transfer of wealth may involve lawyers, judges, and even detectives. The below list applies to Wills, or Revocable⁶, Living⁷ and Irrevocable⁸ Trusts.

There are over 50 themes or ideas in a Common-Law Trust to check and over 30 in a Statutory instrument to see if the supporting documents are reasonably complete. The difference between 50 and 30 revolves around the Trust Certificates issued in a Common-Law Trust and required Minutes. The Statutory Trust does not have Trust Certificates, and usually does not have Minutes.

To give you an idea of what some of the missing elements in any Will or Trust may be, we review them here.

Keeping in mind the impact of how and what is passed on, the original documents approving Beneficiaries⁹ and heirs to take what is left to them must be consistent and clear. It does not matter whether the Trust, UBO or Will you prepare is created under Statutory¹⁰ or Common-Law¹¹, inheritance is no easy matter.

The instrument¹² sanctioning your assets to be passed on may be a Will¹³ or a Trust Indenture¹⁴, also known as a Declaration of Trust or any combination of similar titles for the document setting forth your wishes. These are all contracts with another person, who can be an Administrator of an Estate, Executor of a Will or a Trustee of a Trust who pass on the assets named in the instrument. The Administrator, Executor or Trustee may have a different title, but the role remains. The instrument defines the correct title to be used.

1. Statutory (Will, or Living, Revocable, Irrevocable Trust)
   1. Lack of definition of Administrator, Executor or Trustee responsibilities: this list is standard and lengthy.
   2. Lack of instructions for acceptances and resignation of Administrators, Executors or Trustees or a list of successors to take their place should they no longer be available: Do they need to be court appointed?
   3. Inadequate instructions about heirs or Beneficiaries: Are they named? Are percentages stated? What happens if one of them dies before the Grantor?
   4. Is the Grantor’s signature notarized or witnessed?
   5. In a Statutory Trust, are there procedures for the transfer of assets into the Trust?
   6. Are there paragraphs allowing payments to vendors without authorization or confirmation of services given or goods received? If so, rewrite the paragraphs.
   7. In a Will, are there asset lists? Are they complete and current? Is there enough description to prevent confusion?
   8. In a Trust, are banking documents completed: To open a bank account, a Trustee must have banking documents to present to the bank approving signatures.
2. Common-Law¹⁵ Trust or UBO
   1. More than one Grantor for one Trust: There should only be one Grantor for each Trust. If married people set up Trusts, they each need to surrender community property rights to each other: This is to ensure the Trust cannot be challenged in Probate Court¹⁶, since community property¹⁷ laws can override a Trust.
   2. Lack of responsible rules and limits for lending and borrowing: State in the Indenture who can borrow Trust funds and under what circumstances.
   3. Lack of formal acceptance and resignation procedures.
   4. Failure to create a fee agreement for the Trustee(s).
   5. Instructions about meetings and Minutes.
   6. The Trust lacks Minutes to confirm the Beneficiaries and acceptance by the Board of Trustees.
   7. Lack of authorizations for major financial transactions: buying and selling of property, investments, changes of business status.
   8. Lack of proper banking authorization to open a bank account.
   9. Instructions about accounting procedures.
   10. Description of a Board of Trustees, but no Board of Trustees functions or exists.
   11. No procedures for the transfer of assets into the Trust and no asset lists.
   12. Failure to assign properly the Trust Capital Units, complete a Trust Certificate Register and issue Certificates.
   13. No adverse Trustee: If the parents, husband and wife or children are the Trustees, this Trust becomes a Grantor Trust instead of an Irrevocable Trust.
   14. As you can see from this sample list, there are many aspects to consider when setting up a Trust. If the instrument you set up fails this small test, then you probably need to redo the paperwork, add addenda or consult with professionals about what to do.
   15. Before you do that though, consider reading The Art of Passing the Buck, Volume II. With sample formats and easy explanations, it takes you step-by-step through the creation of an Irrevocable Trust. For those of you not interested in an Irrevocable Trust, take from the information gathered those parts you feel necessary and suitable for setting up the legacy you intend.

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Footnotes:
1		Unincorporated Business Organization (UBO): A Common-Law Trust where investors become Exchangers and receive Certificates of Trust on which a percentage of the Trust holdings are represented by Trust Capital Units. The initial funding from the Exchangers is deemed corpus. This arrangement is treated as a partnership by the IRS, unless some of the UBO holders have not added to the corpus, and thus are treated as Beneficiaries.
2		Trustor: Same as Grantor, Donor, Settlor, or Creator, but the term usually refers to one who sets up a Will.
3		Grantor: The one who creates a Trust, settles the initial funding to the Trust, selects the Trustees and Beneficiaries. 2)The person who grants and gives over the initial funding to set up the Trust. The Grantor is the same as Settlor, Creator, and Trustor.
4		Distribution: In law, the appointment by a court of the personal property of one who died intestate among those entitled to receive the property, according to the applicable state statute about distribution; to be distinguished from disbursement. 2) In common usage, anything distributed; portion; share.
5		Disbursement: Money expended by an executor, guardian, Trustee, etc., for the benefit of the estate, or in connection with its administration. 2) Expenditures made during a civil procedure action, aside from the fees of officers and court costs. 3) Expenditure.
6		Revocable Trust: A Trust that, by its terms, may be stopped by the Grantor or by another person, but only with the consent or approval of one or more other persons. A revocable Trust provides for professional management of assets, while leaving the Trustor the choices of ending or changing Trustees and taking the assets back under personal control, if warranted; opposed to an Irrevocable Trust and not the same as a Living Trust.
7		Living Trust: 1) A Revocable Trust created and controlled by a person who usually transfers ownership of assets on death, thus avoiding probate, but may not escape all taxes. 2) Family Trusts, Grantor Trusts, Estate Trusts, Reversionary Trusts, Preservation Trusts, etc. 3) A Trust set up while the Grantor is alive and becomes irrevocable on the death of the Grantor.
8		Irrevocable Trust: A Trust which, by its terms, cannot be revoked by the Grantor. The Trust Grantor has limited control or no control over the assets. Therefore, Trust assets are excluded from his or her estate at death. The Trust income is not taxed to the Grantor.
9		Beneficiary: 1) A person designated to have and hold the equitable interest in a Trust es­tate. 2) Holders of the Certificates of Capital Units, who receive disburse­ments when the Trustees so dictate. 3) The person for whose benefit a Trust is created. 4) The person to whom the amount of an insurance policy or annuity is payable. 5) A person who holds Units of Beneficial Interest to receive only a percentage of Trust profit. 6) Trustees are sometimes referred to as Beneficiaries, as they legally receive the corpus and are under contract to disburse it to others named as Beneficiaries.
10		Statutory: A Trust created by statute. A statute is a formal, written law of a country or state, written and passed by its legislative authority, perhaps to then be signed by the highest executive in the government, and finally published. Typically, statutes command, forbid, or declare policy. Statutes are sometimes referred to as legislation or “black letter law.” Published statutes are organized in topical arrangements called codes, such as the California Civil Code or the United States Code. The term is traditionally used for statutes of various organizations for organic laws (substitutes of constitutions) in various countries.
11		Common-Law: 1) The legal system prevailing in the English?speaking countries; that is, the United States and the countries comprising the British Empire and Com­monwealth of Nations. Originating in England, its form developed differently from Roman civil law. 2) The part of law developed over time through court deci­sions and court opinions, rather than by enactment of statutes or other legis­lative processes, including those laws inherited from English old?time law. 3) Common-Law derived from natural law. 4) The Common Law changes on a day-to-day basis, depending on the last Common-Law court ruling. 5) Common-Law applies only to actions done, not to the prevention of actions.
12		Instrument: The document outlining the terms of the distribution of assets, known as a Will, Trust Indenture or Declaration of Trust.
13		Will: A legally enforceable declaration of a person's wishes about matters to be attended to after his or her death and inoperative until his or her death. A Will usually, but not always, relates to the Grantor's property, is revocable or amendable by a supplement up to the time of the person's death, and is applicable to the situation existing at the time of his or her death.
14		Trust Indenture: Also known as a Declaration of Trust or Grant of Trust, the fundamental document codifying the Grantor’s purpose in setting up the Trust. It defines the internal procedures, sets the limits about what the Trustees may and may not do, and provides permanent instructions for Trust administration, including disbursement protocols, investment preferences and priorities.
15		Common-Law Trust: 1) An express, active, inter vivos Irrevocable Trust. It can be simple or complex. 2) The Trustees hold full fee simple title to the Trust assets in joint tenancy. 3) The Beneficiaries are the holders of Trust Certificates stating the number of units. The type of certificate is determined by the Grantor. 4) A contract that works in the form of a Trust. 5) A Trust created under the Constitutional right to contract.
16		Different states have different names for the court handling inheritance issues.
17		Not all states have community or joint properly laws.

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The footnotes in this article have been taken from The Art of Passing the Buck, Volume II Glossary, containing over 1,000 separate definitions pertaining to estate planning.

Read: The Art of Passing the Buck, Volumes I and II, available by clicking on the books in the left column.

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Charles Arthur is the pen name for the group which authored The Art of Passing the Buck, Volumes I and II.