Custodial Account Questions:
Q. I created a Uniform Transfers to Minors Account for my son a few years ago, and it is now worth about $80,000. My son has no idea about the account, but I know he is legally entitled to the funds when he turns 21 later this year. I realize it’s not exactly legal to put the $80,000 back in my name, but I don’t want him to get the funds because I have a suspicion it will be spent in a matter of weeks. Is there anything legal I can do to maintain control of the account and keep him from having full access at age 21?
A. There are two realistic options available to you.
For starters, you could invest the $80,000 in a limited partnership controlled by you. When your son reaches age 21, he will not receive the $80,000, but instead will become the owner of a limited partner interest. As a limited partner, his rights can be severely restricted, thereby allowing you to control the funds for as long as the limited partnership exists. The limited partnership agreement can be written so that your son has no right to demand a distribution or veto your investment decisions.
One of the downsides to creating a limited partnership is that you are introducing a bit of complexity into your life. Many people find this type of business arrangement too complicated for their tastes. Also, the fees to set up a limited partnership can be costly. And once the limited partnership exists, you will need to file annual income tax returns to report the partnership’s income to the IRS.
Not only that, but many people create a corporation or limited liability company to serve as the limited partnership’s general partner. If you choose to create this additional entity, the fees to form and maintain the limited partnership arrangement will be even higher.
A word of caution: Your son may be the type to hire a lawyer to represent his best interests. If he does, it is possible-although highly unlikely-that your son might sue you to recover any funds you have placed in a limited partnership which limits his rights. In theory, your son would have a compelling argument. After all, most people would agree that receiving $80,000 in stocks and cash is better than receiving a limited partnership interest with all the associated restrictions.
Another option is to tell your son about the existence of the account, but make it clear that he would be making a huge mistake by not letting you continue to control the funds. If he puts up too big a fuss and demands the money, you can modify your estate plan and completely cut him out as a beneficiary of your estate. There is nothing illegal about you managing your son’s investments for him, assuming he has the right to ask for the money at any time.
Q. I set up custodial funds in my children’s names to pay their college expenses, with me as custodian. The mutual funds I invested in have done so well that the accounts far exceed what they’ll need for college. Can I legally give money from these funds back to myself? If so, how?
A. No, even though there is nobody to stop you from giving the money back to yourself, doing so would be illegal. Gifts to custodial accounts are irrevocable.
If you were to return the funds to yourself, your children would have the right to sue you, and they would probably win. Of course, they would probably never know what you did, and most kids don’t sue their parents (especially if they think there may be a lot more money to come one day).
Fortunately, you can start spending the money in the custodial account on things for your children which you may now be paying out of your own funds. For instance, if one of your children wants to spend the summer studying in France or if one of your children needs a new car, use the money in the custodial account to pay for these expenses, not your own money.
Once Your Will and/or Trust is Signed:
Q. Where is the best place to keep my signed original estate planning documents?
A. The best place is probably in a safe deposit box because it will protect the documents from theft, fire, accidental loss, and most other types of damage or harm. A potential problem, though, is getting it opened after your death.
If you decide to keep your estate planning documents in a safe deposit box, consider naming a family member or your Executor or trustee as a joint holder on the box. That should simplify matters following your death because someone will be able to get into the box without delay. Also, if you live in a flood zone, be sure to put the document in a water-tight plastic bag. As many shocked clients have learned, water damage caused by flooding can ruin the contents of a safe deposit box.
Another place to keep your original estate planning documents is with the attorney who drafted them. However, I have decided not to retain original documents because of concern over theft, fire, flood, storms, or other loss of the document. It would also be prohibitively expensive to store hundreds or thousands of original documents. Also, what would happen if I were to die or my lawfirm were to cease operations?
Many people keep their original estate planning documents at home in a secure place. If you have a safe at home, that can be a good place to keep them. Be aware though, when thieves enter your home and discover a locked safe, they often take the whole safe thinking they’ll find cash and jewelry. The last thing they want is a file containing your estate planning documents, but that’s one of the things they’ll get if you keep them in your safe. Therefore, unless your safe is bolted to the foundation of your house, it may not be the best place to keep your originals.
Another option with regard to a Will is to deposit it with the county clerk’s office. Taking this approach can be a great idea, except that you need to be sure your records at home clearly indicate where the original can be found. Moving to a different county or changing your Will can cause problems as well.
More people than you would expect keep original Wills and other estate planning documents in an air-tight plastic bag at the bottom of their freezers. Freezers are well insulated and heavy, and have a way of withstanding fires, hurricanes, and tornadoes. Also, they don’t die or move away, and they are stolen far less frequently than in-home safes.
Q. If someone’s Will is in a safe deposit box at a bank when he or she dies, how do you get access to it?
A. There are three ways to get the Will out of the box.
The easiest way is if another person is named as a joint holder of the box. That person can retrieve the Will with no problems or delays.
If no other person has access to the box, Texas law allows a spouse, child, grandchild or the Executor named in the Will to examine the contents of the box while in the presence of a bank employee. If a Will is found, the bank will be required to send it to the court. Note, though, some banks will give it to your lawyer and allow that lawyer to file it with the court.
Another option is to go to court to request that a judge order an examination of the box. If a Will is found, it will be sent to the court. This should be the option of last resort because it takes longer, requires the filing of papers with the court, and usually involves a lawyer and the associated legal fees.
Q. Should I give copies of my Will and other estate planning documents to my children and to the Executors of my estate?
A. For some people, their estate planning documents are as private as their income tax returns, and nobody is ever given copies. For other people, estate planning documents are no different than a spare key to the house, and every family member and Executor and/or trustee named in the documents is given a copy.
If you are the type of person who values your privacy, who does not especially trust your children, Executor, or trustee, or if you have written a Will or trust which does not treat all the children equally, then it may not be a good idea to hand out copies. Also, you may have more money than your children expect, and depending on how your Will or trust is written, giving them a copy may be letting them know too much about your personal business.
On the other hand, if you have a fairly open relationship with all your children, you regularly discuss finances with them, and you are leaving your estate to them in equal shares, then go ahead and give everyone a copy. Of course, if you decide to change your Will or revocable trust, you should be sure to give all the same people copies of the new documents. If you don’t, then there may be some arguments following your death over which document controls the disposition of your estate.
Q. I have a Will and I want to make a minor change. Is there a way for me to make the change myself without hiring a lawyer?
A. Yes, there are a few ways. One way is to make the change yourself by writing an amendment to your Will (called a “codicil”) entirely in your own handwriting. You should be sure to date and sign the new document and clearly state which section of your Will you are modifying. When you write a codicil by hand, no witnesses or notary are required. You could also type the codicil, but if you do, you will need two witnesses to the signing.
Of course, if the change is important and you want to be sure it’s done right, you should not try to make the change yourself, but instead you should hire a lawyer to prepare a codicil for you.