CLIENT-CENTERED DOCUMENTS AND THE ESTATE SUPPORT CLAUSE
Written by Jim Worthington on November 29, 2022
My children are now twenty-somethings and are in different stages of adulting. One thing I’ve learned from helping them is that paying attention to all the details is neither fun nor easy.
Fun, easy, or neither, those details are essential. The details in your will are also essential.
Some people call them boilerplate. It’s true that the administrative and tax provisions don’t vary much from client to client. That boilerplate, however, facilitates a smooth estate administration. And most lawyers spend quite a bit of time working on that language in their documents. I know I do.
In that spirit, I thought I’d share my brand-new estate support clause with you. An estate support clause lets the personal representative of a probate estate turn to a revocable trust’s assets to pay creditors. That’s important because the statutory scheme—in both states where I practice, Kentucky and North Carolina—for creditors being paid is centered around probate estates. Revocable trusts are often used to avoid probate. If all the assets were in trust, creditors would have to sue the trustee if the legislature hadn’t adopted a statute to use trust assets to pay probate creditors.
You may be wondering why you should read such a technical post. Even if you gloss over the minutiae, I do hope you appreciate my effort to make my documents easier to read and my clients’ estates easier to handle. And, if you’re a tax and estate geek like me, let me know what you think about this language and how it tackles this important part of drafting.
The estate support clause in my wills now reads:
Estate Support. My Personal Representative may demand and receive payment from the Trustee of my Revocable Trust to the extent [KRS 386B.5-040(1)(c) for my Kentucky clients or N.C.G.S. § 36C-5-505(a)(3) for my North Carolina clients] provides. Costs of administration shall include all inheritance, estate, and other similar taxes of the United States of America (except any generation-skipping tax imposed by Chapter 13 or any taxes imposed by reason of includability of any property under 26 U.S.C. § 2044 of the Internal Revenue Code) or any state or territory taxes imposed against my estate or the beneficiaries of my estate, whether passing by my Last Will and Testament or otherwise, without reimbursement or contribution from any person.
Here’s the old estate support clause:
My Personal Representative may demand and receive payment from the Trustee of my Revocable Trust, for all or any portion of the claims of my creditors, the costs of administration of my estate, the expenses of my funeral and the disposal of my remains, and statutory allowances, including KRS 391.030, to the extent my Probate Estate is inadequate to satisfy those claims, costs, expenses, and allowances. However, no property added to my Revocable Trust on account of my death from a source other than my Probate Estate or another revocable trust I created shall be subject to those claims, costs, expenses, and allowances. I instruct my Personal Representative to follow KRS 386B.5-040(1)(c) only to the extent required as my intent is to provide for my beneficiaries to the greatest extent possible, preferring them over third parties.
Here’s what the changes accomplish:
- The italicized “Estate Support” heading helps readers find this section. This will help trust officers and other experienced readers locate this language.
- The new version loses about nine lines of text that were copied from the statute; those nine lines were replaced with a short statutory reference. In the immortal words of The Talking Heads: “Say something once, why say it again?”
- By taking out those nine lines, the reference to KRS 391.030 went away. This makes the language less dependent on Kentucky’s law. Statutory allowances for spouses vary considerably from state to state. Clients move and sometimes take their old wills with them, so this change makes it easier on families when that happens.
- The final sentence instructing the personal representative to follow the statute only as required is no longer needed. The new language includes the phrase “to the extent [KRS 386B.5-040(1)(c) or N.C.G.S. § 36C-5-505(a)(3)] provides.” The effect is the same but requires fewer words.
- Costs of administration expressly includes transfer taxes. There have been arguments about this. Those arguments are among the personal representative and beneficiaries, but the taxing authorities are going to get paid. Thus, it’s only fair to give the personal representative a source of funds for a bill they have no choice but to pay. This avoids the personal representative having to go after beneficiaries for amounts already distributed by the trustee.
This new language
- lops off about 35 words,
- makes this important clause easier to find in the document,
- accommodates clients who move from state to state, and
- protects personal representatives in those estates where the funds to pay the taxes are outside the probate estate.
These specific changes are part of an ongoing project to make all my documents easier for clients to read. The fear of a dense, legalese, inscrutable legal document should not prevent you from making your own will and trust. Too many Kentuckians and North Carolinians are going without; drafting client-friendly documents is my part of fixing that problem.