Q: I have a brother with a substance abuse problem. My parents want to protect his inheritance so that he doesn’t lose it all through drug and alcohol use. Do you have any ideas?
A: The usual answer is to have your parents create a trust in their will that states that upon the death of your parents, your brother’s inheritance will pass to and be held for him in the trust. A trustee will then manage the property for your brother over a period of time or for his lifetime. The trustee can be given the discretion to give the brother money or not based upon whatever criteria the parents want to establish in the trust. In this type of situation it is not unusual for the parents to state that the brother must have a private counselor that he must visit monthly and take a blood test every few months with the results being reported to the counselor and the trustee. If the brother fails to do any of these steps, the trustee does not have to give any money to him.
The trustee is the one who makes the decisions and can either pay the money directly to the brother or pay the money out of the trust for the benefit of the brother. If the payments are benefit payments, then the trustee is basically paying the brother’s bills, i.e., rent, medical care payment or health insurance. By paying the bills directly, the trustee is making sure that certain items in the brother’s life are covered and he is protected, because he may not be able to protect himself.
The trustee becomes the caretaker of the brother. If the parents are going to name a family member as trustee, the family member has to realize that he or she will probably take quite a bit of abuse and heat from the brother, because he will think he deserves all of the money as quickly as possible and the trustee will have to constantly fend off requests for money. If a bank trustee is to be named, your parents should have a long conversation with the bank trustees prior to naming the bank, because the bank may not want to take on the job.
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Another method to provide an income fund for the brother might be for your parents at the time of their death to direct their executor to buy an annuity for the brother so that the annuity company would pay a stream of income out to the brother over a period of time. The annuity amount could be determined by your parents and an agent for the company. There is probably less flexibility in an annuity than in a trust.
Q: My aunt died, and there are not sufficient assets to pay all of her debts. Do I pay them based on my own preference or is there a law to determine which creditor gets paid first?
A: There is a law in Pennsylvania, and most states, to state which debts are paid first. In Pennsylvania, the costs of the administration of the decedent’s estate must be paid first. The family exemption, which is a state mandated amount that the decedent’s spouse or children may claim is second. Third is the decedent’s funeral and burial expenses along with costs of medicine, medical care and nursing services performed within six months of the date of death. Fourth is a grave marker. Fifth, rents the decedent owed for six months prior to death, and seventh is claims by the commonwealth. The exact amount and the exact order must be worked out each time there is insufficient money to pay the debts. Certain notices have to be given to creditors to tell the creditors what the executor plans to do with the funds in the estate so as to allow creditors to object.
Sometimes it is better for the person who is supposed to be responsible for the decedent’s estate to walk away from the decedent’s estate because there are too few assets and too many bills. For example, if there is only $1,000 of cash available to pay $10,000 of bills, it sometimes is wise to simply not bother with probating a will and trying to work out all of the different creditor’s claims. The work to do all the settlement of claims costs more than the value of the assets.
James M. Rayback is a practicing lawyer with the State College firm of James M. Rayback Inc.