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THE FOURTH QUARTER
DYING WITH YOUR LIVING TRUST
Itās the start of the Fourth Quarter of the Big Game. Unfortunately, that means that you and your spouse or co-trustee are no longer participants in the Big Game. The playing field is Inheritance Arena. The combatants are your Living Trust beneficiaries. The object of the game is the smooth flow of Living Trust assets from one generation to the next. What kind of game will it be? If you remember the training you receive in this Fourth Quarter, the match will go smoothly. But, if you fail to do your reps, it will deteriorate into an organized riot.
So what does this mean for you? Since both you and your spouse are dead and your inheritance instructions are set in stone, not a lot. But, through the magic of absurdist fiction, I have invented a time machine that will transport you back to when you and your spouse were alive and sitting in your Living Trust lawyerās office. Armed with the chapters in this section that deal with many harmful scenarios that could befall your children in the inheritance arena, you will be able to bring to your lawyerās attention a particular problem that is of consequence to you. From there, you can incorporate special provisions into your Living Trust that will prevent these scenarios from rearing their ugly heads in the inheritance arena after both you and your spouse are dead.
Ninety-five percent of the solution to any problem is recognizing the problem in the first place. This takes on a new sense of urgency when you strive to resolve the most common problems that arise in the inheritance arena. By looking at these problems, you will help keep peace in your family and shield your Living Trust assets from risk of loss once they are in the hands of your children.
After all, you did not work your entire life just so the fruits of all your labors could pass so far afield from your family bloodline or cause family disputes.
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CHAPTER 14
Distribution of Your Living Trust After Both You and Your Spouse Are Dead OR THE INHERITANCE ARENA IS NOT FOR THE FAINTHEARTED
This will sound so obvious that it should not need saying. But since I am charging you for every word you read in this book, I am going to say it anyway: When you die and both you and your spouse are gone, the Living Trust no longer serves to benefit you. You no longer get the income or principal. You are no longer in charge of the Living Trust assets, whether itās your half, your deceased spouseās half, the exemption trust assets, or the survivorās trust assets. You are no longer the wheeler-dealer of Living Trust assets. You are no longer the surviving lifetime agent. You no longer have standing to sue your lifetime agent if he or she screws up the management of the assets.
While it may seem that your Living Trust in essence died when you died, it does just the oppositeāit actually springs to life when you both pass away. In fact, your Living Trust lives on to become one of the last lessons you leave to your children and other heirs. It is the lesson of passing on your lifetime of accumulationsāyour house, brokerage assets, businesses, bank accounts, personal possessions, pedigreed dogs and catsāto them in a way that preserves family harmony in the inheritance arena.
The Grim Reality
The deaths of both you and your spouse spark the inheritance instructions that are stated in your Living Trust into action. These instructions are now set in stone. No more revocations. No more amendments. This is it. Your death becomes the time when we see if the inheritance instructions in your Living Trust constitute a good inheritance planāor a bad one.
Donāt panicāif you have been implementing my advice thus far into your Living Trust, and if you have taken to heart the training youāve received thus far, then I am sure you have developed a good inheritance plan. However, if you have been ignoring my advice, some of the following scenarios may arise after your death:
ā¢ Your daughter, who loves her husband, puts his name on her inherited assets. As a result, your daughter loses all of her inheritance or one-half of her assets to your son-in-law after he files for divorce.
ā¢ Your financially overextended son loses his inheritance to his bankruptcy creditors.
ā¢ Your combative son engages in a legal battle with his siblings over some de minimis aspect of the postdeath Living Trust administration to even some personal score.
ā¢ Your daughter mismanages her share of the inheritance into the ground.
ā¢ Your compulsive gambler son liquidates his share so he can put it all on one spin on the green double-zero at the roulette table in Las Vegas.
ā¢ The board of directors of the off-brand charity you named as a beneficiary in your Living Trust uses its gift to buy a Cadillac for each board member.
ā¢ Your flower-child daughter hands over her entire share to the crazy cult in Santa Cruz in which she finally finds herself.
ā¢ One of your sons demands that his siblings give him a portion of their shares of the Living Trust assets because he perceives, whether justified or not, that he did not receive an equal share.
ā¢ Your normal son, who holds and manages your problem daughterās share, is incessantly bombarded with demands from your daughter to give her money.
These are but a few of the scenarios that I have seen after both spouses die and the inheritance plan comes to lifeānot quite the picnic you envisioned of the smooth transition of wealth from one generation to the next. You may think your children, daughters-in-law, sons-in-law, and grandchildren are perfect. And you know, maybe they are! But, when it comes to dividing the inheritance, and handling and managing the windfall, you do not really know your children.
Why this doom-and-gloom projection of the picture of your family after you die? Because after dealing with the children of deceased clients for 20 years, I can tell you with all confidence that even in the most perfect of families where everyone . . . everyone . . . loves each other, there is no family loyalty in the inheritance arena. Not to you, their deceased parents, and not among themselves, your children. Why? Because in the inheritance arena, your children are no longer your children, and they are not siblings. They are simply people dividing and handling money. Family loyalty goes out the window, and itās a whole new ballgame.
Money does funny things to people. Itās as if a special DNAāan inheritance gene deeply recessed in the human bodyāis activated when an inheritance is divided. The way a person perceives, acts, talks, walks, smells, and thinks can all change dramatically when immersed in the inheritance arena.
If you have ever shared an inheritance with a sibling, or lent money to a family member, or gone into business with a sibling, you may have experienced a taste of what I am talking about. You wanted your end, your fair share, the benefit of your bargain. If what was supposed to come to you did not, you took the appropriate remedial measures. What were those steps? Did you scream at your family member to own up to the deal? Did you hire a lawyer to threaten litigation? Did you take your family member to court? Did you get other family members involved to bring pressure on the deadbeat? Whatever those steps were, you did not let the family relationship stand in the way. You did what you needed to do in order to get yours.
Lawyers like myself donāt learn about the inheritance arena in law school. We are not schooled in family dynamics, nor do we learn about how human nature responds to the death of a family member and how the children behave when they divide and manage the family money. Therefore, we do not know if the inheritance instructions we draft in our clientsā Living Trusts will, oodles of years later, result in harmony or upheaval between their children. The only way we learn about what makes an inheritance plan a good one or a bad one is through on-the-job training of seeing what happens when clients die.
Have you heard the term āMonday Morning Quarterbackā? This is a football player who, on Monday morning, reviews his Sunday performance and comes up with all kinds of excuses for his teamās loss which usually start with āI couldaā or āI shouldaā or āI woulda.ā Well, we Living Trust lawyers are the ultimate Monday Morning Quarterbacks. When clients die and the inheritance instructions come to life, and we witness chaos and conflict erupt over the division of the inheritance, or see the inheritance rapidly dissipated, or learn that the inheritance was used to fuel destructive vices, we can gauge what advice we gave or provisions we wrote that directly or indirectly resulted in those scenarios. We then bring those experiences to new clients to ensure that their Living Trusts do not wind up as cautionary tales for their successive generations. In other words, when we see Living Trusts go bad after the death of both spouses, itās our turn to say āI couldaā or āI shouldaā or āI woulda,ā and then we learn from those mistakes.
Beating the Odds
Rest assured, as your Living Trust advisor, I have provided you and will continue to provide you with various ways to ensure that you do not become a Monday morning quarterback. After all, once you pass away, there is nothing you can do to rectify the problems you might cause because you did not think about all of the possible scenarios that could happen after you and your co-trustee die. Having seen the worst-case scenarios throughout my 20 years of practice, I can assure you that if you take the practical advice that I offer, then you will effectively and peacefully distribute your Living Trust and avoid the awful situations that I have witnessed over the years.
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CHAPTER 15
Donāt Intentionally Leave Your Children Unequal Inheritances OR SO WHAT IF ONE NEEDS IT MORE THAN THE OTHER?
I have demonstrated to you throughout this book that I am a master of stating the obvious. Such mastery will be quite evident in this chapter. Let me start off with two facts that you already know about leaving your money and property:
1. Your money and property are your money and property. You can do whatever you want with them during your lifetime, and you have the unfettered authority to decide who shall receive them after your death.
2. There is no law in the United States that requires you to leave any of your assets to your children.
Having made these bold and unequivocal assertions, it is, nonetheless, highly likely you will name your children in your Living Trust as your beneficiaries. Of course, if you have no children, or if you have cut your children out of the inheritance, you will not be caught up in this sweeping generalization. But for the purposes of this chapter, you are in the vast majority of fairly conventional people with children who will be the beneficiaries of your Living Trust assets.
When it comes to leaving your Living Trust assets to your children, the best advice that I can offer you is to leave them each an equal inheritance. Even though you can divide your assets among your children as you wish, the goal of preserving family harmony in the inheritance arena, in my mind, trumps that particular exercise of free will. I can guarantee discord and conflict among your children if you treat them differently in your Living Trust.
Thatās the long and short of it. If you care about your children and their relationships with each other, do not leave them unequal inheritances. Thatās pretty simple stuff.
But Itās Not So Simple
If the answer is that simple, you may be wondering why I havenāt already concluded this chapter. Even though I am certain you agree with this advice, there is a significant possibility you may disregard it and tell your lawyer to leave more Living Trust assets to one child and less to others because you, like most of my clients, may believe that your Living Trust should factor in the differing financial needs of your children. You may feel that your more financially successful child needs your money less than the child with greater financial requirements, and you want to use your Living Trust to create equity between them.
You do not have the experience of seeing what happens when parents die and this unequal inheritance plan comes to life. If you did, you would seriously reconsider any plan to render what you consider to be economic justice. Let me tell you about one such occasion, which I have seen repeated in one form or another during my 20-year practice.
After the death of the second parent, the children met at my office for advice on the administration of their parentsā Living Trust (which was prepared by another attorney). I was surprised to learn that the children had no idea of the terms of the Living Trust, because usually the children have already torn through it to learn what they receive.
Like a scene out of a movie, I read the inheritance instructions to the children. This was the first time the successful businessman son discovered that his parents had left him a one-third share of the Living Trust assets, with his struggling schoolteacher sister receiving a two-thirds share. The Living Trust contained an explanation for the unequal treatment, which was, in a nutshell, that the parents thought that their son did not need the money as much as their daughter did.
The son became apoplectic when he heard this news, and the scene turned into quite a frenzy, with four peopleāme, his sister, his wife, and my secretaryātrying to get him to calm down. I picked up the glass of water on my desk and prepared to throw it at him. Finally, he calmed down (without the dousing) and I was able to glean these words from him:
āYou just donāt get what this has done to me. I worked in high school. I worked to get money to go to college. I put myself through college. I busted my butt at an entry-level position in the company. I worked my butt off to become vice president of the company. I am a respected person. I am self-made. I made my parents proud. I brought honor to my parents. And what did my parents do? They punished my success and rewarded my dingbat sisterās failure! Backstabbers! Backstabbers my parents are!ā
From the parentsā perspective, they thought they were doing justice. But they neglected to solicit the opinion of their successful son. Maybe they purposely left him out of the loop because they knew how vituperative his reaction would be and wanted to avoid that whole scene. One thing is for certain, though; they left the mopping up to their son and daughter and their lawyer (me).
In any event, the last I heard, the son and daughter, who I understood had been very close, had ceased talking to each other. Using my best bedside psychology, the son apparently transferred the blame he assigned to his parents to his sister. Since they were backstabbers, his sister, who played no part in the parentsā decision to leave her more, was a backstabber as well.
Touchy-Feely Advice: Talk to Your Richer Child Before You Leave Him Less
If you are of similar mind to leave less of your Living Trust assets to your more financially successful child, I recommend that you tell that child your plan. You may be surprised at that childās response. Perhaps your successful child will be in agreement with your plan to leave him or her less. If so, then all is well.
However, really examine your successful childās response to see if any agreement is genuine, because th...
