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 itâs your half, your deceased spouseâs half, the exemption trust assets, or the survivorâs 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 oppositeâit 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 accumulationsâyour house, brokerage assets, businesses, bank accounts, personal possessions, pedigreed dogs and catsâto them in a way that preserves family harmony in the inheritance arena.
Financial Advisor Alert
Following your clientsâ deaths, their children may approach you for information about the process of transferring to them the Living Trustâs bank and brokerage assets. Which is fine. Since they are likely the successor trustees (whom I refer to elsewhere in this book as the after-death agents), they should have some idea about the mechanics involved to obtain their inheritance.
But while most inheritors maintain an even and patient keel about this process, you will encounter those who want their money yesterday and want you to pressure the estate attorney and the account representatives to âhurry upâ with the distributions.
What do you do when you encounter beneficiaries who are in a rush to get their share? You give them the facts of life, which are as follows:
- There are no tanks rushing down the street forcing the successor trustee to make fast distributions. Nothing has to be done overnightânor can it be. While the Living Trust avoids the lengthy distribution delays of probate, the postdeath administration and distribution of Living Trust assets still involve care and deliberation.
- There are several matters that the successor trustee must attend to before making any distribution. These include inventorying the Living Trust assets, searching for documents evidencing creditors, commissioning appraisal reports of real property, ascertaining if any assets are not contained in the Living Trust, preparing the final income tax returns, and possibly preparing the federal estate tax return.
- The successor trustees must ascertain the total value of the Living Trust assets and nonâLiving Trust assets and subtract the debts, taxes, and administration expenses from that number. Perhaps there are thousands of dollars in noncovered medical expenses. Or maybe their parents incurred a large amount of outstanding credit card debt. Or there are past-due income taxes or property taxes. Then there are attorney fees to be incurred for services rendered in the distribution of the Living Trust assets. And accountant fees for the filing of the final and/or fiduciary income tax returns. Whatever those subtractions are, the resulting number is the net estate or remainder; and only when that number is ascertained does the successor trustee know the amount of each beneficiaryâs portion.
- Distributing the Living Trustâs bank and brokerage assets is not the simple process it used to be. In the olden days, the successor trustees gained access to the assets simply by showing the settlorâs death certificates and the portion of the Living Trust that names them as successor trustees. But these days, in light of all the post-911 bank regulations, the successor trustees will have to additionally show two forms of identification and the entire Living Trust document. Then, in most cases, the documents assembled will require scrutiny by the branch manager and the institutionâs legal department. About 10 days later, the successor trustees will be told that they cannot access the funds directly from the Living Trust accounts; rather, they must open new accounts in their names as successor trustees. Of course, a new Living Trust account requires a new taxpayer identification number, which you (or the accountant or attorney) will obtain. Once that new taxpayer identification number is received, the successor trustees must complete forms to open the new accountsâwhich will require your help, due to the numerous questions that the successor trustees donât have the wherewithal to answer. (âIs the Living Trust revocable or irrevocable?â âIs the date of the Living Trust the date that the amendment was signed?â âDoes the Trust give us powers to make investment decisions?â âWho are the settlors?â âWhatâs a settlor?â) When the new account is finally established, the assets from the old account must be transferred to the new account, which sometimes can take a while. After that entire maddening process, the successor trustees can access the accounts and make distributions in accordance with the Living Trustâs inheritance instructions.
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 planâor a bad one.
Donât panicâif you have been implementing my advice thus far into your Living Trust, and if you have taken to heart the training youâve 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:
- 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.
- Your financially overextended son loses his inheritance to his bankruptcy creditors.
- 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.
- Your daughter mismanages her share of the inheritance into the ground.
- 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.
- 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.
- Your flower-child daughter hands over her entire share to the crazy cult in Santa Cruz in which she finally finds herself.
- 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.
- Your normal son, who holds and manages your problem daughterâs 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 lifeânot 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 30 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 itâs a whole new ballgame.
Money does funny things to people. Itâs as if a special DNAâan inheritance gene deeply recessed in the human bodyâis 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...
