The Living Trust Advisor
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The Living Trust Advisor

Everything You (and Your Financial Planner) Need to Know about Your Living Trust

Jeffrey L. Condon

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eBook - ePub

The Living Trust Advisor

Everything You (and Your Financial Planner) Need to Know about Your Living Trust

Jeffrey L. Condon

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About This Book

A comprehensive guide to living trusts, with expert financial and legal guidance

The Living Trust Advisor is an expert guide for both advisors and their clients on the complex process of establishing, living with, and maintaining a living trust. Written by renowned family inheritance attorney Jeffrey L. Condon, this book discusses the various aspects of this important document, and shows you how to manage a seamless transfer of assets to various beneficiaries. This new second edition has been fully updated and revised to reflect the extensive changes to the Estate Tax Law that have taken place since the initial publication, giving you the most up-to-date information and guidance on preserving your wealth and helping your heirs avoid estate tax liability. You'll develop a vision for your trust before you ever meet with an attorney or other key players, and learn how to establish and maintain a trust that remains rock-solid for your lifetime and beyond.

As the living trust has replaced the will as the primary means of settling after-death estates, clear guidance and current legal information is of utmost importance for advisors and clients alike. This book is a valuable resource for every stage of planning and execution, helping you ensure that you provide for your beneficiaries the way you intend.

  • Know what to think about before your first meeting with a lawyer
  • Establish and manage your living trust to carry out your wishes
  • Identify potential inheritance problems and build solutions into the trust
  • Distribute assets to future generations, and protect them after the transfer

Dealing with complex financial and legal issues while facing our own mortality is a difficult task, but making these decisions is critical to the future outcome of your estate. The Living Trust Advisor expertly guides you through the process so you can be confident that your wishes will be carried out.

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Information

Publisher
Wiley
Year
2016
ISBN
9781119093312
Edition
2

The Fourth Quarter

Dying with Your Living Trust

It’s 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 lawyer’s 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 lawyer’s 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.

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 it’s your half, your deceased spouse’s half, the exemption trust assets, or the survivor’s 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 opposite—it 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 accumulations—your house, brokerage assets, businesses, bank accounts, personal possessions, pedigreed dogs and cats—to them in a way that preserves family harmony in the inheritance arena.

Financial Advisor Alert

Following your clients’ deaths, their children may approach you for information about the process of transferring to them the Living Trust’s 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 “hurry up” 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:
  1. There are no tanks rushing down the street forcing the successor trustee to make fast distributions. Nothing has to be done overnight—nor 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.
  2. 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.
  3. The successor trustees must ascertain the total value of the Living Trust assets and non–Living 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 beneficiary’s portion.
  4. Distributing the Living Trust’s 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 settlor’s 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 institution’s 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 accounts—which will require your help, due to the numerous questions that the successor trustees don’t have the wherewithal to answer. (“Is the Living Trust revocable or irrevocable?” “Is the date of the Living Trust the date that the amendment was signed?” “Does the Trust give us powers to make investment decisions?” “Who are the settlors?” “What’s a settlor?”) 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 Trust’s 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 plan—or a bad one.
Don’t panic—if you have been implementing my advice thus far into your Living Trust, and if you have taken to heart the training you’ve 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 daughter’s 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 life—not 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 it’s a whole new ballgame.
Money does funny things to people. It’s as if a special DNA—an inheritance gene deeply recessed in the human body—is 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...

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