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The Revocable Living Trust: Where there’s a Will, there’s
a (Better) Way
By Jeff
Sessions
I recently re-read the amazing account
of the last week of Barbara Amussen’s (mother-in-law of President
Ezra Taft Benson) life. She was visited in late September, 1942,
by her deceased husband and was told that she would die and join
him on the following Thursday. This is the account found in the
biography of Ezra Taft Benson:
When Barbara described the incident
(of her husband’s visit) to her daughter Mabel, she responded,
“Oh, Mother, you’re in good health. You’ve been
worrying about something. Are you ill?” Barbara insisted
she was fine, but that she would leave mortality on the following
Thursday.
On Monday Barbara withdrew her savings,
paid her bills, and had the lights and telephone disconnected.
She paid the boy who took care of her lawn, had the plumber turn
off the water, selected her own casket and paid for it, and went
to stay at Mabel’s home. On Wednesday evening, after visiting
with Mabel … she said, “Now Mabel, I feel drowsy.
Don’t disturb me if I sleep until the eventide.” Those
were her last words. She passed away early Thursday morning. (Ezra
Taft Benson, A Biography by Sheri L. Dew, 1987, p.166)
While few of us will have an experience
like this to help us finalize the details of our lives, there are
some important things we all can and should do to prepare whether
we have a week, a month or years before we die. One of those things
could include creating a Revocable Living Trust (RLT).
Do I Need a RLT?
A trust is not for everyone. The need for a trust should be determined
by a competent, experienced estate planning attorney/advisor. However,
if you have some of the following concerns, you may want to consider
a revocable living trust.
- Do you want to virtually eliminate
(or significantly reduce) probate, administrative costs and attorney
fees when you die or if you become incapacitated?
- Do you want to assure that your
assets will be distributed to your heirs with full control being
given to those in whom you have full confidence?
- Do you want to protect your sizable
estate from unnecessary taxes and expenses?
- Do you want to provide financial
control, protection and assistance for the care of a handicapped
child or grandchild?
- If your child were to die before
you, would you want the assets designated for her (or him) to
go to your grandchildren and not your son (or daughter)-in-law?
If you answered yes to any of these
questions, then you may want to read on about the value of a RLT.
The Revocable Living Trust (RLT)
A RLT is an arrangement whereby money or personal property (real
estate, home, life insurance, bank accounts, stocks, mutual funds,
bonds — anything with a title) is owned and managed by one
person (or persons/ organization) for the benefit of another. You
keep control over your assets for as long as you live and are competent
to manage them. If you are unable to do so then you give control
to someone else you trust to handle your affairs. It is fairly uncomplicated
and, although more expensive than a Last Will and Testament, is
worth the investment many times over.
The Miller Family Trust
As you review the next few paragraphs you should get a better feel
for what a trust is. My purpose is to simply provide an overview
of what a trust could do for a fairly “traditional”
family. However, a general rule is: the more complex a family becomes
(having a blended family or remarriage or handicapped/dependent
child), the greater the need for a trust.
There can be many applications for trusts but, for now, let’s
look at a family called the “The Bill and Jane Miller”
family who established a RLT in January 2007. They have three children:
Brandon (age 28, married with two kids of his own), Jessica, age
24 (single), and Bill Jr., (BJ) age 14.
The RLT they created is named The Miller Family Trust.
As an example, their investment account, which was once titled “Bill
and Jane Miller,” now has changed to “The Miller Family
Trust.”
As joint-owners (called Trustees),
Bill and Jane can buy, sell, transfer, gift or do anything they
want with the assets in their trust. There are no income tax consequences
in making transfers because they still have control over each
of their assets. If they wanted to buy other property or open
another account they would simply title it “The Miller Family
Trust, Bill Miller and/or Jane Miller, trustees.” Because
the trust is revocable, they retain the right to modify, cancel,
change or amend anything they own in the trust.
Managing the Trust
The Millers made sure that if they could not take care of their
personal affairs, two of their children (Brandon and Jessica) would
work together to represent them. Brandon and Jessica are known as
successor trustees. If Bill passed away (actually,
men die first more than 70% of the time), then Jane would continue
on as trustee. If she were to become incapacitated
(Alzheimer’s, stroke, coma, or something else), then either
Brandon or Jessica, as successor trustees, could
continue to take care of their mom and her assets.
Remember, the trust will continue to
be owned and controlled by Bill and/or Jane. Only upon their both
passing will the beneficiaries (the children) get the distribution
according to the schedule they set up.
Care of Minors
Bill and Jane have also asked Brandon and his wife to serve as guardians
should they pass away before BJ reaches age 18. If Mom and Dad were
to die prematurely, then Brandon would put BJ’s 1/3 share
of the total estate into a separate account to pay for his education,
marriage or other basic needs. Brandon will then confer with Jessica
to take out only what is needed. (If BJ needs braces, then Brandon
or Jessica would write out a check, from BJ’s share, to the
orthodontist — not to the guardian,
who is Brandon).
Special Bequests in the Distribution of Assets
Bill and Jane have decided that should they die before BJ receives
his college education, they wish to allocate extra money ($40,000)
for his education. They helped with Brandon and Jessica’s
education funding and want to make sure BJ doesn’t have to
pay for it out of his 1/3 share.
This money is set aside first,
before dividing up the total estate. Mom and Dad decided that if
BJ does not to go to college or some other trade school by the time
he reaches age 25, then that $40,000 will be divided up three ways
as originally scheduled. (This could be used as an encouragement
to get BJ to complete his education in a timely manner).
When do Heirs get Control of
the Money?
When Bill and Jane created their trust, they made some decisions,
in advance, as to when the children would get their money (savings,
insurance proceeds, retirement funds) or other assets (home). Upon
their passing, they elected to have their children receive one-half
of their share at age 25 and the balance at age 35.
Their son BJ has multiple sclerosis
(MS). At this point, everything seems to be under control, but if
his health deteriorates and he is unable to handle his distribution,
then the successor-trustees would retain his share for his benefit.
If at age 25, BJ’s health prospects
are positive, then he would get his distribution on schedule.
What Happens if Mom (or Dad) Can’t Manage Their Trust?
When Bill and Jane went to meet with the attorney, they invited
both Brandon and Jessica to attend the trust signing. They had each
document explained to them as well as what their duties might be
should a stroke, Alzheimer’s or other accident leave either
parent unable to manage their affairs. A frank conversation was
held regarding what assets they would use to pay bills. They also
talked about what they wanted to have happen should an extreme health
problem arise. Finally, Bill and Jane introduced them to their accountant
and other trusted advisors should any questions regarding complex
financial matters come up.
Let’s assume that there was an accident where Bill had died
and Jane was in a coma, unable to manage the finances. Brandon and
Jessica would then notify the bank and other advisors/institutions
that they would be managing the assets (writing checks, asking for
transfers into the bank accounts, and performing other tasks) as
successor trustees. They would then be able to pay bills, file income
taxes or make decisions on behalf of their mother for any personal,
health or financial need.
Remember, Brandon and Jessica are going
to simply take care of Mom and do whatever is necessary to meet
her personal needs. They work together to keep everyone (each other
and BJ) informed of the status of the trust from time to time.
Keeping the Money in the Bloodline
But what happens if one of the children dies before their parents?
For example: Should Brandon die before both Mom and Dad, then Brandon’s
two kids would divide up his one-third share (with the same distribution
schedule as their Brandon would have received). Although Bill and
Jane love their daughter-in-law, Brandon should be providing for
her financial security. Bill and Jane simply want to keep the money
intended for their children to go to their grandchildren —
not a son- or daughter-in-law.
Taking Care of the Grandchildren and Charities
Bill and Jane have decided to leave 5% of their estate to their
church and an additional $5,000 (or 1% of the estate, whichever
is greater) to each of the grandchildren. They have specified that
this money is to be used for college, missions or other worthwhile
purposes to be decided by Brandon and Jessica.
You are Always in Control
Just as a reminder: The trustees (Bill and Jane) are always in control.
They can, at any time, decide to make a change on how, when and
to whom the allocations are to be distributed. They can also appoint
new successor trustees, or make other changes. If children are in
need of restrictions on how they get their share of the trust, then
the timing and amount can be modified very easily by amending the
trust.
.
Other Recommended Documents:
The Millers had other documents that specifically came as part of
their trust:
- Durable Power of Attorney
for assets — a document that nominates any
of the children to manage or control any assets inadvertently
left outside of the trust.
- Durable Power of Attorney
for Health Care — a document designating someone
to make health care declarations for an incapacitated parent.
- Living Will
— instructions on how to handle the decision to end life
support in the event there is a terminal condition or illness.
- Last Will and Testament
(or a Pour-Over Will).— a document that directs that, should
Bill and Jane die after forgetting to transfer any asset into
their trust, it will “pour-over” the trust estate.
The durable power of attorney for assets gives authority to the
person they nominate to get that asset into the trust (however,
they may have to go through an informal probate first).
Take the Time to Investigate
Your Options
Finally, establishing a RLT may not be for everyone. In some cases,
you may find that you can use a durable power of attorney for assets,
durable power of attorney for healthcare or living will to accomplish
your goal if you have a modest estate. However, if you have assets
that:
- need to be managed for someone else
- you want distributed at a future
date
- may be subject to federal estate
taxes
- would have to go through probate
generating unnecessary fees and expenses, then you may find a
Revocable Living Trust an ideal solution.
Most of us probably won’t know
when we will die, but having a RLT comes about as close as it gets
to being as perfectly prepared as was Barbara Amussen.
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