If you are a Baby Boomer who has worked hard, accumulated significant assets, support charitable causes, and plan to continue working through “retirement,” you are not alone! And you won’t be particularly surprised by the findings of a recently released survey by US Trust: Insights on Wealth and Worth. The survey was conducted earlier this year, with 457 high net worth and ultra high net worth individuals, with $3 million or more in investable assets. The survey found a distinct generational mindset among the wealthy – many of whom are Baby Boomers, self-made, first generation wealthy who achieved financial success on their own.
You are probably familiar with some of these insights found by the survey:
Nearly half of these wealthy individuals plan to continue working in “retirement,” many starting a second career or new business.
Many also want to be able to travel – remember my post last week about “going mobile” with your business, perhaps even into retirement?
Many wealthy Americans want to give back to their communities and support charitable causes, and they may need professional legal advice to fulfill those ideals.
Few have the type of comprehensive estate planning in place that matches the complexity of their estate, their finances and their estate planning goals.
That last insight, about few people having the type of comprehensive estate planning they really need, may come as a surprise to you – or even to US Trust – but not to me. I see this in my practice every day. Just because you have a simple will in place, or believe the federal estate tax will not affect you, does not mean you have adequate met your estate planning needs. Some common “gaps” that turned up in the US Trust survey include:
No living will or health care directive
No durable financial power of attorney
No revocable living trust
Inadequate planning for life insurance
No charitable planning, despite charitable intent
No written plan for the distribution of personal property
No business succession plan, in fact only three percent of business owners had a business succession plan in place
If you saw yourself in the first paragraphs of this post, you likely saw yourself again in the last few. If you don’t take action, then you are, as US Trust President Keith Banks said, “leaving the legacy of (your) life’s work to chance.”
When you establish a living trust, you’ll fund assets into it and, while you’re alive, you will serve as trustee. However, you’ll need to nominate a successor trustee to step in and manage the trust in case of your disability. Your successor trustee will also administer the trust, paying debts and taxes and distributing the trust assets when you pass away. In many cases, a family member, such as a spouse or an adult child, is the obvious choice for successor trustee. But what happens when you just don’t have a family member who is capable of serving or who is willing to take on the responsibility? You have a couple of options.
Don’t Overlook Friends
You might want to consider naming a trusted friend to serve in the capacity of successor trustee. In fact, a friend who is neutral and who is not involved in your family’s dynamics might be an excellent choice when it comes to making fair decisions and not playing favorites when it comes to administering the trust. If you decide to name a friend to serve as your successor trustee, you’ll want to discuss your decision with him or her and make sure your friend is willing and prepared to handle the job.
Consider a Bank Trustee
What if there are no friends you feel comfortable nominating? You may want to consider naming the trust department of a bank or another financial institution to act as your successor trustee. An institutional trustee can offer expert trust administration services and can often minimize conflict among beneficiaries by acting as an objective decision maker when it comes to issues concerning the trust. Banks charge fees for managing trust assets, and the fee you’ll pay generally depends on the value of the assets in your trust.
If you are interested in selecting an institutional trustee, you should talk to your estate planning attorney. He or she can fully explain the advantages and disadvantages of this option, guide you in selecting an appropriate bank or financial institution, and ensure that your trust is properly drafted.
One of the primary benefits of having a Revocable Living Trust is the privacy offered by this estate planning method. Unlike a Will, which becomes a matter of public record when it’s offered for probate, your Trust Agreement does not become public. So, your business remains your business. What happens, then, when you are attempting to fund your trust and a bank or other institution requests a copy of your Trust Agreement for its files? You want to do business with the institution, but part of the purpose of having the trust is the privacy it’s supposed to afford you.
The solution is to have your estate planning attorney draw up a Memorandum of Trust, sometimes also called an Affidavit of Trust. This legal document tells the bank all it needs to know:
The name of the Trust
The date the Trust was established
The fact that you’re the Trustmaker
The name of the initial Trustee
The name of the Successor Trustee(s)
The identities of those who signed the Trust Agreement
The powers given to the Trustee
The fact that the trust is Revocable
Your Memorandum of Trust is signed, witnessed and notarized. This makes it a very flexible document. It can be used in all kinds of transactions, and can even be recorded in the county real estate records along with property deeds, so that it can be used for funding real property into your trust. This way, your trust can be used to keep your private affairs just that…private.
One advantage of choosing a living trust over a will as the foundation of your estate plan is that the trust can offer you privacy, while a will cannot.
Wills become a part of the court record when they’re probated. This means that, with very few exceptions, once it’s admitted to probate, a will is available to the public. So, a will that contains financial information you’d rather not share, or that disinherits a family member, or contains unusual bequests is open to prying eyes.
Not so with a living trust. Unless there’s a lawsuit over your trust, the documents creating your trust never have to be filed anywhere. When you pass away, your trustee has all the authority he or she needs to administer your estate, simply by virtue of the terms of the trust.
So, you can keep access to your trust on a need-to-know basis.
What happens if a bank or other financial institution requests to see your trust documents before allowing you to make transfers during your lifetime? There’s no need to share all the details of your trust. Banks can be given all the information they need in the form of a document called a Memorandum of Trust. Your lawyer draws it up, and it lets the bank know all the basic information about your trust, without revealing any unintended or unnecessary information.
Since your trust stays private, where should you keep it? In a safe place, where your successor trustee can get to it if necessary.
If you’re concerned about protecting your property from creditors, a Revocable Living Trust is not the answer. While this type of trust can be set up to protect your spouse and other beneficiaries after you’ve passed away, it offers no protection for your assets during your lifetime.
Why is this? Because, during your lifetime, your Revocable Living Trust and the assets it holds remain completely under your control. You can transfer assets into and out of your trust, make changes to your trust, or even cancel the trust altogether. Property you retain control over is also property your creditors can access.
So, what asset protection options are available to you?
Your estate planning attorney can help you establish an effective plan, and common asset protection tools include establishing an irrevocable trust, transferring property into your spouse’s name, putting money into retirement accounts, and otherwise placing your assets in a position so that they’re no longer under your control and are therefore free from the claims of creditors.
If you want to create a plan for protecting your assets from creditors, when should you start? As soon as possible. The farther in advance you begin to plan, the more options you’ll have available. If you wait until a lawsuit is looming, it will likely be too late to develop an effective plan.
In developing a plan, you’ll want to work with an experienced estate planning attorney who can analyze your financial situation as well as your financial and estate planning goals, and bring together all the tools necessary to help you reach your objectives.
There are many differences between a Will and a Revocable Living Trust, but one of the most fundamental differences is that a Will eventually becomes public, while a Revocable Living Trust, in most cases, does not.
In order for a Will to serve its purpose, it has to be probated when you pass away. And, the first step in the probate process is to file your Will with the court. When this happens, your Will, like any other document filed in court, becomes a matter of public record. In addition to this, a notice is published in the newspaper stating that you’ve passed away and your Will has been admitted to probate.
So, not only do your relatives get to see the contents of your Will, so does anyone else who’s interested – including nosy co-workers and neighbors, and unscrupulous creditors.
If you have a basic, bare-bones Will, this may not be a problem. But what if your Will contains information you’d rather not share with the world? This can be a concern that affects a variety of people, from parents who are disinheriting a child, to those who have substantial assets, to couples who are in a same-sex relationship and want to keep their status private.
If you would rather keep access to your estate plan on a need-to-know basis, you may need a Revocable Living Trust. If you pass away with a trust, there’s no requirement that it be filed or registered anywhere. As long as there’s no lawsuit challenging the validity of your trust, the Successor Trustee simply takes over and settles your estate according to the written terms of the document.
If you’re concerned about privacy, or if you want to learn about the other benefits of a Revocable Living Trust, you’ll want to speak to an estate planning attorney.
As Successor Trustee of a loved one’s Revocable Living Trust, you’ll step in and take charge of administering the trust when your loved one passes away. Like being named Executor of an estate, being named Successor Trustee is a great honor and quite a responsibility.
The first thing to know is that you don’t necessarily have to spring into action immediately, the moment your loved one passes away. You’re human, and there’s time for you to grieve the loss you’ve just experienced.
Sometime within the first few weeks, though, you’ll need to turn your attention to your responsibilities as trustee, and your first step should be to meet with an estate planning attorney. He or she will be a valuable advisor as you fulfill your duties in administering the trust. Here are some things you can expect:
You’ll need to find the Trust Instrument. Often called the Trust Agreement, this is the document that created the trust, and it lays down the ground rules, giving you instructions for how to do your job.
You’ll need to identify and secure the trust property. This property will ultimately be distributed to the beneficiaries of the trust, but until that time, it’s your job to take care of the property.
You’ll need to identify and notify the trust beneficiaries.
A bank account will need to be established and maintained for the trust, and you’ll need to get a federal tax identification number for the trust.
If there are any ongoing bills to be paid, you’ll be in charge of paying them, as well as managing any investments.
You’ll be in charge of keeping all the records for the trust, and the beneficiaries will be entitled to access these records.
If the decedent had any probate property, you’ll need to stay in communication with the personal representative of his or her estate.
You’ll be in charge of paying any applicable debts and taxes.
Once all debts are cleared and it’s time to distribute the trust property to the beneficiaries, you’ll do so according to the instructions contained in the Trust Instrument.
As Successor Trustee, you’ll have a fair amount of responsibility on your shoulders. But, a good attorney can guide you every step of the way and help you answer any tough questions or deal with any difficult situations.
You’ve gone through the effort of establishing your Revocable Living Trust, and you’ve carefully made sure that it’s fully funded. Now, you’re moving to a new state. Does this mean that all of your meticulous planning has been in vain? Or will your Revocable Living Trust still be valid once you cross state lines?
Generally, Revocable Living Trusts are valid from state to state. So, you should not have to establish a new trust in your new state. Nor will you have to re-fund the trust once you move; property that’s titled in the name of the trustee will remain trust property.
However, the law that controls trusts is state law, so it differs depending on which state you’re in. For this reason, it’s a good idea to have your trust reviewed by an experienced estate planning attorney in your new state. You want to make sure that there are no discrepancies between your trust agreement and the law in your new state; and if there happen to be any quirks, it’s better to know and have them corrected.
Moving to a new state is a good time to have the rest of your estate planning documents reviewed, as well. You’ll want to make sure that all of your documents comply with the new laws, and it’s a good time for an update if your family has experienced any changes since your last estate plan review.
The Revocable Living Trust is an estate planning tool that’s popular primarily because it allows you to avoid probate. Is it right for you? Here are some of the advantages and disadvantages to establishing a Revocable Living Trust.
Pros:
Avoidance of Probate. When you establish a Revocable Living Trust and fund it with your property, you no longer own the property. Your trustee owns it and manages it on your behalf. This means that when you pass away, as long as all of your property has been funded into the trust, there’s no need for probate. Why? Because probate is the legal method used for transferring ownership of your property to your beneficiaries upon your death. If, as with a Revocable Living Trust, you don’t “own” any of the property, then there’s no property that’s subject to the probate process. Instead, the trustee follows the instructions in your trust agreement and signs over ownership of the trust property to your beneficiaries.
Avoidance of “Living Probate”. We’ve all heard of traditional probate – it’s the method by which your property is distributed to your beneficiaries after you pass away. Living Probate is a little different. It’s the term that’s used for guardianship or conservatorship proceedings. If you become mentally incapacitated and can no longer manage your own affairs, it’s likely you’ll have to go through Living Probate so that someone can be appointed to handle your finances and the other details of your life on your behalf. A Revocable Living Trust allows you to appoint a Disability Trustee to manage the property in your trust on your behalf should you become incapacitated. This avoids the need for the court to appoint someone to handle your affairs for you.
Long-term Control Over Your Assets. With a Revocable Living Trust, you have numerous options as to how and when your beneficiaries receive your assets. For example, if you’re concerned about the spending habits of a particular child, you can establish the trust so that he or she receives distributions from the trust over a period of time, instead of all at once.
Cons:
Expense. There are certain fees involved with establishing , funding , and administering a trust. As with a Will, any time you make a change to your trust, there will be legal fees involved. It’s important that you weight the costs associated with a Revocable Living Trust against the potential costs of probate.
No protection from creditors. Because you retain the power to revoke your trust at any time and take back the property you’ve transferred into it, your creditors also have the ability to access the trust property if they sue you and win a judgment based on your debts. If you’re concerned about protecting your assets from creditors, you should consult with your estate planning attorney.
As with any estate planning decision, it’s best to consult with a qualified estate planning attorney before deciding whether or not to establish a Revocable Living Trust. He or she can help you assess your goals and circumstances, and determine what estate planning options make the most sense for you.
