Financial Advisor Magazine: Trust and Estate Documents & Planning

Christopher P. Parr was interviewed by Senior Editor Wayne Rasmussen for the Wealth Management & Estate Planning section of the May, 2012 issue of “Financial Advisor Magazine” about the perils of flawed language in trust documents.

The key takeaways from the interview are:

1. All estate documents should be reviewed and updated when your life situation changes, to make sure your wishes are current and represented effectively.
2. Be sure to plan for any potential contingency scenarios. Even the best intentions can go bad if a trust document is not well thought out and well written.
3. Trust language can be nuanced and often confusing. It is best to hire an attorney who specializes in estate planning issues and is not a legal generalist.
4. A good financial advisor can take a leadership role in helping families think through complex family issues and how to plan effectively for them.
5. Consider hiring a corporate trustee to provide trust administration services, when a financially competent family member who is also objective and unbiased is not readily available.

To read the full article please click this link: http://www.fa-mag.com/news/the-horror-10529.html

The Business Monthly: When Does A Revocable Living Trust Make Sense?

A Revocable Living Trust (RLT) is one of the most misunderstood tools in estate planning. The RLT is sometimes over-hyped by aggressive estate planning seminar marketeers targeting senior citizens. It is important to emphasize that not all seminars on estate planning and revocable living trusts are hype. The best estate planning attorneys objectively explain when such a planning technique should, and should not be considered on an individual case-by-case basis.

A Revocable Living Trust is a legal entity to which the grantor transfers personal assets during his or her lifetime while retaining ownership and control of the trust assets. It is a separate legal document that serves in conjunction with a will. Even if an RLT is established, a “Pour-over Will” is still necessary to make tax elections, appoint a personal representative and guardian for minor children, and transfer assets that were neglected to be titled in the name of the trust.

Many people erroneously believe that a Revocable Living Trust provides income and estate tax advantages. Because the RLT is revocable, the grantor retains control of the trust assets and can change or amend the trust at any time. Income taxes must be paid on trust earnings during the life of the grantor. At the death of the grantor, the trust assets are included in the grantor’s estate and subject to estate tax. The RLT does not reduce or avoid estate taxes. It is the specific provisions that must be included in the RLT that lead to the minimization of estate taxes. Similar provisions can alternatively be included in a will.

Another often-hyped benefit of the Revocable Living Trust is the ability to avoid probate. It is true that assets held in a properly drafted and funded RLT will not be subject to the probate process, but instead will be disposed of as provided in the Trust Agreement. The probate process does involve court costs and perhaps legal fees, but the net present value (NPV) of these future costs could actually be less than the costs today of establishing an RLT.

A third typical hyped advantage of a Revocable Living Trust is that it offers the ability to avoid “living probate”. A nationally recognized seminar marketing outfit defines this term as “the expensive court proceeding to manage your estate if you are disabled.” While an RLT does in fact provide this advantage, a properly drafted Durable Financial Power of Attorney can accomplish the same objective at much less the expense and effort to implement.

One common problem with an RLT is the failure of the grantor to fund the trust. After the trust document is drafted by the attorney and executed by the grantor, it is necessary to transfer assets into the trust to fund it by changing the title and beneficiary designations on existing assets. Many individuals never transfer assets to the trust, or forget to continue to do so as specific assets change over time. An unfunded trust is worthless.

To this point we have discussed some of the misperceptions and problems associated with Revocable Living Trusts. Let’s explore the advantages of this estate planning technique. Here are five situations in which the use of an RLT should be strongly considered.

1. Poor Health (Mental or Physical) – Under the terms of the RLT the grantor appoints a trustee to succeed the grantor in the event of incapacity or death. This provides a clear chain of command for ongoing management of the trust assets through the designation of trustees, successor trustees, and trustee powers. An RLT provides an ideal solution in the case a married couple where one spouse has historically handled responsibility for most financial decisions, but may not continue to be able to do so.

2. Multi-State Property Owners – A person who owns real estate and other property in several states can simplify legal proceedings after death with a Revocable Living Trust since the probate process in multiple states can be avoided.

3. High-Probate States – If a person owns property in one of the few states with high probate costs or complex probate rules, an RLT could be useful. A few specific states that come to mind are California, Massachusetts, and Florida.

4. Privacy – Wills are public documents. If the intent of the grantor is to maintain the privacy of the names of heirs and the size of inheritances, the RLT should be considered. An RLT is not subject to public scrutiny.

5. Fragmented Families – If the potential for a will to be contested is a concern, the RLT is much harder to contest.

This is an updated post of an article that originally appeared in the May 2000 issue of The Business Monthly.

Copyright © by PARR Financial Solutions, Inc. 2012

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