Passing on wealth has been tricky business since the time of ancient Egypt and Greece. Unaware of the inner workings of wealth, most people have little knowledge of this vast and fascinating subject. Before determining the fate of heirs, here are some checkpoints to ensure property, cash (and even gold!) are handled properly and get into the hands of the right people.
Easy to get and create, the Living Trust offers a way to pass on wealth without the complications of going through Probate Court. With a couple of witnesses, the simplest forms, available at stationery stores or from the Internet, solve the two most common problems:
1. To whom the assets pass.
2. Identification of these assets.
Because most people have not been educated in the art of passing on wealth, though, they believe their Living Trust just goes into effect upon their passing. This is not, necessarily, true. The Trustors, those setting up the Trust, need to take the time to identify and transfer into the Trust what they plan to pass to their heirs. This avoids confusion, and even agony. Loved one can be well provided for, only IF the assets have been properly handled properly.
If a person has a Living Trust, signed it, then put it on the shelf without doing anything else, he or she may have wasted time and money. Even a Living Trust needs attention and proper administration.
If a person has a Living Trust has the following been handled?
1. If a Beneficiary is dissatisfied and wants to sue the Trustee for more of the assets, does the Living Trust have in it a “No Contest Clause?” This means that should any Beneficiary sue, causing a dissipation of the Trust resources, the Beneficiary automatically loses his or her inheritance.
2. What happens if the original Trustors, those who set up the Trust, and then became the initial Trustees, are unable to perform their duties? How should the Trust funds be handled, and exactly when does the named Successor Trustee take over?
3. Is there a provision for amendments? That is, can the Trustor(s) change the terms of the Trust during the lifetime?
a. If there are any amendments to the original Living Trust, what is the procedure?
b. Should the Beneficiaries be told about the changes?
c. Should the Successor Trustee be told about the changes?
4. Have funds been earmarked as Trust funds?
a. Has a separate checking account been put in the Trust’s name? If not, the Trust was never funded and there is no Trust.
b. Has identified property, such as the residential home, been transferred at the county to be in the Trust? If not, then the property is not part of the Living Trust.
5. Is there enough documentation in the Living Trust so the Successor Trustee can open a checking account in the name of the Trust?
As the initial Trustee(s) of the Living Trust all the assets remain under the control of the Trustor(s), who can spend the funds without discrimination; these initial Trustees, though, still need to keep records for the Living Trust. Whoever is Successor Trustee becomes responsible to produce those records after the Trustor(s) pass, as well as keep accounting records for how Trust funds are handled. The Beneficiaries have a right to know what happened to the funds the Trustors said belong to them. (Evangelho v. Presoto (1998) 67 Cal.App. 4th 615 , 79 Cal.Rptr.2d 146.)
The need to account to the Beneficiaries for Trust funds, keeps the Successor Trustee honest. Any Trustee who will not share the accounting and have full communication with the Beneficiaries is suspect and only adds to the family stress.Giving Away the Goods
Further, as the initial Trustee of the Living Trust, assets cannot arbitrarily be given away if they have been earmarked as part of the Trust. This means the Trustors cannot give the residential property to the nurse who is taking care of them while everyone else awaits the funeral. The Beneficiaries can sue, and get the property back. Not only that, but caregivers cannot, by law, accept any gifts.
Disputes that can happen over assets are sometimes more awful than the worst nightmare. Cataloging what belongs in Trust is necessary to ensure it stays in the Trust and is properly handled. If an item is not in the Trust, that is, not listed and described as belonging to the Trust, then it is subject to a free-for-all, since the Beneficiaries can then argue over it. The Successor Trustee named in the Trust documents is not responsible for the item. For example, if a washer and dryer are not named as part of the original Trust assets, known as “corpus,” and two Beneficiaries want them, they need to decide without involving the Trustee.
If expensive jewelry is listed and each item photographed or described as belonging to the Trust, then the Trustee has the choice of cashing it in for current value and paying the cash to the Beneficiaries or giving the jewelry to the Beneficiary who is to have it, as stated in the Trust documents.
The same applies to the stock account, or any other investment. Once in the Trust, the Successor Trustee decides how it is to be handled. When it is not in the Trust, lengthy procedures to get it into the Trust can occur.
The biggest asset is usually residential property. If the Trustors, acting as Trustees, have not transferred the asset at the County Recorder’s Office into the name of the Living Trust, then it does not belong to the Trust and the Successor Trustee needs to transfer it before it can be sold. This transfer process could be lengthy and expensive or relatively simple.
A Living Trust is designed to be parceled out to the Beneficiaries after the death of the Trustors. If they are in a nursing home and unable to function, the expenses for their care come out of the Living Trust assets and the Contingent Beneficiaries, those who receive assets upon the death of the Trustor(s), may not get anything.
When all goes well, assets have been properly transferred and identified in the Living Trust, and the Trustors die fairly close together without exhausting Trust assets. The Successor Trustee then delivers the assets by either cashing them out, such as selling the property, and disbursing the proceeds, or gives the assets to those named in the Trust documents.
Unfortunately, most people are not educated about the ways of a Trust, and more often than not, nothing has been identified and transferred, leaving a delay in distribution, and a burden on the Successor Trustee, who is usually a close family member.
When parents die, family matters are often emotionally charged with unresolved needs, and competition for assets or dominance may occur. The state of affairs of a Living Trust can cause grief. This ranges from, “Mom said I should get the . . .” to “You can’t do that, I will not get my . . .” The lack of trust in the Trust can become the major issue.
Before the assets become the responsibility of the Successor Trustee, who is usually completely in the dark about the financial status of the Trust, the Trustors should consult with professionals about how to handle the administrative needs of the Trust, and meet with their Successor to go over important details.
When a family is dysfunctional, it is best to get the communication matters handled first. For the badgered, uninitiated and overwhelmed Trustee, consult with professionals before trying to muddle through Trust documents and answer the family members’ questions. Such time and money will be well spent, especially if complex financial matters need sorting out. It is important the Trustee gets the accounting, legal and tax matters straight before communicating with family members about the Trust details.
The Living Trust and all revocable Trusts are not built to last. Long-range wealth-building methods and procedures are not applied when planning solely to pass on assets to untrained heirs. Unless one’s children are oriented professionally about financial matters, whatever wealth the Trustors accumulated during their lifetime is likely to be lost by the next generation. This is well planned by those who want to ensure the family does not gather any power as shown by the following:
"People are kidding themselves. They don't have the buying power they used to have. A lot of the people living today don't know what the buying power of success was before we decided to use excessive income taxes to punish success and estate and gift taxes to force every generation to start from scratch." (Emphasis added.)
T. Coleman Andrews, IRS Commissioner, 1953 to 1955 (“Why The Income Tax is Bad, Interview with T. Coleman Andrews, Former Commissioner of Internal Revenue,” U.S. News and World Report, May 25, 1956)
Where wealth can be amassed, if properly managed, is when it is given to professional third parties to act as Trustees for the untrained Beneficiaries, who lack financial experience and have no long-range goals.
Only those who are sufficiently educated, though, in Trust protocols should have a Trust of this nature. One can get the information through a serious search on the Internet using keywords about Inheritance, Irrevocable Trusts, and Common-Law Trusts. The last requires the more sophisticated knowledge, and is often the subject of scam Trusts—those set up improperly by the uninitiated.
By knowing the objective of all Trusts is to pass wealth to Beneficiaries, it is easy to judge the correctly set up Trusts from those which are not. If anyone states a person can be the Trustee of his or own Irrevocable Trust, that person is either lying or dangerously ignorant. Further, all Common-Law Trusts are Irrevocable and require a nonrelated Trustee.
Passing on wealth is an art form. Doing it casually causes dissipation of wealth. Needing to keep personal control does not allow a build-up of wealth in the family, and each generation must then start over to generate wealth.
The Trustor(s) can assign the assets in the Living Trust to an Irrevocable Trust at the time of his or her death, naming the Trustees in the Living Trust documents. It depends on what is needed and how plans for heirs are developed.
Maureen K. Terry is a member of a group of Trustees and Trust Administrators who have combined their experiences in two revealing books, The Art of Passing the Buck, Volumes I and II found at www.passingbucks.com/adv/Fo06.
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