Living Trust Funding.- Make Sure Your Trust Works

I can't emphasize enough how important it is to fund your trust. You may have the greatest trust in the world, but if you have not transferred your assets to it, your family will have to go through probate. And this would defeat the primary purpose of establishing your trust. We are doing a probate now, in whichc the mother created a trust, transferred her house to the trust and a few years later sold the house. She put the sale proceeds in an investment accccount, but titled the account in her name - not in the name of her trust. She died a few years later. Her family assumed that her account was in her trust. It wasn't. So they now have to take her estate through probate. This relatively simple estate is taking 9 months and over $10,000 to get through probate. If she had titled her account in her trust, rather than in her name, the account could have been transferred to her children in about one month with no probate and a minimal attorney fee.

Just because you have a trust does not mean your family will avoid probate when you die. You must make sure your trust is funded. And not just funded as of the day you sign the trust, but all the time. We recommend an annual review with your attorney to confirm your assets are always in your trust. In fact, we are developing a new system to make continual funding easy and convenient. More on this later. Your trust has to be effective at all times, not just when you set it up.

How to talk to my mom about estate planning

Recently, one of my friends emailed me the following:

Clark, can you help me. As you know my dad died several years ago. My mom is 80 and doing well but she is afraid to discuss estate planning. I know she has a simple will which leaves all to my brother and sister and me. Her house is worth about $800,000 (though she and my dad bought it for $16,000 way back when - not even a down payment today!) and she has some investment and savings accounts. I know she needs a revocable living trust so we won't have to go through probate, but I don't know how to broach the subject with her. Could you send me some basic information I can give her and my brother and sister to help them see the need for planning?

This is not the first time I've received this request. Below is a draft of a letter I sent my friend to give to his mom. I think it lays out the issues in a gentle and informative way.

Dear Mom:

The Importance of Buy-Sell Agreements

One of the most important contract a business owner can make is a Buy-Sell Agreement. Unfortunately, it’s a contract few business owners take the time to make. In its basic form, a buy-sell agreement controls who gets the owner’s share of the business when he dies or becomes disabled. 

An example: You and your partner started and operate your business. Your partner dies, and his wife and kids end up owning his share of the business. Do you want to be partners with his wife and kids? They may be nice people, but they can’t replace your partner. They don’t know the business and don’t have the skills to take on his responsibilities. You would like to buy out your deceased partner’s share from his family, and they would like the cash, but you have no cash. As a result, your partner’s wife and kids become your new partners with a one-half ownership and one-half controlling share of the business. They contribute nothing to the ongoing success of the business, but they have a say in all your business decisions.

Senate Estate Tax Relief

Does Your Living Trust Protect Your Children from Divorce and Lawsuits?

Many of my new clients ask me to review their existing living trusts. Some are good, some are bad. Almost all of them do not protect the inheritance from lawsuits and divorce. Most estate planners  - assuming they are skilled and experienced - can help you avoid probate and estate taxes. That's where the work usually ends. We believe that is incomplete planning.

Why not draft the living trust to protect your children's inheritance from lawsuits and divorces?

If you go through the time and expense to design and implement your living trust plan, why not do it right and protect the inheritance? Most trusts I review are written to distribute the inheritance to the children at a certain age or in a staggered distribution - such as at age 25, 28 and 30.

We like to ask our clients why would you design your living trust so your children are given an inheritance that at a certain age is unprotected from lawsuits and divorce claims? The better approach is to design the living trust so each child's inheritance remains in a separate protected trust that at a certain age or benchmark event (a certain income level, graduation from college or grad school, age or ?) the child can take over as his own trustee. The assets, however, will remain protected in that child's trust.