Helping Clients with Their Homework

     Over the past year, we repeatedly referred to estate planning as an ongoing process requiring the participation of the attorney, client, and other affiliated professionals in order to achieve the best outcomes. Nowhere is this more evident than during the recent meeting with couple who have been long-term clients.

     Since the clients executed their documents in 2001, they have relied on us to inform them when the documents needed updating. Over the course of the last dozen years, much has changed in the clients’ lives, and we have kept their plan consistent with their goals. As we reached the end of the meeting and asked if the clients had any new assets that were not funded to their Trust, the husband, somewhat sheepishly, pulled out the funding instructions that they were given in prior meetings and said, "I know I was supposed to do something with this but I never really did. Is that important?" Because this has occurred with other clients, we now take an active role in the funding of our clients' Trusts. We work closely with our clients and there other advisors to insure that when the client leaves our office their assets are funded to their Living Trust.

     Upon discovering that the clients’ Trust owned little, we began discussing their assets, beginning with their real estate. In this case, the clients owned their home jointly. Historically when dealing with real estate most estate planning attorneys have advocated executing a quitclaim deed to a Living Trust but not recording that deed while both spouses are living. This strategy has resulted in many attorneys having filing cabinets full of unrecorded deeds. With the relatively recent adoption of the “quitclaim deed with reserved life estate to grantor”, more commonly known as the "ladybird deed”, unrecorded deeds are unnecessary. We prepared a ladybird deed for the clients’ residence so that they can continue to have the creditor protection of jointly owned property during their lifetime, and the property will automatically transfer to their Trust following the death of the second of them.

     Next, we looked at the clients’ mutual funds and other investments, with the goal to make sure that the clients' Living Trust was the titled owner of all of these accounts. By working directly with the clients’ financial planner we were able to obtain the forms needed to open a new account in the name of the clients' Living Trust, and completed them at our signing meeting. The clients actually had some mutual funds they purchased directly and we suggested they transfer these to their current planner, which the clients (and the planner) thought was a good idea. This allowed us to return the forms and a Certificate of Trust Existence to the planner, who then was able to the transfer of ownership to the Trust.

     We also reviewed the clients' beneficiary designations for retirement accounts and life insurance policies. For this particular client, both the 401(k) and life insurance policies named the wife as primary beneficiary but failed to name a contingent beneficiary in the event that the wife should predecease him. Again, we coordinated with the clients’ financial planner to have change of beneficiary forms ready at our signing meeting. These forms continued to name the wife as the primary beneficiary of the 401(k) plan account and then named the Living Trust as a contingent beneficiary. The new beneficiary of the life insurance policies was the Trust, because upon the death of the husband the wife had total control of the Trust.

     Initially the clients’ financial planner resisted naming the Living Trust as a beneficiary because he was aware of the general rule that required immediate distribution of retirement accounts if a nonperson was named as beneficiary of the 401(k). We made him aware of the important exception to that rule that allowed Trust beneficiaries to stretch distributions over the life expectancy of the oldest trust beneficiary if the Trust contained "see-through provisions", that allow the Trustee to stretch distributions from the 401(k) account over the lifetimes of beneficiaries of the Trust. By requiring that any IRA distributions pass through the Trust we were also able to protect one of the clients’ children, whose spending habits are of great concern to the clients, from electing to take their share of the IRA immediately or over a short period of time and spending it .

     Finally, we looked at the clients’ business interests. Recently the clients assisted one of their children by providing capital to open a small business. In exchange for the startup funds, the client was became a 50% owner of the business. The clients intended that their son would inherit any portion of the business the clients owned at their death, and not involve the other children in the business. To achieve this goal we prepared an Assignment of the L.L.C. interest to the Living Trust and added specific language in the Trust for distribution of that interest to the child in question.

     Trust documents and Trust funding go hand-in-hand. Because as planners we understand that many clients are unlikely to complete "homework assignments" that may be integral to the operation of their planning, it is incumbent on us to find ways to work together to make the process as simple as possible for our clients. For this reason, we strive to be as open and available to both our clients and their other advisors as possible so that we can ensure that the clients are receiving the greatest value from our services.

Alan Ferrara and Matt Ferrara