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.
