Trust Trends

Learn some answers to commonly asked Trust questions below.  Don't see the questions you are looking for?  E-mail us to get the answers to your trust and estate planning questions.

Question 1.  My sister’s husband recently died and she told me he set up a living trust for her before death.  I am married but have no children.  Is this something I should look into?  Answer

Question 2.  I own mutual funds and some individual bonds through my broker.  Why would I want to use a trust department to help me with my investments* when I am not paying anything now to have my money invested?  Answer

Question 3.  I have three children.  One is very responsible and understands investments.  One is busy with her family and the third has had some problems and always seems to need money.  I am setting up a trust and need to decide on a trustee but don’t want to slight any of them.  What do you think?  Answer

Question 4.  I like the thought of a trust but who will “police” things once I am gone?  Answer

Question 5.  Is there a downside to naming a non-family member as trustee?  Answer

Question 6.  I have a disabled child.  Is there a way to provide for them financially when I am gone?  Answer

Question 7.  A month ago my husband passed away from a stroke.  Our estate is fairly large and I have been told it is too late to do any tax planning.  Is that true?  Answer

Question 8.  My attorney drew up a trust for my husband and me last year.  All of our assets are still in joint tenancy.  Is there anything more we need to do?  Answer

Question 9.  I don’t need any further planning in case I became disabled because I have a will and everything is spelled out in the will. Or do I?  Answer

Question 10.  I want to be my own trustee.  Can a trust department still help me?  Answer

Question 11.  I want to avoid probate.  My friend told me I can do this by making sure everything I own is in joint tenancy with one of my children.  What do you think?  Answer

Question 12.  We have used the same attorney for years.  He is an excellent attorney and a good friend.  However, my son told me I need to consult an estate planning or tax attorney to draft our wills, trusts and other estate planning documents.  I don’t want to offend my current attorney, but am concerned that things be done right.  How does one pick an attorney familiar with this area?  Answer

Question 13.  My mother wants to name me as executor of her will.  I have two older brothers and a younger sister.  What does an executor do?  I am also concerned my being named will cause friction between me and my siblings.  I am not sure this is a good idea, but need to know more about it.  Answer

Question 1.  My sister’s husband recently died and she told me he set up a living trust for her before death.  I am married but have no children.  Is this something I should look into?

Answer 1.  Each case is individual as are the reasons for establishing a trust.  Many people without children establish trusts as a protection against disability.  Some have a charitable intent and establish a trust to benefit themselves during their lives (and may save taxes while they are at it!) while passing it on to their favorite charities at their death.  Some use trusts as a tax-planning device. Others simply want to avoid probate fees and delays. So is a living trust for you?  Check with your attorney, accountant or trust professional to see.

Question 2.  I own mutual funds and some individual bonds through my broker.  Why would I want to use a trust department to help me with my investments* when I am not paying anything now to have my money invested?

Answer 2.  Oh, but you are!  It is unrealistic to think you are getting something for nothing.  Even no-load funds have costs, and sometimes hefty ones, imbedded within the funds. The customer doesn’t necessarily see them unless they read the prospectus carefully.  And even then you may not know them when you see them!  Sometimes brokers receive money back from the funds monthly in addition to fund fees taken by fund managers.  If you buy bonds through your broker, you might pay a flat fee commission or you may just pay more for the bond, part of which goes to your broker, lowering your income yield. 

The fee you pay to the trust department to manage your assets is generally calculated on the market value of your assets.  Therefore, if your assets grow in value, so does their fee.  It is a win/win situation – the more money you make, the more they make!  There may be more of a tendency to buy assets that are right for you individually rather than to push a purchase or sale to generate fees.  Rarely will you see an account “churned” through a trust investment department, a common complaint from brokerage customers.

Question 3.  I have three children.  One is very responsible and understands investments.  One is busy with her family and the third has had some problems and always seems to need money.  I am setting up a trust and need to decide on a trustee but don’t want to slight any of them.  What do you think?

Answer 3.  One thing I would not advise is to name all three children as co-trustees, particularly if they do not live in the same town.  It is a hassle to get all those signatures, work out disagreements on investments and distributions, etc. 

You said one of your children is responsible and understands investing.  That may be the logical choice.  However, I would caution you that one child acting as trustee to the exclusion of the others, particularly when you have children with different kinds of monetary needs, may cause problems among the siblings and, more often, among the in-laws.  It might be hard on the responsible son to have to turn down requests from the others or deal with disagreements on investments and distributions.  If your son does something the other two do not agree with, would you want them taking legal action against him?  Sometimes a disinterested third party like a bank, attorney or accountant is best.  Maybe you could name the investment savvy son as an advisor to the trustee.

Question 4.  I like the thought of a trust but who will “police” things once I am gone?

Answer 4.  You are right to be concerned.  A living trust is not subject to court scrutiny.  This is often a plus, but sometimes may be a negative if an individual is handling your affairs.  Who is watching over their shoulder?  Banks have auditors with which they deal, committees to whom they must answer on investments, etc.  Your children, and even some professionals, do not undergo similar scrutiny. 

Finally, naming an individual brings up the issue of longevity.  What happens when the individual dies or becomes incapacitated?  Even if you name an individual initially as trustee, you should consider naming an institution somewhere in the chain of successors.  A trust is a wonderful estate-planning tool, but choose your trustee wisely!

Question 5.  Is there a downside to naming a non-family member as trustee?

Answer 5.   Of course!  It may cost you more money to have a professional handle your investing than your son.  I say “may” because sometimes the expertise of the institution in making the correct investment decisions far offsets fees and money lost from poor investment decisions by an inexperienced trustee or, worse, inaction.

One way to save costs is to name yourself as trustee during your lifetime, with the financial institution named as your successor.  That way if you die or become disabled, or just decide you don’t want to do it anymore, the institution is in place to step in without court intervention or having to draw up a new document.  You may also want to “kick the tires” of the institution by setting up an investment account during your lifetime to see if you like their style, with you remaining trustee.  Is the trust officer attentive to your needs?  Can you call someone to help you?  Does the department have local officers for in-person assistance?  Do you feel comfortable with the expertise of those with whom you are dealing?  Better to know if you will be treated well while you are still competent to see for yourself.

Question 6.  I have a disabled child.  Is there a way to provide for them financially when I am gone?

Answer 6.  There are a few ways.  You could leave your money outright to someone you know would take care of your child, but that is risky.  What if they died before your child passed away?  That money would pass in their estate to their beneficiaries, which may or may not include your child.  There are some legal actions you might consider, but perhaps the easiest way to protect your child financially is to set up a trust for their benefit.  If set up properly, you can be sure they can receive whatever governmental aid is available while still preserving assets in case they are needed.  There are attorneys that specialize in writing documents for just these situations.

Question 7.  A month ago my husband passed away from a stroke.  Our estate is fairly large and I have been told it is too late to do any tax planning.  Is that true?

Answer 7.  Not necessarily.  You should contact a professional who understands both taxes and estate planning.  There may still be some ways to take advantage of estate and income tax planning devices through disclaimers, etc.  Of course it is always better to get your estate plan in place as early as possible to ensure your loved ones are cared for as you wish rather than as the laws of the state dictate.

Question 8.  My attorney drew up a trust for my husband and me last year.  All of our assets are still in joint tenancy.  Is there anything more we need to do?

Answer 8.  Oh my yes!  At this point your trust is nothing more than an expensive pile of papers until you actually fund the trust.  This involves transferring titles, assigning and deeding property, etc.  If you do not know how to do this, consult your attorney or a trust department.  But by all means, fund your trust!  Otherwise all the planning you have set out in the trust document will go for naught and you will lose out on the many tax and other types of planning provided under the document.

Question 9.  I don’t need any further planning in case I became disabled because I have a will and everything is spelled out in the will. Or do I?

Answer 9.  Let me ask you this – when is a will effective?  Upon your death.  Say you have a stroke prior to your death.  How is a will going to help you then?  It won’t, by its very nature.  It is a testamentary document, which means it goes into effect at the time of your death and not before.  You need pre-death planning to protect yourself, financially and otherwise, should you become disabled.  There are many options, including trusts and powers of attorneys, so I suggest you meet with an estate planning professional to determine which is right for you.  You should plan your own financial destiny to the greatest extent possible or a court may have to do it for you.

Question 10.  I want to be my own trustee.  Can a trust department still help me?

Answer 10.  Absolutely!  A trust department can still help manage your money, provide investment advice to the extent you request and require such advice, etc.  But you make all the decisions!  Many people who have named a bank as their successor trustee like to try out a department prior to their death to see how they operate.  You may want to start with a smaller amount of money and, if you feel comfortable, add more later.  Each trust department has its own “personality.”  While you are able, it is a good time to see what style fits your and your family’s needs. 

Question 11.  I want to avoid probate.  My friend told me I can do this by making sure everything I own is in joint tenancy with one of my children.  What do you think?

Answer 11.  Joint tenancy is not always a good idea.  Let’s start with the obvious.  You said “with one of my children.”  I assume you have more than one.  If so, when you die all the assets will go to that one child, effectively disinheriting the others.  You might feel comfortable with that anyway, knowing the one child will split the assets.  If they do, however, they may have gift tax consequences neither of you anticipated.

Another problem area is that the child holding the joint tenancy property with you now has an ownership interest in the asset.  The money might be withdrawn without your consent or knowledge, or it might be attached if that child is sued or divorced.

Finally, your child may ultimately lose tax benefits.  So often parents put real estate or stocks and bonds in joint tenancy with one or all the children.  One of the few tax advantages left is the ability to claim the fair market value at one’s date of death as the new tax cost, thus avoiding capital gains.  However, with joint tenancy property, the surviving joint tenant(s) may lose that advantage and have to pay substantial capital gains if they sell the asset.  A better alternative?  Consider placing the asset in trust or designating a pay-on-death recipient.  As these alternatives may not be appropriate for you, always consult your estate planning professional before making changes.

Question 12.  We have used the same attorney for years.  He is an excellent attorney and a good friend.  However, my son told me I need to consult an estate planning or tax attorney to draft our wills, trusts and other estate planning documents.  I don’t want to offend my current attorney, but am concerned that things be done right.  How does one pick an attorney familiar with this area?

Answer 12.  Back in the “old days” just about any attorney could draft a decent will and, in many cases, even a good trust.  However, times (and the tax code!) have changed and, like all major professions, attorneys often specialize.  In Kansas there is no special certification process as yet (although there are some national certifications available), so it is difficult to pick someone with estate planning expertise without help.

I do not know the complexity of your assets, your family situation or the background of your attorney, so I could not advise you whether to stick with your him or seek out a specialist.  There are good indicators, however.  Ask your attorney if this is an area in which he specializes or if there are is an attorney in the firm who does.  Call local trust departments and ask if they see many estate planning documents from your attorney.  Ask for recommendations from friends, family and trust departments for attorneys specializing in the estate planning field.  I do agree with your son in theory.  True estate planning is complicated and should only be tackled by those with the appropriate expertise.

Question 13.  My mother wants to name me as executor of her will.  I have two older brothers and a younger sister.  What does an executor do?  I am also concerned my being named will cause friction between me and my siblings.  I am not sure this is a good idea, but need to know more about it.

Answer 13.  Congratulations to your mother both for planning ahead and for consulting you before she named you in her will.

An executor’s job is not easy.  You are responsible for collecting and monitoring the assets of the estate, paying final bills, preparing an accounting of all financial activity of the estate, getting tax returns prepared and filed, seeing that the assets of the estate are distributed as directed by the will and leading your family through the probate process.  This is not an exhaustive list – in fact, I have a several-page handout of general duties of a personal representative of an estate.  The good news is that often the estate’s attorney will guide you through the process and prepare most of the documents, but even in the best of circumstances it is an intense and time-consuming process.

Sometimes is becomes an emotional process as well, and you mentioned your concern about your siblings.  You may need to make some choices that are not popular with the family.  I have found it is often the small personal items that cause family rifts because of emotional attachments.

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