The living trust advisor everything you (and your financial planner) need to know about your living trust

The Living Trust Advisor Second Edition Everything You (and Your Financial Planner) Need to Know about Your Living Trust Jeffrey L Condon, Esq Cover design: Wiley Copyright © 2016 by Jeffrey L Condon All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey The first edition was published by Wiley in 2008 Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose No warranty may be created or extended by sales representatives or written sales materials The advice and strategies contained herein may not be suitable for your situation Y ou should consult with a professional where appropriate Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 5724002 Wiley publishes in a variety of print and electronic formats and by print-on-demand Some material included with standard print versions of this book may not be included in e-books or in print-on-demand If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com For more information about Wiley products, visit www.wiley.com Library of Congress Cataloging-in-Publication Data: Condon, Jeffrey L., author  The living trust advisor : everything you (and your financial planner) need to know about your living trust / Jeffrey L Condon — Second edition  pages cm  Includes index  ISBN 978-1-119-07394-9 (cloth); ISBN 978-1-119-09328-2 (ePDF); ISBN 978-1-119-09331-2 (ePub)  1 Living trusts—United States—Popular works Estate planning—United States—Popular works I Title  KF734.C66 2016  346.7305'2—dc23 2015029526 For Kyle Collins For my family and I, your name shall hereinafter be synonymous with resilience, courage, and strength of spirit CONTENTS Pregame Warm-Up: Or, Read This Before You Read This Book The Big Game: Living and Dying with Your Living Trust A Few Things You Should Know about My Coaching Style Your Final Locker Room Pep Talk Before Training Begins Acknowledgments For Those without Whom This Revised Edition Wouldn’t Exist For Those Who Happen to Be My Children For Those Who Made the Cut The First Quarter: Establishing Your Living Trust Chapter 1: How You Established Your Living Trust Without a Clear Understanding of What It Is and How It Works What Does It All Mean? The Self-Drafted Living Trust—Don’t Do It! You Might Have Living Trust Training, but You Haven’t Been Trained My Way! Chapter 2: What Does the Living Trust Do, and How Does It Do It? A Simple Explanation It’s an After-Death Power of Attorney, but It’s Not Chapter 3: Do You Really Need a Living Trust? The Reasons Why a Living Trust Is a No-Brainer So, What’s Not to Like? Putting Your House in Joint Tenancy with Your Child Is This Side of Insanity In Summary Chapter 4: Establishing Your Living Trust Your First Homework Assignment: Selecting Your Living Trust Attorney Your Second Homework Assignment: Making Sure Your Living Trust Document Contains the Bare Minimum of Requirements After You Have Finished Your Homework Chapter 5: Who Should You Select as the Lifetime Agent of Your Living Trust? Your Lifetime Agent’s Duty to Accomplish the Three Ps of Asset Management The Not Very Scientific Method of Selecting the Lifetime Agent of Your Living Trust Do You Trust Your Children to Watch Your Back (Financially Speaking)? Can You Trust Your Friend to Protect You? A Good Alternative Chapter 6: You Can Select Your Children as Your After-Death Agent, but Will They Carry Out Your Living Trust’s Inheritance Instructions? Selecting Your Children as Your After-Death Agent “My Properties My Pyramid” “Your Money Is Family Money” “That Was Our Parents’ Wish Not Our Wish” “I Got Robbed—and My Own Kid Is the Bandit” The Indelible Conclusion: Money Changes Everything The Second Quarter: Living with Your Living Trust During the Lifetimes of You and Your Spouse Chapter 7: Functions of Your Living Trust While Both You and Your Spouse Are Alive Situation 1: Revoking Your Living Trust Situation 2: Amending Your Living Trust Situation 3: Either You or Your Spouse No Longer Acts as a Co-Trustee The Low-Maintenance Living Trust Chapter 8: The Five Concerns about the Real Estate You Transferred to Your Living Trust First Concern: Owning Your Living Trust Real Estate Second Concern: Transferring Real Estate to Your Living Trust without Risk of Property Tax Reassessment Third Concern: Selling Living Trust Real Estate Fourth Concern: Refinancing Living Trust Real Estate Fifth Concern: Requiring the Signatures of Both You and Your Spouse to Sell Living Trust Real Estate Concerning Yourself with the Five Concerns Chapter 9: Should You Tell Your Children about Your Living Trust? Why You Don’t Want to Conduct a Family Inheritance Meeting And Why I Don’t Respect Your Reasons as to Why You Don’t Want to Conduct a Family Inheritance Meeting How to Conduct a Family Inheritance Meeting Your Lawyer Should Not Charge for the Family Inheritance Meeting The Third Quarter: Living with Your Living Trust after the Death of Your Spouse Chapter 10: Will You Divert Your Deceased Spouse’s Half of the Living Trust Assets from Your Offspring? The Three Goals of Living Trust Management after the Death of Your Spouse Does Your Deceased Spouse Approve of Using Half of the Living Trust Assets to Support Your Second Spouse? Fretting and Hoping—by Your First Children Preventing Your First Children from Fretting and Hoping So They Can Get Some Sleep Chapter 11: The Power to Change Your Deceased Spouse’s Inheritance Instructions or Not! The Tyranny of Unjustified Lifetime Control Periscope from the Grave What If You Don’t Want to Change the Inheritance Instruction? Chapter 12: Dealing with Your Living Trust If You Remarry The Clash of the Inheritors Divide and Conquer Chapter 13: Dealing with the Estate Tax Return, Splitting the Living Trust Assets, and Other Tax Stuff That You Would Rather Just Ignore after Your Spouse Dies What Is the Estate Tax? The lifetime exemption Using Your Deceased Spouse’s Lifetime Exemption The “Simple Something” You Must Do to Preserve Your Deceased Spouse’s Lifetime Exemption— the Federal Estate Tax Return The “Complex Something” You Can Do to Preserve Your Deceased Spouse’s Lifetime Exemption Trust The Real Name of the Smaller Bucket Is The Magic Trick The Other Subtrust: The Survivor’s Trust The Emergency Paragraph Putting All of This Estate Tax Stuff Together The Fourth Quarter: Dying with Your Living Trust Chapter 14: Distribution of Your Living Trust after Both You and Your Spouse Are Dead The Grim Reality Beating the Odds Chapter 15: Don’t Intentionally Leave Your Children Unequal Inheritances But It’s Not So Simple Touchy-Feely Advice: Talk to Your Richer Child Before You Leave Him Less Chapter 16: The Accidental Unequal Inheritance The Family Scorecard You Live, You Learn An Easier Pill to Swallow Separate but Unequal Chapter 17: Don’t Make a Child Who Owes You Money a Debtor to Your Other Children What Else Can You Do to Get Your Money Back? Consequences of the Unforgiven Loan Resolving the Family Fallout over the “Forgiven” Loan That Wasn’t Really Forgiven Chapter 18: Do Not Leave Your Child an Outright Inheritance Category One: The Protection Trust That Offers Only a Hope of Protection—the Transparent Trust Category Two: The Protection Trust That Is Just a Tad Less Liberal Than the Transparent Trust—the Self-Directed Irrevocable Protection Trust Category Three: The Protection Trust That Gives Control of Your Child’s Inheritance to a Third Party—the Third-Party Irrevocable Protection Trust Category Four: The Neutron Bomb of Protection Trusts—the Discretionary Trust Chapter 19: Using Your Living Trust to Force Your Child into a Conventional Lifestyle The Incentive Trust The Incentive Trust That Creates a Real Incentive for Your Child to Find Employment Striking a Balance between Competing Desires Chapter 20: The Success of the Third-Party Irrevocable Protection Trust (PUPPET) Depends on Whom You’ve Selected as the Third Party Who Will You Appoint as the Trustee of Your Child’s PUPPET? Your First Choice: The Private Individual Your Second Choice: The Better Choice Chapter 21: Who Are Your Grandchildren? Grandchildren 101 Two Certainties The New and Protective Definition Chapter 22: The IRS Is Back! And This Time, It’s for Real! The Good News The Estate Tax Return Process Playing the Waiting Game after Your Estate Tax Return Is Filed Seek Out Solutions to Reduce Your Estate Tax Chapter 23: Who Pays the Estate Tax? The Three Types of Estate Tax Allocation Provisions Equal Estate Tax Allocation Provision Proportional Estate Tax Allocation Provision Specific Estate Tax Allocation Provision Three Concepts You Must Know about Estate Tax Allocation Forewarned Is Forearmed Postgame: Review and Lessons Learned Chapter 24: Question and Answer Time! The Top Ten Questions I Receive from Real People The Top Five Questions I Receive from Financial People Chapter 25: A Random Sampling of Cautionary Tales from the Inheritance Arena Cautionary Tale 1: The Last One on the Scene Gets the Money Cautionary Tale 2: A New Marriage Requires a New Living Trust Cautionary Tale 3: Sometimes Having Too Much Money Can Be a Curse Cautionary Tale 4: Keep Your Opinions to Yourself If You Want to Inherit from Your Gay Relative Cautionary Tale 5: Don’t Let the Law Write Your Inheritance Instructions Cautionary Tale 6: Joint Tenancy Gone Wrong Cautionary Tale 7: When It Comes to Money, Family Loyalty Goes out the Window Cautionary Tale 8: “Probate Is the Lawyer’s Retirement Fund” Cautionary Tale 9: “I Don’t Want to Be a Weekend Father” Cautionary Tale 10: “It’s Just a Piece of Paper” Cautionary Tale 11: I Don’t Want Him!” Cautionary Tale 12: “Si, Si! Community Property!” Cautionary Tale 13: “He’s Got Too Many Friends” Cautionary Tale 14: “We Were Cheated!” Cautionary Tale 15: “Am I My Brother’s Keeper?” Cautionary Tale 16: “I Don’t Want to Die with My Daughters Mad at Each Other” Cautionary Tale 17: “I Lost the Bet” Cautionary Tale 18: “I Only Have the Children I Choose to Tell You About” Cautionary Tale 19: “I Want My Money So Hurry Up and Die!” About the Author Index EULA siblings as after-death creditors for tax consequences of forgiving written statement of forgiveness on Look-through trusts “Magic Box” on estate tax return, for lifetime exemption of deceased spouse Manager of assets declaration Managers, powers as, declaration Marital deduction Marital trusts financial advisors and inheritance instructions of deceased spouse protected by limited power of appointment for surviving spouses and changes to provision for changes by third parties rather than surviving spouses second spouse of surviving spouse as heir prevented by surviving spouse's transfer of deceased spouse's half prevented by surviving spouse's use of deceased spouse's half and terms of Married couples, revoking Living Trusts established by Mentally ill children conditions for distribution of assets to example of need for protection trust for PUPPETs (third-party irrevocable protection trusts) for sibling as after-death agent for Minimum required distributions, and IRA look-through trusts Money managers Net estate, and distributions Notice of irrevocable trust Owner of assets declaration Pay-on-death (POD; “pay over on death”) accounts Pay-on-death (POD; “pay over on death”) accounts automatic transfer to beneficiaries using estate taxes and probate avoidance using self-executing assets and Personal property amendments for appraisals of attachment (Exhibit A) for listing Personal Property Memorandum (PPM) Physician letters on competence to handle own financial affairs spousal incompetence confirmed in Pour-over wills See also “I forgot wills” Power of attorney definition of financial power of attorney instead of Living Trust Living Trust as after-death power of attorney Living Trust asset management for incapacitated persons Power of attorney for asset management Powers as manager (trustee) declaration Powers of appointment general limited Prenuptial agreements Preservation of assets Probate cautionary tale about definition of fees associated with forgotten real estate in Living Trust used to avoid overlooked assets in Living Trusts and “pay over on death” accounts and SPITs (self-directed irrevocable protection trusts) and state Small Estate Law and time frame and delays in transparent trust assets inherited by grandchildren without Productivity of assets Promissory notes as assets loans to children as Property tax reassessment, after real estate transfer to Living Trusts Proportional estate tax allocation provision Protection of assets Protection trusts advice from financial advisors on need for amendments on categories of children's problems as factor in choosing type needed children's spouses excluded from inheritances by decision to use discretionary trusts as explanation of concept of family house in limited power of appointment for surviving spouses and provision in Living Trust documents on reasons for using self-directed irrevocable protection trusts (SIPTs) as surviving spouse's changes to third-party irrevocable protection trusts (PUPPETs) as transparent trusts as use of term Protective plans for second marriages, in Living Trusts PUPPETs See Third-party irrevocable protection trusts Qualified domestic trusts (QDOTs) Real estate See also Deeds anxiety over transfer to Living Trusts of appraisals of financial adviser alert on limited term for second spouse's residence in need for Living Trust due to ownership of ownership of, after transfer to Living Trusts property tax reassessment after transfer of protection trust for family house PUPPETs (third-party irrevocable protection trusts) with refinancing and returning to Living Trusts after refinancing selling, after transfer to Living Trusts signatures required for selling transparent trust assets with unequal inheritances perceived from value changes for Real property See Real estate Refinanced properties Remainder (backup) beneficiaries of discretionary trusts first children as, after second spouse's death grandchildren as of PUPPETs (third-party irrevocable protection trusts) of SPITs (self-directed irrevocable protection trusts) of transparent trust assets inherited by Remarriages See Second marriages (remarriages) of surviving spouses Resignation of spouse as co-trustee Revoking Living Trusts destroying “I forgot will” after new will or new Living Trust needed after by one spouse, if established by a married couple reasons for reclaiming share of assets after refusal to sign revocation request and signatures required for transparent trusts and written revocation request for Second marriages (remarriages) of surviving spouses financial advisors and first children's concerns about joint tenancy problems in Living Trust updates needed for marital trust for deceased spouse's half of Living Trust and protective plans in Living Trusts for termination of economic connection between first children and second spouse in Second spouses amendments covering clashes with first children, over inheritances as clients of financial advisors first children's concerns about first children's “waiting game” for inheritance from investment decisions by subtrusts for, after surviving spouse's death termination of economic connection between first children and Self-directed irrevocable protection trusts (SIPTs or SPITs) advantages of co-trustees for differences between transparent trusts and grandchildren's inheritance of after-death assets of income tax rates for inheritance instructions in mechanics of Self-drafted Living Trusts amendments and reasons for using reviews by lawyers for problems in Self-directed family inheritance meetings Self-executing assets Selling real estate joint tenancy problems and after transfer to Living Trusts after transfer to SPITs (self-directed irrevocable protection trusts) after transfer to transparent trusts Seminars on Living Trusts Separation, revoking Living Trusts due to Settlors dual role of trustees and use of term Siblings accidental unequal inheritances to consequences of unequal inheritances left to inherited real estate value changes and leaving unequal inheritances to lifetime gifts seen as related to Living Trust bequests to single child as after-death agent and conflicts among talking to richer or more successful child about lesser inheritance share as third-party managers in protection trusts (PUPPETs) unpaid loans to one child and reactions of Small Estate Law Software for Living Trusts Special Needs Trust Specific estate tax allocation provision SPITs See Self-directed irrevocable protection trusts (SIPTs or SPITs) Spouses death of See Deceased spouses second See second spouses surviving See Surviving spouses State laws after-death agents and notice of irrevocable trusts under lack of Living Trust or will under Living Trust rules set by revocation of a Living Trust without a new will or new Living Trust and intestacy under Small Estate Law under Statements of forgiveness Subtrusts See also Marital trusts; Protection trusts for second spouses Successor trustees See also After-death agents bank and brokerage account distributions and new account setup by care needed in selecting declaration in document of definition of term designation of legal responsibilities and obligations of as lifetime agents during your lifetime possible attorney-in-fact conflicts with power of attorney and resignation of trustee during lifetime and second spouses as Small Estate Affidavits signed by time frame for after-death distributions and time frame for after-death transfer of assets to transition to being after-death agents at death trust estate assets distributed by use of term in book what-if scenarios of abuses by Supplemental Security Income (SSI) eligibility Surviving spouses A/B trust split and deceased spouse's half share of assets and disclaimer process and estate taxes and flexibility of Living Trusts and generation-skipping transfer tax (GSTT and) goals of Living Trust management for grief of, after death of spouse half of Living Trust of See Survivor's trusts inheritance instruction changes by joint tenancy problems and limited power of appointment for Living Trust attorney's work with marital trust for deceased spouse's half of Living Trust and ownership of entire Living Trust by Personal Property Memorandum (PPM) and with possible Living Trust provisions for control of half share of proportional estate tax allocation provision and protection trusts changes by provision for trust changes by third parties rather than surviving spouses second marriage (remarriage) of second spouses of surviving spouses as heirs of specific estate tax allocation provision and termination of economic connection between first children and second spouse by Survivor's trusts A/B trust split and inheritance instructions for marital trust and spending down of assets of surviving spouse's half of Living Trust as as taxable estate on owner's death termination of economic connection between first children and second spouse with amendments to use of exemption trust assets after exhaustion of assets of Tax Court Taxes capital gains and distributions and calculation of estate See Estate tax; Estate tax allocation; Estate tax returns; Income tax returns forgiven loans and life insurance benefits and noncitizen spouses and Tax liens, and joint tenancy problems Taxpayer identification numbers, for bank and brokerage accounts Tax-reduction plans Third parties See also Co-trustees discretionary trusts administered by as lifetime agents protection trusts controlled by See also Third-party irrevocable protection trusts (PUPPETs) provision for trust changes by, rather than surviving spouses Third-party irrevocable protection trusts (PUPPETs or TPIPTs) addicted children and use of backup beneficiaries for categories of third parties used in death of child before distribution of assets designated age for distributions from discretionary trusts compared with duties of manager of financially immature children and use of friends of child beneficiary and need for grandchildren's inheritance of after-death assets of independence of third party in interval allocation in mentally ill children and use of private individuals as third-party managers in professional corporate fiduciaries as third-party managers in provision for postponing distributions from questions for selection of third-party managers for reasonable and necessary use for distributions from reasons for using third-party manager selection as success factor for trustees of underage children and use of use of term Title insurance companies co-trustee changes and refinancing real estate in Living Trusts and selling real estate in Living Trusts and transparent trust real property assets and TPIPTs See Third-party irrevocable protection trusts Transparent trusts child's spouse and differences between SPITs (self-directed irrevocable protection trusts) and financial advisors and goals of grandchildren's inheritance of after-death assets of income tax rates for inheritance instructions for mechanics of real estate titles for assets in revoking use of term Trust company, as lifetime agent Trustees amendments delivered to beneficiary's problems with co-trustees See Co-trustees, spouses as declaration powers as dual role of settlors and husband's role in selecting of incentive trusts of PUPPETs (third-party irrevocable protection trusts) of SPITs (self-directed irrevocable protection trusts) successor See Successor trustees of transparent trusts use of term Trust estate, definition of Trustmaker software program Trusts discretionary See Discretionary trusts exemption Inherited Separate Property Living Trusts incentive IRA look-through irrevocable language used in Living See Living Trusts protection See Protection trusts qualified domestic (QDOTs) Special Needs transparent true Trust splitting Trust splits, and estate taxes Underage children, and PUPPETs (third-party irrevocable protection trusts) Unequal inheritances accidental consequences for siblings of using financial advisors and life insurance benefits to “lesser-gifted” child to equalize lifetime gifts seen as related to inherited real estate value changes seen as talking to richer or more successful child about lesser inheritance share unpaid loans to one child seen as ways to equalize unequal lifetime gifts to children Unpaid loans to children as advances on inheritances conflicts from insistence on repayments of family inheritance meetings on financial advisors and forgiving as Living Trust assets possible solutions to fallout over promissory notes for seen as gifts siblings as after-death creditors for tax consequences of forgiving written statement of forgiveness on Vesting deeds “Waiting game” of first children for inheritance from second spouses Wills assets unnamed in Living Trusts and mention in ethical wills executors and transfer of assets named in “I forgot wills” making a new will, after revocation of a Living Trust probate and state laws on lack of Wives death of See Deceased spouses husbands' selection of lifetime agents and reactions of second See second spouses second marriages of See Second marriages (remarriages) of surviving spouses surviving See Surviving spouses WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley's ebook EULA ... are: The First Quarter: Establishing Your Living Trust The Second Quarter: Living with Your Living Trust during the Lifetimes of You and Your Spouse The Third Quarter: Living with Your Living Trust. .. of your life? If you think you know everything about your Living Trust because your lawyer explained it to you or you read the guidebook that came with the software you don’t! If you think you. .. cats—pretty much everything you own How did your assets get into your Living Trust in the first place? You transferred them to your Living Trust after you established it For your house and other real