Salt Lake City Estate Planning

The Blended Family Estate Plan

“Blended” families — which include children from earlier unions — have become the norm. The diplomatic challenges of day-to-day interactions among ex-spouses, stepchildren and multiple grandparents are well-known. Less recognized is how much chaos can result — even with amicable relations — without careful consideration of how these complex relationships affect estate planning.

So-called “blended” families – a mixture of children and parents of various marriages and biological/legal relationships – have quickly become commonplace. If your family is blended, be mindful of the attending complexities when planning your estate.

Granted, every family is unique. So it is with blended families. Some are created early in life and others are formed later in life. One or both spouses may be widowed or divorced, even multiple times with multiple “sets” of children from prior relationships. As you can see, the family dynamics alone can get complicated very quickly.

Who will inherit what, when will they inherit and who will control the inheritance? When inheritance issues are added to the other family dynamics, everything can explode like nitro and glycerin shaken together. The Poughkeepsie Journal recently considered this topic in an article titled “Plan estate carefully for blended family.”

As you imagine, communication is key. Blended families who are open and share at least the general contours of their estate plans have fewer problems. That noted, however, you know your family members best. For example, which children or in-laws are most likely to become outlaws?

Consider including provisions in your estate plan that discourage troublemakers from challenging your wishes. Regardless, estate planning is not a do-it-yourself project. This especially is true when making estate plans for a blended family. Be sure to talk with a competent estate planning attorney about your unique situation. 

Reference: The Poughkeepsie Journal (February 23, 2013) “Plan estate carefully for blended family”

Testing Trustee Temperament

When the distribution request is made at the restaurant, trust officer B describes why she would have some difficulty approving it.  She asks the beneficiary: “What do you hope to accomplish by making this request?” and then “Why is that important to you?” The beneficiary is surprised by the inquiry, yet treats it with a mix of candor and earnestness.  Soon, they’re brainstorming other ways of accomplishing his goal. Does he have sufficient assets outside the trust? Is there a different way to look at his goal—one that would lead to a request to which trust officer B could say “yes”?

“It was the best of times, it was the worst of times….” No, this is not a trip back to your English literature class, rather it’s “A Tale of Two Trustees”, as reported by WealthManagement.com. Indeed, for all the laws and expectations put upon trust officers, it’s important to note that they are human and differ in how they approach their work. This is important to remember, whether you are leaving the inheritance or are the beneficiary of one in trust.

The original article offers the diverging stories of trust officers A and B, and is really written to an audience of other trust officers to advise them. Nevertheless, that doesn’t mean the article isn’t also useful to you non-trust officers. The trust is a tool that operates on paper and through the legal code. Under the terms of the trust, the trustee is bound by the clear language of the trust, but language can only take you so far. Interpretation of the not-so-clear language is left to the trustee.

According to the article, there are at least two important mindsets for trustees to adopt: “prevention-focused” and “promotion-focused.” This is equally important regardless whether you are choosing a professional trustee or an independent individual trustee.

So, do you want a trustee who plays things conservatively and works to protect the language of the trust as written, or do you want a more proactive approach that may lead to a greater boon to the beneficiary? In the end, there is a necessary character assessment required when choosing the most appropriate trustee.

But, then again, there is the consideration of the financial maturity of the beneficiary. We’ll save that discussion for another day.

Reference: WealthManagement.com (January 9, 2013) “A Tale of Two Trustees”

Estate Planning: Not Just For the Rich

If you are like many other American families, the current upheaval in Washington regarding the fiscal cliff (and the estate and gift taxes) doesn’t particularly interest you. However, while the discussions in Washington generally only affect the extremely wealthy, don’t be fooled. You still need an estate plan for yourself and your loved ones.

No matter your net worth, it’s important to have, at the bare minimum, a basic estate plan. Such a plan ensures that your family and financial goals are met after you die and may include components such as a Will, a Durable Power of Attorney, a Living Will or Medical Power of Attorney, and possibly even a Trust.

So, now that you know you need some sort of estate planning, you may be wondering where to begin. A good place to start is taking inventory of your assets. Your assets include your investments, retirement savings, insurance policies, and real estate or business interests.

Then ask yourself three questions:  Whom do you want to inherit your assets? Whom do you want handling your financial affairs if you’re ever incapacitated? Whom do you want making medical decisions for you if you become unable to make them for yourself?

Now, be sure to consult with your estate planning attorney to ensure your estate plan is properly drafted and executed. Preparing your own estate plan is not a safe DIY project, especially when the protection of all that you have and everyone you love is at stake. 

Why Would I Want a “Defective” Trust?

The name is stupid because if the trust is done correctly it will have no defects, intentional or otherwise.  The “defect” in the trust is a power held by the grantor or the fiduciary that produces an income tax effect that can be desirable.  In software terms the “defect” is a feature, not a bug.

If you are not schooled in estate planning or up to speed on the latest estate law jokes, you may be scratching your head when it comes to so-called “defective” trust planning. Did you say “defective” trusts? Why yes, yes I did.  And as a recent Forbes article says, “Don't Freak Out If You Hear Your Trust Is Defective.”

The defective grantor trust, and more specifically the Intentionally Defective Grantor Trust (IDGT), is more often than not the source of confusion estate planning greenhorns face. That’s unfortunate. Why? Because so-called “defective” trusts usually work pretty well, and they work well precisely because they are defective.

Here’s the rub: sometimes you want your trust to be a trust and sometimes you don’t, and a defective trust only fails when you want it to. The heart of the matter, defective or otherwise, is simply to say that there is a lot to learn about this weird intersection between your life, unique legal entities, and weird tax laws that we call estate planning.

As with any sort of end-of-life planning, you should know your tools and how to use them. When a tool such as the “defective” trust leaves you scratching your head in confusion, seek competent counsel to examine your options.

Reference: Forbes (October 15, 2012) “Don't Freak Out If You Hear Your Trust Is Defective”

Benefits of a Spousal Lifetime Access Trust (SLAT)

This gifting strategy can provide estate tax benefits without giving up access to policy cash value, if needed in the future.

You’ve decided to make a gift out of your estate to your heirs, but you are on the fence with completing the process.  What if you need those funds in the coming years? This can be a justifiable apprehension, whether you have a little to give or a lot.

With the longer lifespans we now enjoy and the expensive healthcare costs we now face, one strategy is to use gifts to purchase life insurance as a gift for your heirs, and to do so with a trust arrangement known as a SLAT.

A SLAT, or “Spousal Lifetime Access Trust” enjoyed the spotlight in a recent WealthManagement.com article titled “SLATs and Life Insurance: Have Your Cake and Eat it Too.”

Now, knowing how to have your cake and eat it too can require a complex bit of planning. However, done right, such planning can be powerful. Problem: when life insurance is owned by an individual it ends up counting towards their estate value by virtue of such “incidents of ownership.” A Spousal Lifetime Access Trust that owns a life insurance policy (a tactic normally seen in traditional Irrevocable Life Insurance Trusts) will allow access on the part of your spouse during their lifetime while also funding the policy for your heirs. If this sounds too good to be true, then it just might be if all of the i’s and t’s are not dotted and crossed properly.

To learn more about this gifting strategy, seek appropriate counsel to ensure you know the whole process and can maintain peace of mind when it comes to giving to your loved ones.

Reference: Wealth Management.com (October 17, 2012) “SLATs and Life Insurance: Have Your Cake and Eat it Too”

Wealth Transfer Ideas from Romney’s Estate Plan

In January 1999, a trust set up by Mitt Romney for his children and grandchildren reaped a 1,000 percent return on the sale of shares in Internet advertising firm DoubleClick Inc.

If Romney had given the cash directly, he could have owed a gift tax at a rate as high as 55 percent. He avoided gift and estate taxes by using a type of generation-skipping trust known to tax planners by the nickname: “I Dig It.”

All politics aside, one could learn a thing or two from Mitt Romney’s estate planning when it comes to transferring wealth. One particularly interesting instrument he made use of was the “Intentionally Defective Grantor Trust,” or IDGT.

Romney and his use of the IDGT (accordingly pronounced, “I DiG IT,” if you aren’t into spelling out your acronyms) were the subject of a recent article in Bloomberg News titled “Romney ‘I Dig It’ Trust Gives Heirs Triple Benefit.”

A popular wealth transfer strategy among estate planning attorneys, the IDGT provides a “triple benefit” to taxpayers who employ it. The key, as with so many wealth transfers, is to place unappreciated assets in an IDGT and thereby shelter them as they grow. If the assets then appreciate in the IDGT, then the transfer will ultimately maximize the wealth transferred and minimize the attending taxation.

Check out the original article to learn more about this popular IDGT strategy, and contact your estate planning attorney to see if the IDGT is right for you and your loved ones.

Reference: Bloomberg (September 27, 2012) “Romney ‘I Dig It’ Trust Gives Heirs Triple Benefit”

Travel Trusts: Give the Gift of an Experience

Some who bequeath money for travel want their offspring to connect with their heritage, culture or religion. They might go so far as to require the beneficiary to study or take courses in a particular country.

Have you considered leaving your loved ones a legacy of experiences through travel? As pointed out in a recent article from the Philadelphia Inquirer, people are passing on a new type of inheritance in the form of a Travel Trust.

True to its name, a Travel Trust is a specialized trust designed to do one thing and one thing only: give your beneficiaries the chance to travel as you always wanted them to. The terms can be broad or specific, but the main idea is to limit the use of the trust funds for travel – making sure the money is not spent on purchasing a new car, etc. This can be a powerful way for families to keep traditions alive, and even ensure for the possibility of specific religious trips, when financial concerns or hectic daily life could otherwise let them slide.

One unique aspect of these types of trusts is that they can be created with reasonably small sums of money. For example, The Philadelphia Inquirer article refers to an instance involving a Travel Trust of $6,000. You may want to consider this option if your estate is relatively small and you have a specific travel experience you would like to pass on to your loved ones. As with all trusts, Travel Trusts can vary greatly – but they are truly unique gifts for your heirs.  If you would like more information about travel trust and if they would benefit your estate, contact your estate planning attorney. 

Reference: Philadelphia Inquirer (August 20, 2012) “Inheritance travel: Trusts can fund trips for heirs”

Trustee's Duties and Obligations

If you have been appointed the trustee of a trust, this is a strong vote of confidence in your judgment and probity. Unfortunately, it is also a major responsibility.

A trustee should be, first and foremost, a “trustworthy” person. A trustworthy trustee acknowledges the challenges and responsibilities of holding this position. Accordingly, if you are establishing a trust or being asked to engage as trustee under one, then you should give thorough consideration to the attending responsibilities and potential liabilities.

A recent article titled “A Brief Overview of a Trustee's Duties” is worth a look. The article offers eight crucial elements you need to understand and address, specifically: fiduciary responsibility, the trust’s terms, investment standards, distributions, accounting, taxes, delegation and fees. Essentially, you must fully appreciate that the role of a trustee is jointly moral, legal, and fiduciary.

You have a duty to the beneficiaries, a duty to the language of the trust (the express intent of the trust maker), and a duty to the assets themselves. This duty can be a treacherous tightrope to walk. If you are establishing a trust, understanding this means finding someone who would do as you would do, or better. And if you are a would-be trustee, understanding this means understanding your role and its rewards.

A trust is a great way to protect wealth and pass wealth to future generations, but it is vitally important that a trust be handled  by the right trustee.  If you are considering establishing a trust, talk with a competent estate planning attorney about the vital role a trustee plays and how best to select a trustee for your trust. 

Reference: ElderLawAnswers.com (May 2012) “A Brief Overview of a Trustee's Duties”

“Death Puts” May Secure Income and Estate Value

A little-known strategy called a 'death put' can help you lock in higher returns -- without stiffing your heirs.

Are you concerned about the return on your investments or the return of those investments en route to your heirs? If yes, then you might consider an “estate put.”

When it comes to later-in-life investments, yield and time can be unfortunate obstacles. In order to secure the highest yield, you must make long-term investments. Unfortunately, when making such long-term investments, fearing they’ll survive you and fall apart without your guidance is common.

Fortunately, a recent SmartMoney article featured the “death put,” or “estate-feature put,” as known in more dignified circles.

The article, titled “Yield-Hungry Retirees Turn to 'Death Puts,’” describes how the put is just a built-in device that allows heirs to redeem the investment at face value and recoup all that went into the original investment. You can find it on many investment vehicles, even CDs purchased through brokers. Sound attractive? There’s more.

A “death put” can guarantee an investor that an investment won’t eventually turn south or clutter up their estate for their survivors, but it will still secure a decent yield (in a world of low yields) today.

In substance and in form, “death puts” are an add-on and, although comparable to a form of insurance, this means they are subject to the manner in which your broker or investment company writes them. Translation: the devil is in the fine print.

For more on “death puts,” investment ideas, and some of the numbers involved, read the original article. Regardless, this subject matter is another reminder for you to carefully consider (and even reconsider) your investments in the context of your present income needs and future wealth transfer to your heirs.

Like any strategy, a “death put” should only be put in play after thoughtful advice and counsel from a competent estate planning attorney. 

Reference: SmartMoney (May 1, 2012) “Yield-Hungry Retirees Turn to 'Death Puts”

The Disinheritance Dilemma

The motives for cutting a relative out of an estate range from the most primal — hate, abandonment, regret — to the most rational — preservation of wealth and tax considerations.

Planning what to leave behind to loved ones can be a difficult matter since, even with taxes out of the picture, it means explaining your choices and your hopes. On the other hand, planning to specifically disinherit can be all the more difficult.

Inheritance and disinheritance are emotionally charged concepts. The motivations that go into disinheritance are especially complex, as discussed in a recent article in The Trust Advisor titled Why Are Family Members Disinherited?.

Teaching point: If you are considering disinheritance, then it is also important to think about what that means, both for yourself and the excluded heir. There are many reasons to disinherit, some more reasonable than others and some worth abandoning upon meditative reflection.

Still, if you must disinherit, then consider explaining your basis for that decision. While it is your choice and right, your legal documents must be clear and withstand (oftentimes) inevitable legal challenge by the affected heir. For help and information regarding disinheritance, talk with and estate planning attorney. 

Reference: The Trust Advisor (April 15, 2012) “Why Are Family Members Disinherited?”