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Trust your estate to trusts
Using trusts can make the transfer of assets much smoother
by Gene Walden

(from the Minneapolis StarTribune)

A couple of years ago, with his close friend facing failing health, Larry Nelson lined up an attorney to help the friend craft a will to designate the beneficiaries of his estate.

Nearly two years after the friend’s death, the will is still tied up in probate where it may remain for months to come. Nelson, a retired Minneapolis security specialist and a beneficiary in the will, could use the money to cover expenses and pay for medical care to treat his terminal cancer condition. “I’m not sure what else I could have done,” he says. “I found my friend an attorney and brought him into the office to help him set up his will. But the distribution process just keeps getting delayed.”

Complicating the matter is another mysterious will that has appeared in the estate filings. Nelson is convinced that that will is bogus since it names as the sole beneficiary a man who was already caught writing checks to himself from the decedent’s bank account and stealing items from the decedent’s home. But contesting that will in court could take another year or more.

When you’re planning your estate—or helping your loved ones plan theirs—there are some moves you can make to help eliminate problems and expedite the distribution process.

The most obvious solution in Nelson’s case would have been for his friend to set up a revocable living trust. While a trust wouldn’t necessarily eliminate all delays and conflicts, it can streamline the process and better withstand legal challenges. “A trust requires a higher level of competency and mental capacity to create than a will,” says Tim Davis, an estate attorney with Hellmuth & Johnson, “so it’s harder to challenge a trust than a will.”

A trust can also speed up the probate process by eliminating the four-month creditors claims period that is required with a will. And it can sidestep some other unforeseen problems that a will would not address.         

Eliminating unintended results
It’s not unusual for individuals to plan their estate with one result in mind only to have their best laid plans go awry after their death.

Davis was recently brought into a contested estate case in which the mother of three daughters had tried to set up her estate in a way that would ensure the equal distribution of her assets to each of the three daughters. In her will, she designated that her money be divided equally. Then she set up three joint bank accounts—one with each of her three daughters—to make sure the money went directly and equally to each daughter.

But when she fell ill and entered a nursing home, the daughter who served as her conservator paid all of the mother’s medical bills from the account of one of the other daughters. By the time the mother died, the one daughter’s account was empty, while the other two daughters had all of their mother’s money in their accounts.

The third daughter sued, citing the terms of the will as proof of the mother’s intent to divide the money equally. She ultimately won a settlement out of court, but not without some frayed emotions. “It caused an irreparable breach in the relationship of the three daughters,” says Davis.

The mother could have circumvented the problem by creating a trust and putting all the money into that trust. All medical expenses would have been paid out of the trust, and in the final settlement, each daughter would have received an equal share of the remaining funds.

“A will is just a pile of papers, ineffective until you die,” explains Davis. “A revocable trust must be funded—assets must be transferred into a trust name.” Once the assets are transferred into a trust, the distribution process can become almost automatic.

Keeping the kids in the loop
Another common unintended result of a poorly planned estate is that children of parents who remarry can end up with no inheritance despite the intentions of their parent. “Dad’s will may say the kids should get some of his money, but the wife somehow ends up with all of the estate,” says Davis. “This is something I’ve seen many times.”

To solve that problem, Davis recommends a “Q-tip marital trust.” The trust would provide income and some principal from the husband’s estate for the wife’s living expenses, but most of the money would remain in the trust until the wife’s death, at which time the money would be passed on to the kids.

“She can use the money in the estate, but she doesn’t own it and she can’t pass it on,” says Davis.

Although a trust does take some time and effort to create, it is not as expensive as you might think. Setting up a trust generally costs about $1,500 to $3,000—a small price to pay to help ensure that your generous intentions do indeed become a reality for those you leave behind.

 

 






|Welcome| |About AllStarStocks| |About Gene Walden| |Books| |PE Ratios| |Investment Glossary| |High Watermark Annuity| |Stock Analysis| |100 Best Dividends| |REITs| |Research Central| |Tips on TIPS| |Advanced Investing CD| |Beginning Investing CD| |Seminar Topics| |Privacy Policy| |Expert Witness| |Investor Test| |Asset Allocation| |Bear Market Investing| |Managing Your Broker| |Commission-Free Stocks| |Archives| |Wealth marketing| |What good are stocks| |Good stocks bad market| |IRA contributions 2009|