GTH Estate Planning Blog

Another decision for Lars and Kyra in doing their Living Trust, is whether to leave anything to charity and if so, how much, and to what do-good recipient.

The whether isn't too tough for Lars and Kyra, although the dynamics of it are a little surprising to Lars. He is pretty sure that his wife is a more generous and loving person than he is, and more likely to end up in their Lutheran version of Heaven, whatever that looks like. But her love for their children and grandchildren, combined with her concept of money that Lars still hasn't quite psyched out, somehow eclipses most of her desire to leave a legacy for the general good. Maybe part of it is she's skeptical of how such a gift would actually be used. Lars somehow manages to be more idealistic than Kyra on the whole, even though she is a better person than he. He doesn't like it when older folks talk about the failings of the next generation; in fact he feels his kids are at least as good as he in the important aspects of life. And he doesn't think a modest gift to charity will affect his kids' lives, except to give them an example of giving. He often tells his clients hey, let's assume you give ten percent of your estate to charity, and your kids the rest. If it's a large estate, 90% of it is still a lot. Or if it isn't very much, then 90% of it still isn't very much.

Lars has learned in recent years of the benefits of a Living Trust vs. a Will: avoiding probate, keeping one's wishes private, and easing transition of management. He's sold on doing one this time as he and Kyra update their estate planning. He especially likes the privacy aspect, although his and Kyra's wishes aren't all that unconventional so it wouldn't be particularly embarrassing to have their Wills in the public record when they died. For now avoiding probate doesn't seem that important to Lars, as all their assets are in Washington so the probate process wouldn't be very cumbersome. He's giving up that benefit for starters, and so he and Kyra don't need to transfer titles of assets into the name of their Living Trust yet.

As for the terms of their Living Trust, Lars and Kyra have a fairly large estate so they want a structure that saves both of their estate tax exemptions for use when it all goes to the kids. Until recently the only way to preserve the exemption of the first estate was to leave Lars's share in trust for Kyra rather than giving it to her outright. In 2011 Congress enacted "portability," by which Kyra could inherit Lars's exemption even if she got his estate outright. But Lars sees this as a faulty approach.

Now having the duty to inform nephew Walter and other beneficiaries of the trust Uncle Nils has established, Lars considers for a few days what to do about it. He's concerned about undermining Walter's motivation even further. Lars must not only let Walter know there is a trust; he has to tell him annually about the assets, income and expenses of the trust, and a few other details.

Lars has proclaimed in other settings that when there's an awkward situation it's usually best to just go to the other party and try to talk about it. So he takes his own advice and invites Walter out to lunch on a Saturday. Over sandwiches and soft drinks Lars asks Walter how community college is going (Lars refrains from reminding Walter that it's his fifth year there). The nephew gives a noncommittal response and jumps the conversation ahead by asking Lars "Why did you want to have lunch with me?"

Lars's conversation with lawyer Duncan resumes. As trustee of the new $500,000 trust for relatives, Lars must not only give them initial notice, he has to share a detailed annual report of the following:

Receipts and disbursements during the year;

Assets and liabilities and their values at year's beginning and end;

Trustee compensation (here none);

Agents (brokers etc.) hired by the trustee and their relationship to him;

Trust debts incurred;

Any conflict of interest transactions;

A notice that a beneficiary may petition the Court for review of the report; and

A statement that any lawsuit against the trustee must be brought within three years.

Another tax season behind him, Lars is having one of his periodic late-afternoon check-ins with lawyer friend Duncan, mostly on wealthy Uncle Nils's affairs. Duncan like Lars has a nice but not fancy office, befitting a sensible personality and a modest prominence in a medium-sized city. Duncan had recently helped to establish the $500,000 trust given by Uncle Nils for relatives. Lars is trustee.

Duncan tells Lars there is new Washington law defining a trustee's duty to inform the beneficiaries. Lars is sensing from Duncan's earnest tone and widened eyes that he should be more than a little bit concerned about the requirements.

There are two main parts of the law. First, a newly defined duty to inform beneficiaries of the existence of the trust at the outset. This initial notice must tell of the existence of the trust, of who gave it (here Nils), of who is Trustee (here Lars) and how he may be contacted, and of the beneficiary's right to request information about the trust.

There are eight beneficiaries of the $500,000 trust: Lars, his wife Kyra, his three children and one grandchild, and Lars's sister and her son. The main idea of this "generation-skipping" trust is to pay income to Lars and Kyra from one share, and to Lars's sister from another, for their lifetimes and then to pass on to the next generation without being subject to estate tax in the first generation of beneficiaries. Distributions of principal may be made to either generation as needed, but this isn't expected. Lars has to give this initial notice now. So what's the problem?