June 2012 Archives

Lars's estate planning letter to Kyra.

June 28, 2012, by

TE BLOG. man working on laptop.06.2012. iStock_000007475463XSmall[1].jpg
Lars won't feel their estate planning is completed until he's updated his supplementary letter to Kyra, discussing a number of things not addressed in the formal documents. This is a notion that came out of a drinks-after-golf conversation he and lawyer friend Duncan had about ten years ago. Lars and Duncan both urge it upon their clients as a useful and partly pleasant exercise. [Editor's note: for a sample of such a letter see the "Dear Barbara" newsletter on the GTH website.]

Lars starts his letter with whom to call if something bad happens to him. It's mainly his CPA partner who is their alternate trustee and executor, and Duncan himself. It would be a little more logical for Lars to lay out their finances first and then say whom to call for guidance, but Lars wonders whether Kyra would feel intimidated by having to digest the complex situation before seeing she had help. This is no knock on Kyra; Lars knows she is smarter than he is, but he is a CPA and the one who has run their finances, and there is interplay with his rich uncle Nils's estate as well.

Next are the standard financial statements: a balance sheet of main assets and liabilities (with values assigned to each), and a list of income sources and amounts. For Kyra the main sources of income, if Lars died, would be withdrawals from his retirement plan, and distributions from trusts that Nils has established. She would be in good shape money-wise, particularly since she lives sensibly and is more interested in people, gardening and books than she is in buying things or taking pricey vacations.

The letter next gives some space to finances of their kids, particularly Nils's provision for them already, and a reminder of how they would inherit later in Lars and Kyra's own estate plan. They have already discussed how they want their kids to find their own careers and affordable lifestyles, but Lars inserts a reminder of this for good measure.

Continue reading "Lars's estate planning letter to Kyra. " »

Lars & Kyra's Living Trust: other estate planning documents.

June 21, 2012, by

TE BLOG. Signing papers.06.2012.iStock_000013831356XSmall[1].jpg
As Lars and Kyra wrap up their Living Trust with lawyer Duncan, there are several other documents to execute as well. The Living Trust is the main instrument for (eventually) allocating their estate. It seems odd to Kyra that they still need Wills, but Duncan explains theirs are "Pour-over" Wills that can be used to transfer to the Living Trust, upon a death, any assets not placed there during their lifetimes. It is ideal to make these conveyances while still living, to avoid probate of the assets, but as noted earlier Lars isn't in a hurry to do this.

There are also Durable Powers of Attorney for financial decisions, to allow continued management of matters outside the province of the Living Trust in the event of Lars or Kyra's disability. They name each other as first choice, with Lars's CPA partner and then Duncan as alternates. They must decide whether to give certain discretionary powers, such as the authority to continue making tax-saving gifts. The Attorney-in-Fact has no power, though, unless and until one of them is incapable. Incapacity is usually demonstrated by a letter from a physician, a sometimes awkward thing to get. For this reason some of Duncan's clients, particularly older ones, make the powers effective upon signing the Durable Power of Attorney, rather than awaiting disability. Lars and Kyra don't feel a need to give the authority immediately.

Continue reading "Lars & Kyra's Living Trust: other estate planning documents." »

Lars & Kyra's Living Trust: who should be successor Trustee?

June 14, 2012, by

TE BLOG. 2 person meeting. 05.2012. iStock_000005815174XSmall[1].jpg
Our CPA friend Lars and wife Kyra have decided to put their children's inheritance in trust if it occurs before the kids are 45. So they need to name a trustee of these trusts-to-be.

Some of Lars's clients and friends have named the children themselves, in order of seeming maturity. One of Lars's children would be a pretty good candidate for this, but he doesn't think it's a good idea, at least at this point in the kids' lives. This would make her trustee of her own trust, and as a practical matter that would at least partly invalidate the idea and protection of her own trust. Second, with the trusts of her siblings, she would be in the awkward position of deciding how their money was invested and (more troubling) how much of it should be distributed to them. Third, a wise and experienced peer of Lars (luckily he has some) could help the kids learn how to handle money. Lars, being a CPA, has felt a need to convey financial responsibility to his family, and they're certainly better than average in that department, but there still would be some adjusting to do at the time of inheritance.

So whom to name as successor trustee?

Continue reading "Lars & Kyra's Living Trust: who should be successor Trustee? " »

Lars & Kyra's Living Trust: put the children's inheritance in trust?

TE BLOG. Baby and parents on lawn at house. 05.2012.iStock_000006313181XSmall[1].jpg
If Lars and Kyra's kids inherited their estate now, it would be about a million and a half each. Of course they won't inherit until both of their parents are gone, but it could happen and the Living Trust would determine in what form they inherited. If it's outright, it will be exposed to the risks of a child's getting divorced, or sued, or deciding he or she didn't need to work. The kids are all in their twenties; a million plus at that age could distort their lives.

Lars and Kyra have discussed with lawyer friend Duncan a progression of alternatives for metering out money to heirs. Again, the most risky would be an outright gift of the mostly liquid estate. The real-seeming risk to Kyra is the divorce of a child. Two of the three are married and the third seems a likely prospect some day, so it's three marriages to consider.

What are the chances one could go bad? One of three could fail and they would still beat the averages. Money inherited directly is initially separate property but it can easily be made community, by an agreement that is common in young peoples' own estate planning, or by commingling funds. Community property is more at risk in a divorce than separate funds. So half an inheritance can be lost this way, after outright inheritance.

Continue reading "Lars & Kyra's Living Trust: put the children's inheritance in trust? " »