Everyday Estate Planning

The trustees of a living trust have a tough job after a death. They have a duty to the beneficiaries of that trust to invest and manage the trust's assets prudently and to distribute them as directed by the trust document.

But what do you do if the trust's main asset is the deceased's house? What do you do if you have to sell the house and nobody's buying? And what if the market just keeps getting worse as time goes on?

There's no easy answer here. As a trustee, you have a duty to get the best price that you can, but it's not your fault if the bottom's fallen out of the market. The longer you wait, the less you might get, so sitting on the house isn't a realistic solution. The beneficiaries are eager to get their inheritance and they don't want you to wait either. So, sell you must. But be smart about it. Expect trouble from disappointed heirs; make them your allies (if you can) to head off any rumblings that somehow they could have done better.

What you need to do is to communicate with the beneficiaries and keep them in the loop in terms of what you're doing to get the best price. Formally notifying them of any offers you intend to accept, or the price you're asking on the market, is one way to protect yourself -- such formal notification gives the beneficiaries a limited period of time to object to what you're planning to do. Find out if your state provides this -- it's often called a "Notice of Proposed Action."

And of course, keep really good records of what you're doing. If the beneficiaries ask for these, provide them (if they sue you, you'll have to produce these records anyway, after all).

Those of us with young children and older parents know all about the stress involved in caring for two generations at the same time. It's not easy juggling soccer games, school open houses, and parents who need looking after.

One thing you can do to make things easier in the long run is to talk to your parents -- now -- about whether they've done any estate planning. Although it is difficult to have that conversation, it can make a huge difference to what happens after a parent dies. Planning now means that you'll have a lot less to juggle later. You might even discover that your parents really appreciate your help in getting their affairs together.

Here (with thanks to Leanna Hamill and her estate planning blog) are 10 good questions, from Real Simple Magazine, that you can use to get the conversation started:

• Do you feel comfortable about your financial situation? Would a financial planner be helpful?
• Do you have an estate plan?
• Who should handle your finances if you become ill?
• In the event you become seriously ill, what sort of interventions would you like?
• Do you have enough health insurance?
• Do you feel your doctor is well-informed about the issues facing older patients?
• Can we help make your home more comfortable?
• Are you feeling secure about driving?
• Can you share your thoughts about your funeral?
• Can you compile a list of all your important information?

It is possible (likely) that your parents don't have answers to all of these. But it's a great place to start working with them to get things in place. And one EXCELLENT way to get the process started, of course, is for you to do your estate plan and use that as a way to begin the conversation with them. 

It's autumn. Your kids are in school, the garden needs cleaning up, the leaves are turning beautiful colors, it's time to get that Halloween costume ready, and -- one more thing -- take a moment to make sure that your beneficiary designations are up to date.

It's open enrollment season, so that's a great excuse to take a look and see who you've named as your beneficiaries for your retirement plans and life insurance policies. Many people forget to do this, leaving out children, or worse, naming ex-spouses.

This can be a big deal: for many people these are some of the largest assets you'll leave behind at death. And your will or trust doesn't control where this money goes after you die -- it's that beneficiary form that matters in most cases. While some states do have laws that automatically revoke some estate planning documents naming ex-spouses, it's just a better idea to make sure that yours are up to date.

You should check to make sure you've still got the right people named for all of the plans listed below at least every two or three years or when you've had a major life change (been divorced, or had a new child for example):

• Pension plan accounts
• 401(k), 403(b) or 457 plan accounts
• Self-employed QRP/Keogh plan accounts
• Individual retirement accounts (IRAs)
• Credit union plan accounts
• Disability insurance policies
• Life insurance policies
• Annuities

Families of children with special needs have estate planning issues that can be special, too.  Parents want to make sure that their children -- who may require expensive therapies, medications, and support -- can continue to receive excellent care, even after their parents have died. Parents can purchase additional life insurance to help fund this care, but disabled children often also require government help from Medicaid (federal health insurance) and Supplemental Security Income (SSI).

The problem is, in order to qualify for these programs a person can't have assets in their own name that exceed $2,000 (not including a home, a vehicle, and basic personal items). Without some special estate planning, an inheritance would mean that a child wouldn't be eligible for these programs until they'd spent virtually everything that their parents had left for them -- hardly the result most parents want.

A special needs trust is one that can hold a child's inheritance for them so it can be used to supplement (not replace) government benefits. The money in these trusts can be used to pay for expenses not covered by government benefits, but without disqualifying a child from receiving them. A trustee manages the assets for the child's benefit and a child never has any legal right to claim the money -- so government regulations don't include trust assets when determining a child's eligibility for benefits.

Barry Nelson, a Miami lawyer recently profiled in the Wall Street Journal, set up a special needs trust for his son. The trust can be used for expenses beyond what Medicaid or SSI would pay for, including "travel, companionship and cultural experiences" and "purchase of small visual and/or audio equipment for entertainment purposes," such as an iPod or DVD player, according to the trust document. A special needs trust "gives me -- and it gives every parent -- peace of mind," explains Mr. Nelson, who says medical and educational expenses for his son run between $50,000 and $100,000 a year.

Another reason to create a living trust: did you know that bank accounts owned by living trusts can get more FDIC insurance than accounts owned by individuals? It's true. Trust accounts get the maximum FDIC insurance for every qualified beneficiary.

The FDIC now insures qualifying beneficiaries for $250,000 each, at least until December 31, 2009, when the financial bail-out package expires. A qualifying beneficiary is a spouse, child, grandchild, parent, or sibling of the account owner. The account must be owned by the living trust.

Here's how it works:

If a single mom sets up a living trust, naming her two children as the beneficiaries after she dies, the bank account owned by the trust is insured up to $500,000: 2 beneficiaries at $250,000 each.

If a husband and a wife set up a living trust and their three children will be the beneficiaries after they both die, the trust account is ensured for up to $1,500,000: $250,000 for each beneficiary for each owner, or 250,000 x 6.

These FDIC limits are per bank not per account. If a trust owner has more than one account at the same bank, these limits apply to all their accounts there.

In my neighborhood, I see ads and fliers for low-cost living trust seminars nearly every month. Since I draft living trusts and charge considerably more for my services, I am suspicious of what these seminars really offer.

Often, such seminars are scams designed to lure in senior citizens with the promise of bargain-rate estate planning. Here's how it works: A low-cost trust is offered, but it's just a pretext for getting people to reveal their confidential personal financial information. These companies then send unscrupulous insurance sales agents to people's homes to follow up with offers of annuities and other financial products that can mean disaster for those who buy them.

How? From a Jacksonville, North Carolina newspaper: A woman cashed out her IRA and purchased an annuity. The sales agent didn't tell her that her monthly payments would fall from $1700 to $300 per month. A couple put their savings into an annuity with a "guaranteed" 7% interest rate. The sales agent didn't tell them that was only a first-year rate or that they would face a nearly 20% penalty for any withdrawal of their money.

To avoid these scams, use common sense:

• Don't buy a financial product that you don't understand.
• Don't work with estate planners who aren't licensed to practice law.
• Don't work with anyone who uses high pressure sales tactics.
• Be suspicious of any living trust that's marketed at an extremely low price.

It's natural enough that, as parents age, their adult children begin to think about what they'll inherit and how. This can make parents feel uncomfortable and adult children feel ghoulish. Some families -- I suspect many -- just don't discuss it. How do you tell your kids that you feel one should inherit more, and that another's already gotten all the support they'll need? How do you broach the entire topic with a parent that you love very much, but see fading? But, like so many family issues, it's a conversation very much worth having, and not just for the wealthy.

Estate planning is an act of love, after all. It's about the orderly transfer of what you've managed to accumulate. If you've taken the time to think hard about who needs what you've got and the best way to transfer it to them responsibly, you've gone a very long way to making that transition easier for everyone.

So why not take the next step and at least outline the plan to those concerned? You don't, of course, have to disclose the details if that's uncomfortable. But you can communicate the broad outlines: Are there charities that you intend to support? Are you planning to treat all of your children equally, or are there reasons not to? 

According to a recent article in the New York Times by David Cay Johnston, it's not just a good idea to talk to your kids -- it can significantly lessen the chance that they will challenge your estate plan in court after your death. In his article, Johnston quotes Gerald Le Van, one of the few family wealth mediators in the country, who says, "[T]he children and grandchildren may not like your choices, but at least they feel like you treated them as adults, that you genuinely asked what they wanted and they can then say to themselves, 'O.K., this is not what I wanted, but you don't always get what you want.'"

In second marriages, where there can be deep tension between the adult children of a first marriage and the often much-younger spouse of a second marriage, clear communication can be even more important.

The Times article also quotes Olivia Mellan, a psychotherapist who runs the Web site MoneyHarmony.com, who said that even middle-aged children tended to "interpret the absence of money in a will as being the absence of love from a parent."

When children cannot accept an uneven split or some of the money going to a stepparent, Ms. Mellan recommends telling them: "This is the only way I can die peacefully. I love you, but when it comes to my money, this is what I have to do."

When our loved ones pass away, we miss them. It's just how we are. From ancient times, we have found ways to honor the dead and keep their stories alive within us. They live on in our memories and in our hearts. We try and keep them near by cherishing their heirlooms, photographs, clothes and music.

No material object, though, really does the trick--things just can't replace the loving presence of those now gone. For me, at least, the next best thing to being with those I miss most is being with others who also loved them and sharing memories of the joke, the dinner, the bike ride, the office, or the time we all got snowed in.

And now (you may have seen this coming) online memorial sites offer you a way to remember your dear ones and share those memories with others, even if you can't all be together in the same place. Sites like Gates of Remembrance, Last-Memories, and Eobituary allow you to create web pages with music, photos, and writings about the dead. Some sites allow you to post memorial videos, create hardbound memorial books (so you can view them without an internet connection), or create family trees. Some have chat rooms for the recently bereaved. Some provide ways to send e-sympathy cards. Most are free, though some charge monthly fees for storing the archive you'll create.

Honestly, I don't know whether an online site could ever replace a wake, a memorial service, or a good scotch at the beach, at least for me. Death, like birth, is one of the more physical, and therefore, non-virtual, experiences I've ever shared with others. It's profound, it's mysterious, and it requires no electricity.

But for some, these online memorial sites may offer solace and a place to share precious photos, videos, audio files, and memories. Who knows? Maybe online scholars a thousand years from now will find these sites as rich in history and tradition as those dusty family bibles and scrapbooks hidden in the attics of the past. Only time will tell.

If you, or anyone you know, has been approached by someone offering to buy them a life insurance policy and promising a risk-free way to earn some serious cash, be cautious. From the same folks who brought you risky mortgages that you couldn't afford and packaged them as 'no-risk' securities on Wall Street now comes stranger-owned life insurance: a way for third party investors to package life insurance policies into securities, promising a high yield with 'no risks'. Yeah, right.

Here's how it works: A promoter will offer an elderly, wealthy person a fairly surprising deal: The older person agrees to purchase a $10 million life insurance policy, and the promoter lends them the money to pay the premiums for two years. They'll even throw in cash up front for the hassle of applying and going through a medical exam. The insured pays nothing during that time, not even interest. If they die during that time, their family gets the death benefit, minus the cost of the loan. If they don't die at the end of two years, they can keep the policy and pay back the loan plus interest. Or, they can sell the policy and use the money to pay back the loan, or transfer it to the lender and pay nothing.

What's wrong with this picture? Lots. As the Music Man said, "We've got trouble, right here in River City."

Grandpa's not breaking the law by agreeing to do this, but the promoters are aggressively pushing the boundaries of acceptable insurance practice and policy. They're betting that Grandpa won't agree to continue that policy after two years but will instead allow them to become the owners of the policy on his life. That's a pretty good bet, since Grandpa wasn't even thinking of buying that policy until the promoter came to town!

If they pay Grandpa $500,000 up front for the hassle of going through the application process and taking that medical exam, and he doesn't choose to own it after two years, they know that when he dies, they'll collect the $10 million -- which is a great return on investment, even after the up front cash payment and the tax they'll owe on the payout.

But, let's face it, life insurance isn't supposed to be packaged into investments and sold to strangers. It gets special tax treatment (it builds up value tax free and payouts are not taxed as income or capital gains) because it's supposed to protect families after a death. It's supposed to be about widows and orphans, not hedge funds and investments pools.

You aren't allowed to buy life insurance on people you don't know or have no economic interest in insuring. But, here's the really clever/evil part of this scam: after a policy's been owned for two years, the insurance company can't do anything about a stranger owning the policy. That's why the promoters are willing to pay Grandpa up front to buy a policy he doesn't even want!

It might not even work out so well for Grandpa: Buying the policy and selling it after two years could mean that he can't buy insurance coverage in the future. He might take a tax hit on the accrued interest he didn't pay for the two years; he might be taxed on the cash advance up front.

The life insurance industry doesn't like this scheme either. They're worried that if Congress realizes that life insurance policies are really just investments, Congress will start taxing them that way, and they'll lose their special tax-favored status. If that happens, life insurance will probably become more expensive, and we'll all lose one of the all-time best estate planning tools for protecting our families at a reasonable cost.

If scams like this transform the insurance industry in the same way that the mortgage industry was transformed, the whole industry could implode faster than a Las Vegas neighborhood emptied by foreclosures.

These days, while the titans of Wall Street teeter on the edge of financial ruin and there's media chatter about the great depression, bank failures, and the domino effect, here's a comforting tip: the Federal Deposit Insurance Corporation (FDIC), which guarantees bank deposits up to $100,000, offers extra insurance for accounts owned by living trusts.

Here's how it works--the owner of a living trust account (which would be the person who set up the trust) can insure up to $100,000 per beneficiary, provided these requirements are met:

1. A beneficiary must be the owner's spouse, child, grandparent, parent or sibling.


2. A beneficiary must get their money when the trust owner dies.


3. The account title at the bank must indicate that the account is held by the trust.

Here's an example: A father has a living trust which leaves his assets equally to his three children. This trust can be insured up to $300,000.

Trusts with two owners can get $100,000 of insurance per beneficiary per owner, as long as the beneficiaries will inherit the money when the second owner dies. A mother and a father who establish a trust for the benefit of their three kids can insure up to $600,000 worth of trust deposits.

The $100,000 limit, though, applies to all trust accounts that an owner has at the same bank. So if a trust owner has a payable-on-death account and a living trust account, both naming the same three children as beneficiaries, the funds in both accounts would be added together and the total insured would be $300,000.