Last Updated: 05/03/2017
 
ARIZONA LIVING TRUST: War Stories (What we've learned so far)

Inspect What You  Expect

Added: 5/03/2017 

Seniors Having FunLike the practicing lawyers of Arizona, I too have to take continued legal education (CLE) each year to maintain my AZCLDP licenses.

Though so many of these classes are "review" and frankly, "boring", I took a class this year that taught me new things about the declining mental capacities of seniors still in charge of their own finances.

I learned the 9 conditions to test for mental competency and was more than a little surprised just how distinct and accurate this testing is and why it is needed.

And even if you pass those first 9 conditions -- it is no guarantee that you still won't be under prepared to handle serious financial decisions that may come your way as you grow older.

So for all family members you love and that love you, don't be afraid to talk about money decisions together,  and BEFORE, they are made and finalized.

As a very wise V.P. of Marketing told me as a graduating Agency Manager in the insurance business --  "INPSECT WHAT YOU EXPECT".  Nothing has stood out in my mind and financial career more. And now I am in my 5th decade and growing old too!

Children, inspect what you expect your parent's to do on financial decisions when they grow older.  And parent's, perhaps this applies to you too while your kids are still young and under your care and control.

Enough said.


Handling Estate Real Estate

Added: 11/15/2016 

FSI can assist on estate homes.There are so many that pass away here in Arizona without ever exploring the cost reduction of creating and funding a proper revocable living trust and then placing all of their property (real and personal) into it.

 A few years ago, our firm did extensive research on just how many die with Arizona real estate but without a quality living trust to hold it. It was shocking to see little "granny's" dying with multiple rental properties!  (They didn't like the bank rates on their money)

It was also shocking how many had to go through probate!  The majority do when they are the surviving spouse or are single when they die. Make life easier for your loved ones who survive you - put your assets in trust, including all your real estate. It will save a bundle on fees when you pass away.  But also, it will show you really cared about your survivors as well.


Letters From the Grave

Added: 6/10/2015 

Senior MistakesWe have numerous closed files from clients whose stories are "war stories" no doubt. Explore and read a few of their "Letters From the Grave" we wrote for them with actual details of the case. We just don't disclose who they are and where they live.

You can learn from their mistakes which all seed from one common statement I hear over and over in my 40 years of practice in the estate planning field. The statement is:

"IT'S ALL TAKEN CARE OF"

That coming from the 40 percent of Americans who have some type of estate plan and legal documents.  Not from the remaining 60 percent who have the latest smart phone, every change in the stock market, and sports scores updated live by electronic gadgets.  But no legal documents.

Of that 40 percent who have documents, probably around half are keeping them up to date. It's the other half who help write the Senior Financial Mistakes we find after death and of course, the 60 percent who never tried and have nothing to protect their estates when they die.

Read some letters from the "grave" to refresh your desire to keep your estate plan up to date and away from the huge expenses incurred when using the excuse "It's all taken care of" when in fact, you haven't pulled out that old "Last Will" signed in the state you moved from before retirement -- in nearly 15 years!


KISSING THE GORILLA

Added: 5/20/2014 

Kiss the GorillaFor the law firms who don't send disclaimers out explaining the estate splitting language in their older trusts for clients, or offer to update the language - could be like "kissing a gorilla"  when unnecessary splitting is required at the first death.  It just might be extremely uncomfortable when a Successor Trustee has to split a trust for no reason! 

By the way, you need to be married for this page to apply to you and you have to have enough money to warrant having an A/B or A/B/C living trust that splits assets into sub-trusts (the B trust is called a bypass trust) on the first death of you and your spouse. So if you don't have a 10 million dollar marital estate, don't be too concerned about what this page has to say.  But, be sure your trust doesn't force a split on smaller amounts, unless you WANT it to split assets.

But, if you do, make sure your lawyer or document preparer understands just how important proper language and flexibility is now that permanent estate tax law have been put into effect in the country as of January 1st, 2013.

Obsolete A/B "split" wording can be either an unnecessary inconvenience to your surviving spouse, or a tax trap.  Few law firms in Arizona stay on top of serious law changes as they feel it is your duty to contact them if you have any questions or changes. It is doubtful your spouse or heirs will have a case against a law firm that failed to update your trust as few lawyers would sue each other in our state.  But, there is a problem out there in the estate documents world and it would be wise to make sure it doesn't affect you!

You see, way too many law firms producing estate planning documents set up their trust modules (software) to be quite rigid when it comes to doing the splits in a marital trust. What we mean is the division into two or more separate trusts (sub trusts) upon the death of the first Trustor.  These trusts most commonly known simply as the A/B or A/B/C trusts --  incorporate a required "division" of estate trust assets at the first spouse's death.  These kind of dictated instructions by the document can easily become obsolete.

This has happened as the estate tax exemption limit increased so many times over the past few years. More recently, it also happened when the exemption from estate tax limits increased while estate assets fell in value.  (2008 financial crisis) Then during 2010 when the estate tax was eliminated just for one calendar year.  

Many older trusts could force splitting on the first death if not updated. They have proper trusts documents that authorize estate splitting into a sub-trust or trusts at the first death of a marital trust but the splitting may not be necessary!  The "trigger" in the outdated trust documents may need to be "reset". Otherwise, they may force the Successor Trustee to split the assets even though no tax savings will result. Or force the Successor Trustee to forego the written legal instructions dictated in the legal "contract" of the trust instrument -- thus opening themselves up to a can of worms with potential challenges by heirs and regulators if found out.

The problems could best be avoided by taking a look at these trusts now and review what they actually say so it is not adverse. It is anyone's guess on what will be law in this country if you read the blogs and hear the political chatter about this important subject.  Many trust advisors have thrown their hands up in disgust not knowing what to do or what to draft for their clients to cover this problem the past few years.  WE ARE NOT ONE OF THOSE FIRMS!

After over 25 years of legal document practice, we have observed that a surviving spouse has a tendency to do what ever they want after the first death.  But, comments such as "I never did understand that trust!"  do not hold up if an estate split was ordered and never done.  And if someone comes to the door asking why you didn't follow the terms of the trust, an excuse may not hold much water. (Like the IRS)  Wouldn't it be better to have your trust cover all the contingencies?  We do that automatically if you allow us to update or create your living trust documents.

To set ourselves apart from this problem, since day one we have always felt it was most important to draft a "convertible" trust that simply covers the multiple contingencies that could exist upon the first death. Then react accordingly. Sadly, few other legal documents we review contain convertible (thus flexible) wording in this area.

Getting this area of estate planning wrong, the surviving spouse or heirs  can be injured. And, the embarrassed advisor or document preparer who is caught in an act of malpractice for not being more careful in wording your living trust, most likely would rather kiss that gorilla we mentioned than to face the music for ignoring such an important area of practice that requires precise knowledge and subsequent wording to keep the gorilla at bay!


Sending Your Hard Earned Money Into an Inherited IRA Hell

Added:  5/20/2014

IRA HellSince 1998, our firm has been an Inherited IRA consultant firm. After all those years, we have set ourselves apart here in Arizona as well as across the nation in this important area of estate planning. If you type "inherited IRA expert" into your Google browser, we most likely will come up first on page 1 of search results!

Since IRA type "qualified" assets normally represent the largest single asset besides the estate home in most estates, the planning required can not be ignored. But it is. We get emails and phone calls every week and listen to horror stories from banks, brokers, and insurance agents who malpractice greatly in their advice they give. And, sometimes, so do CPA's and lawyers!  

For that reason, we DO incorporate a Legacy IRA trust (sub-trust) that meets stringent IRS rules for leaving a larger IRA/401(k) fund direct to your trust as beneficiary (AKA as an Inherited IRA).  But, we inform clients that the testimonial sub-trust named as a primary IRA beneficiary can cause an Inherited IRA hell unless stringent rules are followed explicitly.  Successor Trustees that don't understand their responsibilities in administering qualified assets sent to the trust at the death of the Trustor(s), can easily trigger a rule or law violation and cause the money to be taxed over a short 5 year period, a year after the death, or worse -- the same year as the death if they cash the money in or fail to transact a direct transfer properly. (they can make a mistake merely by filling the beneficiary claim form out incorrectly)

Some may feel a separate stand alone IRA trust is needed besides your revocable living trust.  Our firm believes that after all the "B" trusts or "B & C" trusts we have helped birth by testamentary trust provisions in the trust language upon the first death, it can work just as well to birth a testamentary sub-trust for your Inherited IRA type account.  (To receive your qualified dollars and create an Inherited IRA)  It helps keep things simple and helps keep the legal fees (or legal document fees) bill down as well!!!

To read more about Inherited IRA's and Living Trusts, review our popular Inherited IRA website at:

  Avoiding Inherited IRA Hell 

M.D. AndersonTo obtain proper estate splitting language, or discover how to set your large IRA up (with or without your Living Trust), give me a call: 

 1-800-782-2806

(There is no obligation or cost)


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