Inspect What You Expect
the practicing lawyers of Arizona, I too have to take
continued legal education (CLE) each year to maintain my
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!
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.
Handling Estate Real Estate
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
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.
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
KISSING THE GORILLA
For 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
instructions by the document can easily become
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
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
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
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
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
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
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