Читать книгу The Living Trust Advisor - Condon Jeffrey L. - Страница 14

I have attended (snuck into?) some of the Living Trust seminars conducted by my colleagues. I have heard them take more than an hour to describe what the Living Trust is and how it works. Maybe you have been to one and wondered why you are sitting in a hot room for over an hour, listening to someone talk and talk about the purpose of a Living Trust. In this chapter, I will tell you – in three to five minutes – what a Living Trust is and what it does.

As you listen to my advice, I would ask that you forget everything you have ever heard about the basic mechanics of the Living Trust, even if you have one. If you focus on my explanation of the Living Trust – that it is simply an after-death power of attorney – you will guide yourself out of the legal haze thrust upon you by the Living Trust’s multiple pages filled with legal words that we lawyers have to use so the document can qualify as a legally correct trust.

A Simple Explanation

The Living Trust is not a true trust arrangement. Oh, yes – it looks like a trust, reads like a trust, smells like a trust, and tastes like a trust. It has all the complex words and phrases that a trust is supposed to have. But still, it is not a true trust arrangement.

A true trust arrangement takes place when you take your money and property to a money manager and say, “I want you to manage these assets. I want you to take care of all the transactions – the buying, selling, leasing, exchanging, investing, wheeling and dealing – and send me a check for the income on the first of each month. I also want you to dip into the assets and give me principal or send it to someone else when I so instruct.”

But that’s not how it goes with a Living Trust. You don’t transfer your assets to a third-party money manager. You transfer it to yourself. When you set up a Living Trust, you are saying to yourself, “Self, I want you to manage these assets – all the buying, selling, leasing, exchanging, investing, wheeling and dealing. And, Self, I want you to send me a monthly check for the income. And furthermore, Self, I want you to give me the principal whenever I want it or pay it to whomever I want.”

You may think, “What an absurd and silly proposition! Why would any sane person set this up?”

Here is why:

The main purpose of the Living Trust is to provide you with the power to appoint the person or persons of your choice to sign your name to the title-transferring documents after you die. In short, the Living Trust is your after-death power of attorney.

In order to better understand this concept, there are some important questions that need to be answered.

• Do you know what a power of attorney means? A power of attorney is a document that you sign in which you – as the principal – give someone else – as the agent – the power to sign your name to documents and bind you to legal transactions. For example, let’s say you are selling your house, but will be vacationing in Liechtenstein when the transaction will take place. Since you are unable to sign the legal documents yourself, you designate your sister to have power of attorney to sign your name to the deed and escrow documents. This is a quite common arrangement, and perfectly valid and legal.

That example is identical to your Living Trust, with an additional caveat. It is a power of attorney that you sign in which you – as the principal – give someone else – as the agent – the power to sign your name after your death to documents that transfer your lifetime of accumulations to your designated beneficiaries, such as your spouse, children, charities, and so forth. Documents that may be signed by the agent include the deed to your house, bank account forms, brokerage account forms, partnership and limited liability company assignments, and automobile transfer forms provided by the Department of Motor Vehicles.

• What are the assets that are to be transferred? Your after-death agent has the power to sign the title-transferring documents for any assets that you transferred to your Living Trust during your lifetime and that are still in your Living Trust at the time of your death – your house and other real estate, bank accounts, brokerage accounts, insurance policies, partnerships, corporations, cars, silverware, fancy dogs and cats – pretty much everything you own.

• How did your assets get into your Living Trust in the first place? You transferred them to your Living Trust after you established it. For your house and other real estate, you signed a deed that your lawyer prepared, which transferred title from you to you as trustee of your Living Trust. For your bank and brokerage accounts, you visited your account representatives and told them that you wanted to transfer your assets to your Living Trust. The representatives then presented you with documents for you to complete to establish new accounts in the name of you as trustee of your Living Trust.

Financial Advisor Alert

The only assets that your clients transfer to their Living Trust are those that are NOT self-executing. Self-executing assets are those that already have existing beneficiary designations, such as insurance policies, IRA accounts, annuities, and bank and brokerage accounts with an existing pay-on-death (POD) designation.

• How does your after-death agent know what assets are in your Living Trust after your death? Perhaps you have made a list of all of your Living Trust assets and inserted that list with your Living Trust documents. However, the most common method that an after-death agent uses to discover your Living Trust assets is to rummage through your business desk and look for your most recent account statements.

Financial Advisor Alert

Discovering what assets your clients owned at death shouldn’t be akin to embarking on a treasure hunt. Advise your clients to make an updated list of assets annually and to send that list to you. When your clients’ after-death agents notify you of their deaths, you can provide them with the latest asset information that you have.

• Who are the persons to whom the after-death agent transfers the Living Trust assets after your death? Your after-death agent will transfer your Living Trust assets after you die to whomever you have designated.

• Where do you list who gets your Living Trust assets after you die? You describe who gets what, when they get it, and how they get it in your Living Trust document. After you die, your after-death agent opens up your Living Trust, reads the inheritance instructions, and transfers the Living Trust assets to the persons – and in the manner – described in those instructions.

• Who will be your after-death agent? Your after-death agent will be the person(s) you name in your Living Trust as your after-death agent.

Putting this all together – the Living Trust is a signed document in which you authorize an agent to transfer your Living Trust assets to the persons whom you have named as beneficiaries after your death.

Financial Advisor Alert

You can also describe the Living Trust as a bucket into which your clients transfer their assets. Your clients own and manage the assets in that bucket as the “settlors” (owners) and “trustees” (managers). This bucket comes with a set of instructions that state that the assets in the bucket are held, managed, and used for your clients’ (the settlors and the trustees) benefit during their lifetime – and who will receive those assets in the bucket after your clients die. I have found this to be a pretty good way to inject the use of the technical and alien words “settlor” and “trustee” into the conversation about explaining the concept of the Living Trust.

It’s an After-Death Power of Attorney, but It’s Not

Do not take my simplistic explanation the wrong way. In my seminars, many people ask, “Mr. Condon, if an after-death power of attorney will do the job of transferring my assets after I die, why can’t I just sign one of those and forget about the Living Trust?”

It’s a good question. Here’s the answer: There is no such thing as an after-death power of attorney. It does not exist. Any power of attorney that you sign dies when you die. It does not live on after your death.

But we lawyers, not to be daunted, developed the Living Trust so that it would have the same effect as the nonexistent after-death power of attorney; all we did was change the language and terminology. Instead of using language found in a power of attorney (principal, agent), we used the language found in a trust (settlor, trustee). Whereas you would be considered the “principal” authorizing the power of attorney, you are labeled a “settlor” in the Living Trust document. Instead of you appointing a power of attorney “agent,” you appoint a Living Trust “successor trustee.” Now, here is where we introduce a completely new term – the trust estate. After you – the settlor – die, your successor trustee distributes the assets in your Living Trust. These assets, referred to as the trust estate, are dispersed among the persons whom you have named in your Living Trust as your beneficiaries.

Now that you know everything you need to know about what the Living Trust is and how it works, the big question becomes: Do you need one? The last thing you want is to be sold something you don’t need. To help you make this decision, I refer you to the next chapter.