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 Post subject: Financial self defense
PostPosted: Fri Apr 19, 2002 12:24 am 
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I have been attending some financial seminars.

Sometimes people get the feelings that they cannot trust the financial advisors and or the estate lawyers pitching for your money in preparing wills and trusts etc.

Some questions thrown by the “potential clients” in attendance:

1] Does a will avoid the need to go through probate or not?

2] If a married couple owns assets jointly worth 1.2 millions, should a living trust, written with a provision for a bypass trust, be necessary to avoid both probate costs, and estate taxes to the heirs after the second spouse’s passing?

3] If an existing will is amended to include a provision for the bypass trust at passing of the first spouse, will the estate still need to go through probate?

**
One person at the seminar charged that some lawyers give out free wills, omitting advice about a living trust, knowing that upon the death of the first spouse they will be asked to represent the surviving spouse before probate [even with a will] and charge a hefty fee.


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Van Canna


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 Post subject: Financial self defense
PostPosted: Fri Apr 19, 2002 2:48 pm 
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Location: Framingham, MA USA
I will try to answer your questions, Van but the answers are dependent on each circumstance.

With reference to the trusting of the lawyers on the seminar route, they are the same as those in martial arts.

You have the real stuff as in GEM's Summer Camp, and you have the itinerant MA with very questionable MA lineage.

I have a friend who specializes in estate planning who is an attorney and an MBAs.
He does not highly regard the seminar route but he does not pan it.

While working on a real estate problem case for him one time, I was surprised to see how genuinely happy he was on working out an estate plan and saved a client a small fortune.

1. The question to your number one is "no" on the technical grounds that a will must be probated to be allowed and have legal significance.

However, if probate is to be avoided totally, there can be no real assets in the ownership/estate of the deceased. The real secret of estate planning is to not have assets in one's personal estate.

This is mostly accomplished by the making of donor gifts consistent with IRS rules and the utilization of various trusts.

2. Your second question relates to a pour over trust, which or a type of marital trust, any of which must be calculated with IRS rules. Their assets if placed in a so called "living trust", would not result in the need to probate because the owner of those assets would be the trust. The trust, in order to meet legal and IRS standards, would have legal significance and have its own Tax idea numbe, file returns, and not controlled by the donors. The trustee would operate the trust and the beneficiaries have limited, if any, control. If a trustee is both beneficiary and sole controller, the trust is a sham and will be broken by the IRS or creditors. Even if the heirs avoid estate taxes, they will be taxed to the extent that they receive passive income from the trust, but again the rate is lower.

3. An amendment to a will is called a "codicil", and what you describe is not a living trust. It is called a "testamentary trust" which means that it only goes into effect upon the death of the testator and the probate and allowance of the will by the court. If the trust, within the will provides for a marital trust or another trust, it can save taxes. So again it really makes no difference if there is a probate; what is needed is the tax saving features of the use of proper trusts.s
Now when you say "second spouse" at first I thought you meant second wife. I believe you meant the same wife and in my too technical mind the key word was surviving spouse.

When you come right down to it, one of the main purposes of using a testamentary as opposed to the "living trust" is a question of asset control. And in many cases a combination of the two might be employed.

The person who made the statement that a lawyer would wrongly advise a client for the ability to charge a fee, has little basis for that statement.

In the first place, the lawyer would not risk a malpractice suit for a few bucks.

Secondly they would have no assurance that the heirs or executor would hire them. I have seen this happen many times, where for example, the oldest son hires his own lawyer.

A client disturbed by heavy probate fees can contest this in court. Fees must be reasonable and justified. I am sure that there are sharks out there who just do the unthinkable.

Regards,

Al

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 Post subject: Financial self defense
PostPosted: Tue Apr 23, 2002 3:31 pm 
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Location: Mansfield, MA USA
Dear Van,
I am an estate planner so my bias is in favor of doing estate planning. As Alan said, a will does not avoid probate, it more or less guarantees probate.

A properly drafted living trust may allow a married couple to shield up to $2 Million in assets from estate taxes. That translates to a saving in excess of $300,000 in estate taxes. However, whether somebody "should" do that type of planning depends on a number of issues including: what a person's goals are; the nature of the assets involved (real estate, liquid, family business, etc.); the relative health and abilities of family members. There are of course many other factors that need to be considered and discussed with your advisors.

In my opinion, in most situations involving "middle class" estates and up, some type of trust planning is beneficial.

You may contact me off the list with a more private question at: ngalaw@aol.com.

Sincerely,
Norm Abrahamson


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 Post subject: Financial self defense
PostPosted: Wed Apr 24, 2002 6:28 pm 
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Hi Norm,

Thanks for your response, and I will write to you personally at some point, thank you.

Besides my own,I have an interest in exploding this subject with the many points of views by attorneys and specialists in the field, as a service to our readers of this fine website we all moderate.

As I said, I have attended several estate planning seminars and it bothers me to see so many people leave in total confusion and dismay.

Hope the information below will stimulate some meaningful discussions:
Check this out
https://www.trustgordon.com/QandA.htm

And this
https://www.trustgordon.com/MandM.htm

And this https://www.trustgordon.com/Default.htm

And https://www.trustgordon.com/purchase/order.htm

<BLOCKQUOTE><font size="1" face="Verdana, Arial">quote:</font><HR>Perhaps the all-time greatest myth concerning estate planning is that a Last Will and Testament avoids probate.
Most everyone realizes that probate is bad news. Consequently, when attorneys urge their clients to invest in a will, many clients naturally assume that the Last Will and Testament the attorney is recommending will avoid the cost and headaches of probate.

However, less than 1 percent of the clients are told by the attorney that a will is an automatic ticket to Probate Court.

Thus, rather than being a magnanimous gesture on the attorney's part to save the client's estate money by avoiding probate, the strategy has always been just the opposite: Set the attorney up to receive fat and easy probate fees at the death of unenlightened clients!

You have bought into an ages-old trap that will create 12 to 24 months of frustration and delay in Probate Court for your loved ones. Plus, you will have sacrificed 5 to 15 percent of your heir’s inheritances to court costs and attorney fees.

To avoid probate it is necessary to move the assets out of your name into the name of someone or something that does not die when you do. Then, at your death, nothing happens. The assets belong to somebody else.

That "somebody else" will then be able to withdraw the assets from the safekeeping of the financial custodians at any time they please and do one of two things with them:

1. Give them to your heirs as they verbally promised to do - or
2. Let their greed get in the way and spend the money on themselves!
**

As the maker of your trust you will draw a simple written agreement with the trustee or manager of your trust to assure that he or she will manage the trust according to your wishes.
But how do you maintain control over assets you no longer own?
You appoint yourself and, if you are married, your spouse as the trustees of the trust!

That means that as the maker of the trust you get to write rules that allow you as the trustee of the trust to do as you please with the trust assets even though those assets no longer belong to you.

To help justify their $1,500 to $3,000 fees for drawing trust documents, attorneys attempt to convey the idea that the transfer of assets to the trust is a time-consuming and difficult procedure that will require the attorney’s assistance. Don't believe it!

You will need to show your financial custodian two or three pages from your trust contract before the financial custodian can transfer your assets to the trust. The two requirements of your trust contract are:

1. The naming of a trustee (or manager) to manage the trust

2 The naming of a successor trustee to take over the management of the trust when the original trustee - you - is dead
Nothing else is required to make a legal trust contract.

Hundred-page trust contracts drawn by attorneys almost always contain pointless financial details, useless asset descriptions, and needless legalese.

Invariably, the simpler the trust contract, the better the trust you have. Superfluous trust packages packed with needless information require frequent amending each time you change any one of the numerous, needless details or buy, sell or trade an asset.

Attorney fees to write such amendments generally range from $150 to $500, depending on the complexity of the amendment.

It is important to understand that trust assets are identified by what is written on the titles and deeds of the assets, not what is written in the trust contract. There is absolutely no need for a properly constructed trust contract to formally list the assets owned by the trust.

It is, however, a courtesy to the successor trustee to clip to the trust contract an informal list that not only identifies trust assets but the location of the title or deed of each asset.

Listing the assets directly in the trust contract has absolutely no legal merit whatsoever and serves only to 1) needlessly add to the length of the contract for which the attorney can charge and 2) reveal to your attorney your approximate net worth which gives the attorney a guide as to what he/she thinks you can afford.

You prove that you have complied with the two requirements of naming a trustee and a successor trustee simply by showing the trust contract to your financial custodians.

It does not matter if an attorney has drawn the contract or if you have done it for yourself. In fact, the identity of the person or law firm that wrote the contract is none of the financial custodian's business.

If your financial custodians are satisfied that your trust contract contains these two basic elements listed above they should be able to transfer the assets out of your name and into the name of your trust within five minutes.

You don’t need an attorney to transfer assets to a trust any more than you needed an attorney to assist you in opening your checking account.

The same procedure used to open a checking account is used to transfer the asset to a trust! Your financial custodians will be happy to make the change for you. You need only request it.

A single, memorized statement will set the whole process in motion. You simply say to your banker or other financial custodian:
"I would like to open a new account today. It will be in the name of my new Living Trust."


That's all it takes! At that point your financial custodian will pick up the ball and run with it while you sit there and watch. All you are doing is opening a new account, transferring your assets from the old account to the new account, and then closing your old account. In effect, you are simply taking the money out of one pocket and putting it in another.

Real estate is transferred into the trust with a quitclaim deed that you can pick up at almost any office supply store for about $3 and then fill out on your dining room table in 10 minutes using information off your present deed or tax notice. You will then have the quitclaim deed recorded at the country register of deeds office in or near the courthouse.

In so many words the quitclaim deed will say that for a consideration of less than $100, John and Jane Doe convey the property described herein to the Doe Family Trust, John and Jane Doe, Trustees.


A "successor trustee" (usually one or all of your adult children, some other close relative, or your most devoted friend) appointed in the trust contract by you while you were alive steps in at your death and becomes the new trustee.

To understand the legalities of a Living Trust you must have a firm grasp on two factors:

1. What your trust is trying to accomplish
2. The long-standing fiduciary laws by which all financial custodians must abide.

To say that your trust is trying to accomplish the "avoidance of probate" is not enough. What you really are trying to accomplish is to convince your financial custodians that they can safely release your assets to your heirs after your die, free from the fear of lawsuit by disgruntled and disinherited heirs, without the need of a guarantee from Probate Court. That is the name of the game!

Hence no court, no attorney, no judge has anything to say about the legality of your trust. The magic moment when you trust becomes legal is that instant when your financial custodian accepts your assets for safekeeping in an account owned by your trust.

That acceptance of your assets by your financial custodian guarantees that those assets must be released to the control of your successor trustee immediately upon your death.

That is what you set out to accomplish:
the release of your assets after your die, free from the fear of lawsuit by disgruntled and disinherited heirs, without the need of a guarantee from Probate Court.

A Living Trust contract does not require registry or recording with any municipality, court or county. The agreement is a private contract between two people: the trust maker and the trustee.

Requirement to record a private contract would make its contents public record which would be unconstitutional. Remember, there is no way your trust could remain unknown to your beneficiaries because the assets must be registered in the name of the trust with your financial custodians.

Assets that name a beneficiary on the title of the asset (including assets that include a POD or TOD, i.e. Payment on Death or Transfer on Death) such as insurance policies, annuities, 401Ks, IRAs, etc. need not be placed in the trust, but should be reviewed to make sure contingency beneficiaries have been listed on them.

By naming your trust as a contingent beneficiary, the asset will flow into the trust and be distributed by the terms of the trust in the event that both trust maker and the primary beneficiary (usually the spouse) die in a common accident.

Assets do not require an evaluation when placed in the trust nor should assets be formally listed in the trust contract.

However, as a helpful courtesy to your successor trustee, list your assets informally on a separate piece of paper and attach it to the trust contract with a paper clip or staple.

Trust assets should be evaluated immediately after the surviving spouse dies.

Automobiles, boats and recreational vehicles generally pass to the heirs outside of probate in most states. Yet, to avoid possible misunderstandings, it is wise to place such items in the name of the trust.

Why then does less that 15 percent of the population have a Living Trust?

Aside from the fact that a few people are still unaware of Living Trusts and their benefits, I would venture that personal greed plays a major role.

Most folks quickly realize that a Living Trust holds no advantages for the grantor (maker) of the trust! Like providing your children with a college education, the advantages are realized almost exclusively by the beneficiaries of the trust. Perhaps that is why they are referred to as the beneficiaries.

Thus, in the end the decision to act always gets back to how important your children are to you - and how you would want to be remembered by your children.<HR></BLOCKQUOTE>


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 Post subject: Financial self defense
PostPosted: Wed Apr 24, 2002 8:47 pm 
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Posts: 284
Location: Mansfield, MA USA
Van,
That is an interesting quote. I do agree with some of it, however, there is an obvious anti-lawyer slant I don't buy into. Anybody can buy a form book or computer program and print out a trust or a deed. A good attorney doesn't charge by the word, page or pound. He charges for giving legal counsel and helping clients execute a plan. He educates clients as to the reasons certain documents are necessary and communicates with financial planners, CPAs and other client advisors so they act as a team to ensure the success of a client's plan. In my opinion, a person who reads a few articles about trusts and buys a form book or computer program to do it himself is as foolish as the person who buys a book about surgery and attempts to remove his own appendix. He may be successful, the the chance of doing harm far outweighs the cost of using professional help to do something right from the start.

Sincerely,
Norm Abrahamson


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 Post subject: Financial self defense
PostPosted: Thu Apr 25, 2002 7:30 pm 
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Joined: Tue May 22, 2001 6:01 am
Posts: 284
Location: Mansfield, MA USA
Dear Van,

You pose some excellent questions. I will address them briefly here.

Q: Is there any reason to transfer IRAs, 401K plans, insurance policies or POD (pay on death) assets into a trust? Will they go through probate?

A: An asset that has a pay on death beneficiary, such as the assets described above, do not go through probate unless the named beneficiary is not alive or available. Often a trust will be named as the beneficiary of insurance proceeds, because the trust contains specific instructions as to who gets what and how it may be used. It can also protect the asset from creditors. For example, if insurance proceeds are paid directly to the child with creditors, the creditors may be able to attach and take the asset. Also, the estate tax planning is within the trust. The trust may need the insurance assets to shield them from estate taxes. Contrary to popular opinion, insurance proceeds for a policy owned by the deceased IS part of the estate for estate tax purposes.

It gets a little trickier when dealing with retirement assets where surviving spouses have valuable roll over rights that a trust would not have.

Q: Is a will worthless if a person has a funded trust?

A: The trust to a great extent operates as a will substitute after the maker's death. A pour over will operates as a safety net to fund in any assets that otherwise are not in the trust.

Q: Should a car be transferred into trust?

A: No. A car in trust will louse up insurance coverage. An ordinary policy covers family members who use a car. Massachusetts courts have ruled that a trust has no family members, only trustees and beneficiaries. Neither are covered under the insurance policy. The only exception to this is a valuable collectable or antique car. Sometimes that type of asset is funded into a trust.

Q: Why would a house go into trust?

A: To avoid probate and so the asset is available to fund credit shelter trusts if necessary. Also, if a homeowner becomes incompetent, the house may not be sold without filing a guardianship proceeding in probate court and obtaining court permission. That may be avoided of a house is owned in trust.

Q: What is a reasonable price to pay?

A: A comprehensive estate plan for a married couple with an estate between
$1 million and $3 million, consisting of trusts, wills, powers of attorney, health care proxies, real estate trusts and other ancillary documents will run between $2000 and $3000. As with any rule, there are exceptions.

Hope this helped.

Sincerely,
Norm Abrahamson

PS: I have answers to a lot of your questions on my website: http:\\www.abrahamsonlegal.com


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 Post subject: Financial self defense
PostPosted: Fri Apr 26, 2002 2:34 am 
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Hi Norm,

<BLOCKQUOTE><font size="1" face="Verdana, Arial">quote
Quote:
A: No. A car in trust will louse up insurance coverage. An ordinary policy covers family members who use a car. Massachusetts’s courts have ruled that a trust has no family members, only trustees and beneficiaries. Neither are covered under the insurance policy. The only exception to this is a valuable collectable or antique car. Sometimes that type of asset is funded into a trust.


Would this insurance coverage problem affect the basic homeowner’s liability policy and a personal umbrella policy as well?

If the house title is transferred to a living trust with trustees and beneficiaries, [family members not recognized], how does one avail of liability and other coverages for family members under a standard homeowner’s policy?

The “homeowner” is no longer the owner of the house, the trust is. How will the coverage be written?

Likewise, how will coverage be affected under a personal umbrella policy, which requires certain underlying limits of coverage on the homeowner and auto’s liability policies?

Who will be the named insured and additional insureds under the policy/policies?

Your website is great: can I reproduce some of it here on this thread in contrast to the other? Image

------------------
Van Canna

[This message has been edited by Van Canna (edited April 25, 2002).]


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 Post subject: Financial self defense
PostPosted: Fri Apr 26, 2002 5:39 am 
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I totally agree that anyone who seeks to protect family assets from probate and from estate taxes without legal counsel is a fool.

Nevertheless this workshop does help in educating the average person as to what it all means, and here on the forum, it provides us with the opportunity to ask questions and discuss.

I recall GEM sensei and I talking about this a long time ago, and how essential to our readers it would be _ to learn of estate planning strategies on this forum, as that is where many people take the “real beating” of their lives.

Question: <BLOCKQUOTE><font size="1" face="Verdana, Arial">quote
Quote:
Assets that name a beneficiary on the title of the asset (including assets that include a POD or TOD, i.e. Payment on Death or Transfer on Death) such as insurance policies, annuities, 401Ks, IRAs, etc. need not be placed in the trust, but should be reviewed to make sure contingency beneficiaries have been listed on them.


Is this true? Does it also apply to CDs; money market accounts; checking accounts, and the like?

And if so, then the above assets would avoid probate, with or without a will?

Also is it true that a living trust would make a pre-existing will or a new will worthless [except a pour over will within the trust], since there are no assets in ownership to will, given the trust is now the owner?

<BLOCKQUOTE><font size="1" face="Verdana, Arial">quote
Quote:
Automobiles, boats and recreational vehicles generally pass to the heirs outside of probate in most states. Yet, to avoid possible misunderstandings, it is wise to place such items in the name of the trust.


My understanding is that There is no need transfer an auto to a Living Trust. Autos avoid probate
in all 50 states. But if one were to transfer ownership to a trust, wouldn’t that trigger sales taxes and title expenses, again?

So, no probate for autos, boats and personal property as such, but how to arrange as to who gets what? This is where I have seen family members almost kill each other over left over possessions.

People turn into ugly, conniving, rat like beings, when money and possessions are at stake.

Another question that came up in discussion with friends was why would a mortgage free house; willed over to the children, need wait for probate to be sold, perhaps a wait of a year or so, incurring great expense to the children/heirs?

I guess the reason is because the children cannot “deed” the house to a new buyer, as they are not recognized to be new legitimate owners unless the probate court says so in validating the will?

Thus the reason for a living trusts so compelling?


What is a reasonable fee to pay for the attorney to draw up the document?



------------------
Van Canna


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 Post subject: Financial self defense
PostPosted: Fri Apr 26, 2002 8:31 pm 
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Location: Mansfield, MA USA
Van,

As to homeowner's and umbrella policies, the first caveat is: look at the policy. However, in my experience, there is no problem with insurance for property in a realty trust. The terms in auto policies are controlled by statute and that is part of the reason for the result. In most home policies, the primary loss payee remains the mortgagee. For any particular policy, a policy review would be necessary.

Sincerely,
Norm Abrahamson


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 Post subject: Financial self defense
PostPosted: Sun Apr 28, 2002 4:21 pm 
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Alan,

I believe you did mention that your umbrella coverage was delayed [?] because of a trust situation?

Are you at liberty to discuss the details?

------------------
Van Canna


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 Post subject: Financial self defense
PostPosted: Mon Apr 29, 2002 2:07 pm 
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Location: Framingham, MA USA
Van,
When I asked by insurance agent about umbrella coverage the representative stated that since my homeowner's insurance was with a different aagency and carrier, I could not get umbrella coverage.

The house is in trust, not the automobles.

The agent said that if they had both policies they could provide coverage, and I have not had the time to go to their office to get a more detailed and informed information package. I will let you know as soon as I find out. As Norm said, the Massachusetts Motor Vehicle Insurance Statutes govern the policy coverages and charges. You need to know whether you will be covered and having an insurable interest.

Thanks to Norm for jumping in. The information was quite helpful.

Best regards,

Alan K


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 Post subject: Financial self defense
PostPosted: Mon Apr 29, 2002 9:31 pm 
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Thanks for the reply, Alan.

Yes, Norm is a great asset to this forum with his vast knowledge of subject matter and statutes.

Under the umbrella policy, the insured is defined as the person named in the declaration as the named insured, and the spouse living in the same household.

Coverage also extends to a relative of the named insured, by blood or adoption, living in the same household, or anyone else in the named insured or relatives’ care living in the same household.

The underlying basic homeowner’s policy has the same language.

The umbrella policy requires that the named insured and additional insureds[relatives], carry auto and homeowner’s liability limits of at least 250/250 and $300/300 before it is written.

Since the named insureds will differ in the trust owned home from the named insureds of the auto policy, I was wondering who would be named as insureds in the umbrella policy to satisfy the policy ownership and underlying limits of liability coverages in the auto and homeowner’s policies.

Maybe a simple answer. Just thinking out loud.

Thank you both for your valuable time. Image




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Van Canna


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