Because the future of the estate tax rates, the estate tax exemption amount, and the ‘step up’ basis is currently up in the air, the only planning that can be done now should be based on current rates and regulations. But that doesn’t mean to stop planning or maintaining your estate plan altogether – there are many important reasons you should take a closer look at your current estate plan now. Last week we covered the 5 most common issues that need to be addressed inside an existing estate plan. (If you missed this article, you can view it on our website: www.kennedy-financial.com.) This week we will look at 4 issues involved with trust planning. I encourage you to brief your legal documents and discuss these issues with your Life Planner and attorney.

1. You would not believe how many trusts and subtrusts are set up to complete an estate plan, but it either remain s unfunded or are funded incorrectly – which means all the planning you did was ineffective. Why? You don’t know what you don’t know. Funding a trust is primarily about two things: the language used in the legal documents and how you title your assets after you finalize your estate plan. So what is the language used in your documents? Often times, your documents will state a fixed dollar amount, percentage or fractional shares. This might not allow you to take advantage of current laws such as the federal estate tax exemption amount. Consider speaking with your attorney about revising the terminology in your documents to consider the full extent of the law. The second part of funding a trust is retitling your assets. If you have not retitiled your assets to coincide with your trust, chances are your trust is unfunded. Gather a list of your assets and how they are currently titled. Then visit with your Life Planner to determine which assets you will need to retitle and how.

2. Is your spouse in danger of being unable to access the assets that he or she needs from your testamentary trust after you die? Many by-pass and QTIP trusts are set up just to provide income to a spouse in order to keep trust assets out of the surviving spouse’s estate; however, is income enough? What about emergencies? Talk with attorney about an HEMS (health, education, maintenance and support) provision in order to ensure your spouse is truly provided for.

3. Do you want the assets you pass to your children to be protected from bankruptcy, divorce, and/or creditors? My guess is, yes. But if the trust you set up for your children distributes these assets outright either as a lump sum or in installments, you can say good bye to this protection. An alternative is to establish a lifetime beneficiary-controlled trust and have a family meeting to discuss the risks of taking these assets out of the trust. This type of trust will allow the child to become the trustee of his or her own trust and can include a provision that allows the child to step aside as trustee if there is a need to protect these assets from creditors.

4. On the topic of children; there is another issue I feel should be brought to the table. I have often said, “every family is dysfunctional; it is just a matter of how dysfunctional each one is.” I’d like to add that who and how dysfunctional one member might be today may not be the same tomorrow. One of your children could develop an addiction or habit that you do not want to facilitate with money. A commonly overlooked provision that may be added to bypass and QTIP trusts is for the spouse to have limited power of appointment over the remaining assets in this trust after you are gone. In other words, it may be extremely valuable to allow your surviving spouse to have the ability to change the distribution, at least among your children and grandchildren.

Unfortunately, estate planning is extremely complicated and it is impossible to touch on every issue out there, much less go into enough detail for each family’s unique situation. If you question any part of your estate plan or you have not had your estate plan reviewed by an attorney in the last 3 to 5 years, I strongly recommend you consult with your Life Planner and attorney.

VSR does not provide tax or legal advice.