By Patrick S. Whalen, CFP®, CTFA
Let’s say that you’ve already decided that you want to have an attorney draft a revocable living trust for you. A revocable living trust, sometimes simply called a revocable trust, is a document that in combination with your last will and testament allows you to direct where and how your assets will be distributed after your death. In addition, if you become mentally incapacitated during your lifetime, a revocable trust can provide authority to someone of your choosing who can access the trust to financially support you and your loved ones.
What are some of the questions to ask your-self before meeting with an attorney?
How much will it cost to have an attorney in Los Angeles draft a revocable trust?
In my experience, the cost in Los Angeles is highly variable and depends upon factors such as: how busy the attorney is, what other attorneys in the area are charging, overhead costs such as a fancy office in a high priced location, and the complexity of your situation.
Most estate planning attorneys will quote you a flat fee for a package that includes documents such as: a revocable trust, last will and testament, and a health care power of attorney. Ask your friends, relatives, and financial professionals for names of estate planning attorneys that they have had good experiences with. You can then call the attorneys’ offices to ask for an initial consultation, which is typically free.
Who will replace you as trustee?
I’m going to make the assumption that you will serve as an initial trustee or co-trustee, because that is what most people do.
In your trust document you will almost certainly want to name one or more persons to take over as trustee when you and/or your co-trustee (if you have one) are no longer able to fill that role. These people are called successor trustees. I strongly suggest that you list a chain of several successor trustees and include a method for naming new successors. For example, your spouse might be the first successor, followed by your daughter, followed by your son, followed by your cousin Ned, followed by a trust company and finally followed by whomever a majority of your beneficiaries name as successor.
Why include such a long list of successor trustees? The reason is that successor trustees typically do not have to actually agree to serve until it is time for them to take over from the prior trustee, which might be decades from now.
Listing a trust company as successor can be a good idea, especially if you are running out of people who are good candidates or your family is not cohesive. An additional option to consider is providing a method for new successors to be named, such as by majority vote among those that you believe will make good decisions.
Who will decide if you are incapacitated?
Whether it is due to illness or injury, sometimes a current trustee is no longer able to carry-out their duty. Who will decide when this line has been crossed? Perhaps it might be two doctors who barely know you or a judge. You may want to specify who the decision makers will be.
What if the successor trustee who replaces you does a poor job?
Let’s say that you are deceased or incapacitated. If the successor trustee does not meet expectations then the beneficiaries can pressure him or her to resign. If the successor trustee refuses to resign then it may be necessary to go to court to remove them. Alternatively, the trust document could be written with a process for removing the successor trustee. You might give a specific person or a group of people the authority to remove the successor trustee. For example, you could indicate that a successor trustee can be removed if a majority of the beneficiaries request removal in a written letter.
Should a trustee be paid?
If you use a corporate or professional trustee then they will need to be paid, but what about friends or family who serve as trustee…should they be paid? To me, the answer depends in part upon whether the friend or family member is also a substantial beneficiary of your trust. If your friend or family member is a primary beneficiary of your trust then I’d argue that payment is not needed.
Could your kids be disinherited by your spouse?
If you or your spouse have children from a prior relationship then you should be legitimately concerned that your spouse will partially or fully disinherit your children. Let’s say that you die prior to your spouse and let’s say that your spouse will be sole trustee after your death and will be your primary beneficiary. If you aren’t careful your spouse may be able to leave the balance of your estate to her own children, while leaving your children with a smaller share or nothing at all. Perhaps your blended family gets along great right now, but that may change once you are no longer able to act as a bridge between family members.
Another scenario is that your spouse remarries after your death and ends up leaving your assets to his or her new spouse. The new spouse might have little to no relationship with your children and would therefore see no reason to pass assets from your estate onto them.
The issues described above can be managed by limiting the surviving spouse’s ability to remove principal or income from all or a portion of the trust. If you have a blended family then you may also want to consider having a corporate trustee involved once you are no longer able to serve. Having a corporate trustee greatly improves the likelihood that the instructions in your trust document will actually be followed and will relieve your friends and family from a substantial burden.
Who depends on you for support?
Let’s say your daughter is getting her undergraduate degree. You have been paying a large part of her tuition and living expenses. Unfortunately, you become incapacitated. For the time being, you are not able to make financial decisions. Your successor trustee takes over as the current trustee. Let’s say that your daughter is named as a beneficiary in your trust, but that you did not make her eligible to receive support from the trust until after you are deceased. Your trustee is not able to pay your daughters tuition and housing costs and she has to leave school and get a job.
What you could have done was to provide language in your trust document specifying how and when you want the trust to support your daughter if you die or become incapacitated.
Planning for changes within the family
I was involved in the administration of a trust where all the grandchildren except one received a share of a multi-million dollar trust. Did the excluded grandchild have a gambling or drug problem? No, the excluded grandchild was a toddler. The grandparents made the mistake of specifically listing which grandchildren would receive a share and they failed to include language that would provide for additional grandchildren.
Consider limiting the number of bequests
Perhaps you have twenty different people or charities that you wish to give property or specific amounts of money to. Those who receive your bequests may be grateful, but your trustee is going to have a heck of a time tracking everyone down. It can be hard locating people and organizations after even a few years have passed. Addresses change, names change and charities merge or close. The time that your trustee is spending hunting people down is time that they aren’t spending gathering your assets and fulfilling the other elements of your estate plan.
Share how you feel
You may want to consider including a letter or message in plain language alongside or within your estate planning documents to provide color to the legalese of your formal estate planning documents. Knowing how you feel can be extremely beneficial for understanding how to carry-out your wishes.
I recall one such letter written by parents to their children. The letter talked about how the assets of the trust were built through many decades of careful saving, including additions from members of the family who had long since passed-away. There were recommendations about how the money should be used and the document gave the reader a much better understanding of the parent’s values as well as the hopes and dreams that the parents had for their children.
About the author:
Patrick S. Whalen, CFP®, CTFA is a fee-only financial planner located in the Los Angeles area and is the principal of Whalen Financial Planning. Patrick is not an attorney and does not provide legal advice. He is a former trust administrator and holds the CFP® (Certified Financial Planner) designation and has undergone additional training to become a CTFA (Certified Trust and Financial Advisor).