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TableofContents

TitlePageCopyrightPageDedicationPregameWarm-UpORREADTHISBEFOREYOUREADTHISBOOK

TheBigGame—LivingandDyingwithYourLivingTrustAFewThingsYouShouldKnowaboutMyCoachingStyleYourFinalLockerRoomPepTalkBeforeTrainingBegins

AcknowledgmentsTHEFIRSTQUARTER-ESTABLISHINGYOURLIVINGTRUST

CHAPTER1-HowYouEstablishedYourLivingTrustWithoutaClearUnderstanding...

WhatDoesItAllMean?TheSelf-DraftedLivingTrust—Don’tDoIt!YouMayHaveLivingTrustTraining,butYouHaven’tBeenTrainedMy

Way!CHAPTER2-WhatDoestheLivingTrustDo,andHowDoesItDoIt?ORTHEBEST...

ASimpleExplanationIt’sanAfter-DeathPowerofAttorney,butIt’sNot

CHAPTER3-DoYouReallyNeedaLivingTrust?ORDON’TLETSOMEONESELLYOU...

TheReasonsWhyaLivingTrustIsaNo-Brainer

So,What’sNottoLike?PuttingYourHouseinJointTenancywithYourChildIsThisSideof

InsanityInSummary

CHAPTER4-EstablishingYourLivingTrustORNOBETTERWAYTOGETSTARTED.....

YourFirstHomeworkAssignment:SelectingYourLivingTrustAttorneyYourSecondHomeworkAssignment:MakingSureYourLivingTrust

Document...AfterYouHaveFinishedYourHomework

CHAPTER5-WhoShouldYouSelectastheLifetimeAgentofYourLivingTrust?...

YourLifetimeAgent’sDutytoAccomplishtheThreePsofAssetManagementTheNotVeryScientificMethodofSelectingtheLifetimeAgentofYour

LivingTrustDoYouTrustYourChildrentoWatchYourBack(FinanciallySpeaking)?CanYouTrustYourFriendtoProtectYou?AGoodAlternative

CHAPTER6-YouCanSelectYourChildrenasYourAfter-DeathAgent,butWill...

SelectingYourChildrenasYourAfter-DeathAgent“MyProperties...MyPyramid”“YourMoneyIsFamilyMoney”“ThatWasOurParents’Wish...NotOurWish”“IGotRobbed—andMyOwnKidIstheBandit”TheIndelibleConclusion:MoneyChangesEverything

THESECONDQUARTER-LIVINGWITHYOURLIVINGTRUSTDURINGTHELIFETIMESOFYOU...

CHAPTER7-FunctionsofYourLivingTrustWhileBothYouandYourSpouseAre...

Situation#1:RevokingYourLivingTrustSituation#2:AmendingYourLivingTrustSituation#3:EitherYouorYourSpouseNoLongerActsasaCo-TrusteeTheLow-MaintenanceLivingTrust

CHAPTER8-TheFiveConcernsabouttheRealEstateYouTransferredtoYour...

FirstConcern:OwningYourLivingTrustRealEstateSecondConcern:TransferringRealEstatetoYourLivingTrustwithout

Riskof...ThirdConcern:SellingLivingTrustRealEstateFourthConcern:RefinancingLivingTrustRealEstateFifthConcern:RequiringtheSignaturesofBothYouandYourSpouseto

Sell...ConcerningYourselfwiththeFiveConcerns

CHAPTER9-ShouldYouTellYourChildrenaboutYourLivingTrust?ORDON’T...

WhyYouDon’tWanttoConductaFamilyInheritanceMeeting...AndWhyIDon’tRespectYourReasonsastoWhyYouDon’tWantto

Conducta...HowtoConductaFamilyInheritanceMeetingYourLawyerShouldNotChargefortheFamilyInheritanceMeeting

THETHIRDQUARTER-LIVINGWITHYOURLIVINGTRUSTAFTERTHEDEATHOFYOURSPOUSE

CHAPTER10-WillYouDivertYourDeceasedSpouse’sHalfoftheLivingTrust...

TheThreeGoalsofLivingTrustManagementaftertheDeathofYourSpouseDoesYourDeceasedSpouseApproveofUsingHalfoftheLivingTrust

Assetsto...FrettingandHoping—byYourFirstChildrenPreventingYourFirstChildrenfromFrettingandHopingSoTheyCanGet

SomeSleepCHAPTER11-ThePowertoChangeYourDeceasedSpouse’sInheritance...

TheTyrannyofUnjustifiedLifetimeControlPeriscopefromtheGraveWhatIfYouDon’tWanttoChangetheInheritanceInstruction?

CHAPTER12-DealingwithYourLivingTrustIfYouRemarryORTHEBATTLEROYAL:...

TheClashoftheInheritorsDivideandConquer

CHAPTER13-SplittingtheLivingTrustAssetsAfterYourSpouseDies,...

WhatIstheEstateTax?PreparingYourSpouse’sDeathInventory—theFederalEstateTaxReturnAllocatingYourSpouse’sHalfoftheLivingTrustAssetstoaSeparate

Subtrust...TheRealNameoftheSmallerBucketIs...TheMagicTrickTheCompletePictureTheEmergencyParagraphPuttingAllofThisEstateTaxStuffTogether

THEFOURTHQUARTER-DYINGWITHYOURLIVINGTRUST

CHAPTER14-DistributionofYourLivingTrustAfterBothYouandYour

Spouse...

TheGrimRealityBeatingtheOdds

CHAPTER15-Don’tIntentionallyLeaveYourChildrenUnequalInheritancesORSO...

ButIt’sNotSoSimpleTouchy-FeelyAdvice:TalktoYourRicherChildBeforeYouLeaveHim

LessCHAPTER16-TheAccidentalUnequalInheritanceORIFYOUTHINKYOUHAVE...

TheFamilyScorecardYouLive,YouLearnAnEasierPilltoSwallowSeparatebutUnequal

CHAPTER17-Don’tMakeaChildWhoOwesYouMoneyaDebtortoYourOther...

WhatElseCanYouDotoGetYourMoneyBack?ConsequencesoftheUnforgivenLoanResolvingtheFamilyFalloutoverthe“Forgiven”LoanThatWasn’tReally

ForgivenCHAPTER18-DoNotLeaveYourChildanOutrightInheritanceORI’MNOT...

CategoryOne:TheProtectionTrustThatOffersOnlyaHopeofProtection—the...CategoryTwo:TheProtectionTrustThatIsJustaTadLessLiberalThan

the...CategoryThree:TheProtectionTrustThatGivesControlofYourChild’s...

CategoryFour:TheNeutronBombofProtectionTrusts—theDiscretionaryTrust

CHAPTER19-UsingYourLivingTrusttoForceYourChildintoaConventional...

TheIncentiveTrustTheIncentiveTrustThatCreatesaRealIncentiveforYourChildtoFind

EmploymentStrikingaBalancebetweenCompetingDesires

CHAPTER20-TheSuccessoftheThirdPartyIrrevocableProtectionTrust...

WhoWillYouAppointastheTrusteeofYourChild’sPUPPET?YourFirstChoice:ThePrivateIndividualYourSecondChoice:TheBetterChoice

CHAPTER21-WhoAreYourGrandchildren?ORDOYOUREALLYWANTYOURLIVING...

Grandchildren101TwoCertaintiesTheNewandProtectiveDefinition

CHAPTER22-TheIRSIsBack!AndThisTime,It’sforReal!OR“SORRYABOUT...

TheFederalEstateTaxReturn—Your“DeathInventory”TheNot-So-GoodNewsTheEstateTaxReturnProcessPlayingtheWaitingGameAfterYourEstateTaxReturnIsFiledSeekOutSolutionstoReduceYourEstateTax

CHAPTER23-WhoPaystheEstateTax?ORDON’TMAKEONEPERSONPAYTHEESTATE...

TheThreeTypesofEstateTaxAllocationProvisionsEqualEstateTaxAllocationProvisionProportionalEstateTaxAllocationProvisionSpecificEstateTaxAllocationProvisionThreeConceptsYouMustKnowaboutEstateTaxAllocationForewarnedIsForearmed

CHAPTER24-QuestionandAnswerTime!ORTAKETHEOPPORTUNITYTOASKTHIS...

TheTopTenQuestionsCHAPTER25-ARandomSamplingofCautionaryTalesfromtheInheritanceArena...

CautionaryTale1:TheLastOneontheSceneGetstheMoneyCautionaryTale2:ANewMarriageRequiresaNewLivingTrustCautionaryTale3:SometimesHavingTooMuchMoneyCanBeaCurseCautionaryTale4:KeepYourOpinionstoYourselfIfYouWanttoInherit

from...CautionaryTale5:Don’tLettheLawWriteYourInheritanceInstructionsCautionaryTale6:JointTenancyGoneWrongCautionaryTale7:WhenItComestoMoney,FamilyLoyaltyGoesoutthe

WindowAbouttheAuthorIndex

Copyright©2008byJeffreyL.Condon.Allrightsreserved.

PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey.

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LibraryofCongressCataloging-in-PublicationData:

Condon,JeffreyL.Thelivingtrustadvisor:everythingyouneedtoknowaboutyourlivingtrust/JeffreyL.

Condon.p.cm.

Includesindex.ISBN978-0-470-26118-7(cloth)

1.Livingtrusts—UnitedStates.2.Estateplanning—UnitedStates.I.Title.KF734.C662008346.7305’2—dc22

2008018565

Formyfather,GeraldImissyou,Pop

PregameWarm-UpORREADTHISBEFOREYOUREADTHISBOOK

Ifthisbookisinyourhands,youareprobablythinkingaboutputtingtogetheraLivingTrust,which is theprimary tool in theUnitedStates for the transferofyour assets after the deaths of both you and your spouse to your children,grandchildren, or other heirs.Or perhaps you already have yourLivingTrust,whichhascollecteddustonyourbookshelforinyoursafe-depositbox,andyousomehowhavebeenpromptedintorevisitingit.

Foracombined62years,myfather,teacher,andmentor,GeraldCondon,andI set up thousands of Living Trusts for our clients. After all those years ofadvising clients on their inheritance instructions, I am left with this oneconclusion:Youreallydon’tknowmuchabouttheLivingTrust...orhowitworks...orwhatitshouldsayordo...evenifyouhaveone!

Actually,perhapsthatassessmentistoobroadtobeofpracticaluse.Idotendtospeakinsweepinggeneralizations.LetmebemorespecificbylumpingyouintooneoffourcategoriesofLivingTrustclients.

1.YoudonothaveaLivingTrust,andyoudon’treallyknowmuchabouttheLivingTrustotherthanitissomekindofinheritancedocument.

2.YoualreadyhaveaLivingTrust,butyouhavenorealormeaningfulunderstandingofwhatitisorhowitworksbeyondthebasicfunctionoftransferringyourassetstoyourchildrenafteryourdeathwithoutprobate.Inotherwords,youjustsigneditwhereyourattorneytoldyoutosign,threwitintoyourcar,andhavenotthoughtaboutitsince.

3.YouhaveaLivingTrustandyouinitiallymadearealandearnestefforttodecipheritsformandfunction.Butmanyyearshavepassedsinceyouestablishedit,andallyoureallyrecallis(1)youhaveaLivingTrustand(2)itcontainsyourinheritanceinstructions.

4.YouhaveaLivingTrust,andyourefusedtosignituntilyourlawyerexplainedeverysingleparagraphandprovisiontoyoursatisfaction.Ifyouaresuchaperson,Isaytoyou:Yourkindissorarethatyouqualifyasanurbanlegend.

WhetheryouareaLivingTrustrookieorveteran,welcometotheLivingTrustAdvisor,andcongratulationsondealingwiththeoftenunpleasanttaskoffacingyourmortality!

TheBigGame—LivingandDyingwithYourLivingTrust

The purpose of this book is quite simple. I want you to think ofme as yourLivingTrustcoach.Likeanycoach,IwanttotrainyousoyouwillbereadytoplaytheBigGame,which,inthiscase,islivingwithyourLivingTrustwithnofinancial,emotional,orpracticalupheavalinyourlife,anddyingwithaLivingTrust that will adequately and effectively provide for your spouse, children,charities, and other heirs and beneficiaries with a minimum of conflict,diversion,tax,andexpense.

Likeanyfootballorbasketballgame,thisBigGametakesplaceinaspecialarena...theInheritanceArena.Theplayersareyou,yourspouse,yourLivingTrust lawyer,yourassets,yourchildren,yourotherbeneficiaries,and,perhaps,the Internal Revenue Service (IRS). And like any game, there is a warm-upperiod(whichiswhereyouarerightnow)fourquartersofplay,andacool-downperiod.ThinkofTheLivingTrustAdvisorasyourplaybookthatdescribeshowtoplaytheBigGameduringthosedifferentperiods,whichare:

•TheFirstQuarter:EstablishingYourLivingTrust.•TheSecondQuarter:LivingwithYourLivingTrustduringtheLifetimesofYouandYourSpouse.

•TheThirdQuarter:LivingwithYourLivingTrustaftertheDeathofYourSpouse.

•TheFourthQuarter:DyingwithYourLivingTrust.•Postgame:ReviewandLessonsLearned.

The Big Game begins themoment the concept of doing your Living Trustpops inyourmind.That iswhen thewhistleblows to startplay. It endswhenboth you and your spouse have died and your Living Trust assets are in thehandsofyourchildrenorotherbeneficiaries.

Between thebeginningandendof theBigGame, though, there isa lot thathappens.

•ThereistheselectionoftheLivingTrustlawyer.

•ThereistheunderstandingofthenutsandboltsoftheLivingTrustdocument.

•Thereistheallocationoftheassets—realestate,stocks,bankaccounts,brokerageassets,businesses,personaleffects—totheLivingTrust.

•ThereistheoperationandmanagementoftheLivingTrustduringthelifetimesofbothyouandyourspouse.

•ThereisdealingwithyourLivingTrustrealestatewhenyousellorrefinancethatproperty.

•Thereistheselectionofkeyplayers—themanagers,agents,andprotectors—uponwhichdependsthesuccessorfailureofyourLivingTrustandyourinheritanceinstructions.

•ThereistheoperationandmanagementoftheLivingTrustwhenthefirstspousedies(thedeceasedspouse).

•Thereistheprotectionofthesurvivingspouse’sownershipandcontroloftheLivingTrustassetsduringthatspouse’sincapacityorincompetence.

•ThereistheoperationandmanagementoftheLivingTrustwhenthelastspouse(thesurvivingspouse)dies.

•Thereisthefilingofthelastspouse’sestatetaxreturnandpaymentofestatetaxes.

•ThereisthedistributionoftheLivingTrustassetstoyourchildrenwithoutcreatingconflictandchaosbetweenthem.

•Andthereistheprotectionofyourchildren’sLivingTrustinheritancefromthewindsoftheirfates:theiraddictions,divorces,remarriages,mentaldisabilities,financialimmaturity,andcreditors.

ItdoesnotmatterwhetheryouhaveplayedtheBigGamebeforeorwhetheryou already have your Living Trust. After you readThe Living Trust Advisorplaybook,youwillknowhowtoplaytheBigGamethewayitshouldbeplayed.Ifyoufollowmytrainingandlistentomyadvice,IbelieveyouwillwalkawayfromtheBigGameawinner.Inmybook,winningmeans:

•HavingaclearerunderstandingofyourLivingTrust.•OpeningyoureyestothenumerousproblemsandissuesintheinheritancearenathatyoumustconsiderbeforeyourfirstmeetingwithyourLivingTrustlawyer.

•MaintainingownershipandcontrolofyourLivingTrustassetswhileyouandyourspousearebothalive,andthenafterthedeathofonespouse.

• Facilitating the smooth transfer of your Living Trust assets to your

children,grandchildren,andotherheirsafteryourdeath.• Identifying potential inheritance problem areas now so you have theopportunitytobuildsolutionsintoyourLivingTrustinordertopreventthoseproblemsfromarisingduringyourlifeandafteryourdeath.

AFewThingsYouShouldKnowaboutMyCoachingStyle

Before I say something trite rightnow like“Let theBigGamebegin!” Imustfirstconveyafewthingsyoushouldknowaboutmystyleofcoachinginordertohelpyoufollowtheinstructionsinthisplaybook.

BringingYouintoMyPersonalLife

Throughoutthisbook,Iwillpepperyouwithnumerousexamplesthatillustrateakey point or demonstrate how you can do something. While many of theseexamplesmaybedrawnfromexperienceswithclients,othersmayprovideyouwith an occasional glimpse into my personal life. Whether I allude to mybusiness history, divorce, girlfriend, or likes and dislikes, I use these personalanecdotesasadevicetosupportcertainissuesoremphasizeparticularconceptsthatariseinthisbook.

WhileIunderstandtheviewpointthatdivulgingone’spersonalanecdotesandprofessionalexperiencesmaybeunprofessional,Ihavealwaysdisagreedwithit.I believe that providing examples and sharing details that have arisen in mypersonal life and lawpracticebring thisnonfictionbookabout estateplanningaliveandmaketheadviceofferedapplicabletoyourlife,too.

Therefore, you are not getting a technical lecture filledwith charts, graphs,andPowerPointslideswithinthisbook.Instead,youarereceivingtheadviceandopinions of one attorney based on his observations and experiences—bothprofessionalandpersonal.Withsuchasubjectiveapproach,itisnearimpossibletoconveyeffectivelessonsbykeepingtheprivatelifeoutoftheprocess.

MakingSweepingGeneralizations

Iamfondofbroadandsuperlativestatementsthatappeartobeintendedtoapplyuniversallytoeveryreaderofthisbook.Ofcourse,Iknowthatforeverypersonwhoembodiessuchanabsolute,thereisanotherpersonforwhomthatabsolutedoesnotapply.Nonetheless,inordertohelpconveyinformationandemphasizeaparticularpoint,astatementmustcomeacrossassomewhatdogmaticwithoutreference to exceptions. Therefore, the sweeping generalization is a literarydeviceIoftenemployinTheLivingTrustAdvisor.

UsingEverydayLanguagetoExplainTechnicalIdeas

TheLivingTrust,familyinheritanceplanning,andestatetaxesinvolvecomplexpersonal and financial issues. But discussing these issues in a legal mannerwouldensurethisbook’squickdemiseandbargainbasementstatus,asitwouldrender the book a somewhat lackluster and uninteresting read.Moreover, if Iused fancy legal jargon, I fear thatmany readersmight not understandwhat Iwas saying. Therefore, I use nontechnical language to explainmany technicalconcepts throughout this book. For example, the personwhomyou appoint tocarryoutyour instructionsafteryourdeathiscalledthe“successor trustee.”Inthisbook, I refer to thatpersonas the“after-deathagent.”Sinceyourattorneymaywonderwhatyouare talking about if youmention appointingyour after-deathagent,Ialsosupplythetechnicalterm.

GettingMySenseofHumor

Atmyseminars,therearetwocomplimentsthatIcannevergetenoughof.Thefirst:“Gee,Mr.Condon,areyousureyou’realawyer?Iunderstoodeverywordyou said.” The second: “Mr. Condon, I never thought I would find myselflaughingatseminarondeathandtaxes.Iwasreallyentertained.”

I’mnotusingthesecommentstowowyouintobuyingthisbookorattendingmy seminars. I’m just trying to show you that I have found success in usinghumorasthemedicinetohelpfolksdigestthismaterialmoreeasily,andthatthisbookfollowssuitwithmyusualcomedicapproach.

Ihaveanabsurdsenseofhumor,andthisbookisriddledwithit.WithatitlelikeThe Living Trust Advisor, you probably would not expect to find such a

qualityinthisinheritanceplanningbook.Iamawarethatsomereadersmaynotfind it appropriate to address death-and-taxes type matters with a comedicapproach. However, I could not restrain myself, for two reasons. First, I justgottabeme.Second,approachingsuchatedioussubjectastheLivingTrustwithhumor simply makes that matter less tedious and, if I have my way, evenentertaining.

ConsultingYourOwnLivingTrustLawyer

Thisbookisdesignedtoidentifysituations,problems,andconflictsthatariseintheestablishment,maintenance,anddistributionofyourLivingTrust.However,becauseyoursetofcircumstancesmaydifferfromthescenariosIdescribe,itiscriticalthatyoudonotincludeanyofmysuggestionsinyourownLivingTrustwithoutfirstconsultingyourownLivingTrustattorney.

YourFinalLockerRoomPepTalkBeforeTrainingBegins

I was on water polo and swim teams throughout high school and college. Iremembersomeamazinglockerroompeptalksmadebymycoachesthat tookusfromlackadaisical(“Whatarewedoinghere?”)tomotivatedandfocusedonthemission (“Let’s go get’em!”). Inspired by those sessions in those days ofyore, I now want to give you my pep talk to motivate you throughout yourtraining.

Youareabouttoembarkonaprocessthatismorethanjustdollarsandcents.YourLivingTrustisthelastgreatlessonyouwillgivetoyourspouse,children,andotherbeneficiaries.It is thevehiclebywhichyoutransferyour lifetimeofaccumulationstothem.IfyourLivingTrustlessongoessour—byleavingyourbeneficiaries inconflict,orbycausingyourassets tobedepletedby taxesandexpenses, or by requiring that your beneficiaries go through probate to obtainownershipofyourLivingTrustassets,orbycausingyourLivingTrustassetstobecomedepletedonce theyare in thehandsofyourbeneficiaries—so toowillthememoryofyoubeimpaired.

Butitdoesnothavetobethatway.That’swhatI—yourLivingTrustcoach—amhere for. That’swhy you have thisLivingTrustAdvisor playbook in your

hands.With thisbook,youwill learnallyoueverneed toknowabouthow toplay the Living Trust game—from the time the concept of the Living Trustentersyourheadtothetimeitsinheritanceinstructionsarecarriedoutafteryouandyourspousearegone.

Hereitcomes:LettheBigGamebegin!

Acknowledgments

Wiring can be a very rewarding experience. But, when the writing involvestrying to turn a subject as complex and tedious as the Living Trust into (onehopes)alightheartedandentertainingromp,itcanalsobeexasperating.Noonethinks of the estate planning attorney as a tortured artist; but, after multipleoccasionsofspendinghoursonasingleparagraphattemptingtobeinformativeandwitty,IfeltIwasVanGogh.

Oneofthethingsthatkeptmegoingduringtoughtimesatthecomputerwastheprospectofwriting theseAcknowledgments.HowmanytimesdoI,oranyperson, get an opportunity to use a public forum to name and thank family,friends,andpositiveinfluences?

Actually,Ihaveacknowledgedthosepeopleontwoprioroccasions:Whenmyfirstbookwaspublishedin1996,andthenwhenitwasrevisedin2001.InbothAcknowledgments,Imentionedtheusualfamilyandfriendsandthankedthemfortheirsupportduringtheoftenarduouswritingprocess,evenifmostofthemwerenotawarethatIwaswritingabook.Still,itwasfunformetomentiontheirnames, go to their houses, show them their names on the printed pages, andmakethemfeelspecialforatleast10minutes.

Ialsoacknowledgedtwopeoplewhoarenotonlyunawareofmybook,butdonotevenknowI’malive.Thesearepeoplewhohavegivenmegreatjoyinmylifewith their particular talents. I secretlyhoped that Iwouldhear from thosefolksif,somehow,thewordgottothemthattheirnameswerementionedinmybook.Ofcourse,thiswasnaivethinkingandnosuchcallsmaterialized.

Butdid I learnany lesson from that failure?Noway!There’salwayshope!Andbesides,asmyfatheroncesaid,“Putitoutthere,Jeff.Youneverknowwhatwillcomebacktoyou.”

So, once more, a shout-out goes to Mark Knopfler, the lead singer andguitaristfromDireStraits,whoalsohashisownstellarsolocareer.

OntheinfinitesimalchancethatMr.Knopflerwillreadthis,Isaytohim:Sir,noonecanever,andwillever,laydownthesweetlicksyoudowithyourax.Youarethebest.Andbytheway,younolongerhavetoplayinconcerttheusualhitsfromBrothers in Arms that put you on the map. Therefore, as the unofficial

spokesman for your worldwide fan contingent, you are hereby authorized toretire“SoFarAway,”“WalkofLife,”and“MoneyforNothing,”andinsteadhituswithsomeincrediblealbumtracksthatwehavebeenwaitingforevertohearyouplaylive,like“EspressoLove,”“LadyWriter,”and“PortobelloBelle.”

Another mention also goes to Patrick Stewart, the actor who portrayedCaptainJean-LucPicardonStarTrek:TheNextGeneration.Onetime,IranintoMr.StewartatacomputerstoreinSantaMonicaandmanagedtotellhimhowmuchIenjoyedhisperformanceonthatshow,particularlyinoneepisodewherehischaracterwasforcedtoliveanentirelifetimein22minutes.NotwantingtodisturbMr.StewartmorethanIalreadyhad,Ipulledawayfromthatencountermaybe30secondsafteritbegan.

Ihavewanted to say somethingelse toMr.Stewart sincemy fatherdied in2006,andtheseAcknowledgmentshavegivenmetheopportunitytodojustthat:Mr.Stewart,myfatheralmostneverwatchedanytelevisionprogramsotherthannewsandsports.HeenjoyedbelittlingHollywood,andhelddisdainforalmostanythingoranypersonrelatedtotheentertainmentindustry.Hedidn’tgotothemoviesexceptwhenmymothercoulddraghim.However,hetrulyenjoyedyourperformanceonStar Trek: TheNextGeneration,whichwas the only episodictelevisionshowweeverwatchedtogether.

Yoursingularpresenceonthatshowwasajoytomyfatherandme.Itspurredmany postshow conversations between us about your compelling portrayal ofCaptainPicard.And for anAnglophile likemy father, he particularly enjoyedyourcharacter’scaptivatingandeloquentuseoftheQueen’sEnglish.

WhenItoldmyfatherIranintoyouatthecomputerstore,thatcurmudgeongaveyouthehighestpraiseIeverheardfromhimaboutanyentertainer:“PatrickStewart,huh?Howabout that! Iwouldactuallywalkacross the street tomeetthatguy.”

Thankyou,Mr.Stewart,forgivingmethosemomentswithmyfather.

Okay. Now that the Big Dogs have been reacknowledged, it’s time toacknowledgethepeopleinmylifewhoactuallyknowwhoIam.

Bradley,Hayley,andCarly:Whatcanafathersaytohischildrenother thanthe usual “I love you,” which really says it all? Here are just a few brief,independentmessages.Bradley,oneofthesedays,Iamactuallygoingtofollowthroughonmypromisetotakeyouandyourlittlefriendspaint-balling.Hayley,

ifyou’regoingtoswitchhit,youactuallyhavetospendsometimebattingontheright.Carly,“Getinmybelly.”Andtoallthreeofyou,rememberthatahappyhome ismore important than a clean one, but you still have to clean up yourroomsatsomepoint!

TristinaCole:WhatcanIsaytothepersonwhohaspulledmeoutofsomanyfires?IdonothavethewordstoexpresstheappreciationIhaveforyou.Thankyousomuchforeverythingyouhavedoneforme.

EstherCondon:Idon’tknowwhereitcamefrom,butyousomehowfoundthestrengthtocarryonafter thedeathofyourhusband.Mother,youaremyrock,thefoundationofmylife.Iloveyousoverymuch.

F.MiltonCondon: Iamstillpracticingmyprofession in the lawbuildingatwhichIhavespentmyentire legalcareer, theJackCondonbuilding,andyou,UncleMilt, are the primary reason for that. I could not fathom spendingmyremainingcareerinsomesoullesscorporateofficebuilding.Butthankstoyouremphasisonfamilyinsteadofmaximizingrent,youtookafinancialhitasyoubuilt your current tenant pool around me. Thank you so much for that kindgesture, which I will always appreciate. As the Condon family patriarch, Icontinuetolooktoyouforyourwisdomandadvice.

JimHall andAlan Juarez: You are the bedrock of the girls softball league(SantaMonicaGirlsFastpitch)inwhichmydaughter,Carly,playsandinwhichIcoach.Myfatheralwayssaidthatoneshouldtrytofindone’sjoyinlife,andIhavefoundmineincoachingmydaughterandherteammates.Yoursupportandadvicehasbeeninstrumentalinallowingmetofollowthatpassion.Icannotsewto savemy life, but if I could, each of youwould have panels in theCondonfamilyquilt.

JaredBreuer,KenSoutherland,ErinJones,andSusanCroft:Youarethestaffofthe2008SantaMonicaGirlsFastpitchAll-StarTeam(10uDivision).Duringthe tail-endof thewritingof thisbook, Ihad thepleasure tohelpyouand theteam as a self-appointed assistant. Serving in that role gave me so muchpleasure, as it allowedme to dowhat I love themost,which is run around asoftballfieldwiththeteamandspendmoretimewithmydaughterCarly.Allofyouwerecrucial inthatprocess,andIwillneverforget it.JaredandKen,yougavethegirlssomeamazingcoaching.ErinandSusan,youarethebestAll-StarManagersever.AndSusan,seeyouatElTorito.

Bret Donnelly, Brad Wheeler, Rick Fonkalsrud, Milton Stumpus, Michael

Bender, Steven Smooke, Paul Cooke, Anthony Caronna, Kenneth Aslan, andMarkBeede:Youguyshavebeenmyfriendswhohavesupportedmefromafarformanyyears.Butthat’sokay,becauseIcanonlystandbeinginyourpresencemaybeonceortwiceayear,ifthat.

Kaile Nakao, Hailey Sheridan, Jaimee Kadish, Holly Elander, and CiannaGuerrero:AtthetimeIwritethis,youareall16yearsold,butIhaveknownyouallsinceyouweresevenyearsoldandplayingsoftballwithmydaughterHayleyintheoldSantaMonicaBobbySoxdays.Ithasbeensuchapleasuretoseeyougrow into confident, lovely, and athletic young women. You are part of myfamilyforever.

Mary Armienti, Jordan Breuer, Aleksa Harris, Madison Graval, RachelHiltunen,andMaddyShulman-Clancy:YouhavebeenfriendswithmydaughterCarlythroughoutherelementaryschoolcareer.Ithasbeenatonoffunhangingwith you during your playdates with Carly, and I am so looking forward toseeingwhatthefuturehasinstoreforyou.

THEFIRSTQUARTER

ESTABLISHINGYOURLIVINGTRUST

If you have picked up this book,my hope is that you are finally at the pointwhere the concept of actually establishing your Living Trust has entered thecombinedmindsofyouandyourspouse.Nomoreprocrastinationorexcusesfornotgettingtoit.You’rehere!Youcan’tgetmoreherethanrighthere.

ThisisthebeginningofyourLivingTrusttraining.Doyouwanttocrossthegoalline,spikethatfootball,andrevelintheroarofthecrowd?Well,youknowthedrill.Youfirsthavetolearnwhatafootballis.TogettopointZ,youmustgetto...andthrough...pointA,whichisgettingyoutounderstandwhattheLivingTrustis,whatitdoes,andhowitworks.

IwishIhadtheabilitytogetyouthroughyourLivingTrusttrainingina30-secondworkoutmontage, à laRocky.Butwith this being real life, I can onlyofferyouthismundaneinstruction:TurnthepageandintroduceyourselftothevariouscomponentsandplayersthatmakeupyourLivingTrust.

CHAPTER1

HowYouEstablishedYourLivingTrustWithoutaClearUnderstandingofWhatItIsandHowItWorksORYOUDON’TKNOWWHATYOUDON’TKNOWABOUTYOURLIVING

TRUST

Before your real Living Trust training begins inChapter 2, I feel the need toaddressapointthatissomewhatobvious,whichIwillstateinyourfirstperson:“I already have a Living Trust. Why do I need your training session on theLivingTrustwhenIhavealreadyreceivedthatinformation?”

In the PregameWarm-Up, Imade the bold and very broad assumption thatyoudonotknowmuchaboutyourLivingTrust,evenifyouhaveone.Howdidyou react to such a presumptive assertion? Did you nod your head inrecognition?Or did you fling this book across the room (or the bookstore) indisbeliefandanger?

Letme tell you how I came to the assumption that you knowvery little, ifanythingatall,aboutyourLivingTrust,thedocumentthatyourlawyerprepared,oryoudraftedyourselfwithsoftwarelikeTrustmaker,andthatyoubelieveyoualreadyknowallabout.

WhatDoesItAllMean?

I am an estate planning attorney. I am in the business of putting togetherinheritance plans. In the old days, you would have set forth your inheritanceinstructionsinawill.Nowadays,thoseinstructionswillbesetforthinaLivingTrust.Ineffect,thismakesmeaLivingTrustlawyer.

Ilearnedthisbusinessfrommyfather,GeraldM.Condon,who,intheearly1970s,wasperhapsthefirstlawyerintheUnitedStatestoconductLivingTrustseminars. This was a real homespun family operation. Imanned the check-in

table, my father gave the talk, and my mother made the brownies that theattendeesdevouredduringthebreak.

About a decade after my father conducted his first seminar, Living Trustseminars became ubiquitous. They were seemingly everywhere, offered byattorneys, insurance companies, real estate firms, banks, and brokerage firms.Youcouldnotopenyournewspaperormailboxwithoutreceivingasolicitationtoattendone.

Inthe1990s,themarketfortheLivingTrustbusinesshadbecomefarmedout.Itwasdog-eat-dogforthesamepotentialpoolofclients.LivingTrustsbecamesocheapthatreputableattorneysadvertisedtheirLivingTrustservicesforaslowas$499.

Yougetwhatyoupayforinthisworldofours,andtheLivingTrustconsumeroftenexperiencedfirsthandthatoldadage.SomeLivingTrustattorneysoffereda good price, but at the expense of customer service. Practices became aboutvolume. People never met the attorney who purportedly prepared theirdocument. Instead, they saw paralegals who rushed them through the draftreviews.Peoplefeltlikenumbersinsteadofclients,andweretoocowedbythemanic process to ask questions. Ultimately, they signed their Living Trustwithout any meaningful understanding of the effect and function of thedocumentandwerepolitelyshownthedoor.Next!

Athisseminars,myfatherconsistentlygavewhatIbelieve,inmyless-than-objectiveopinion,wasthebestpresentationontheLivingTrustsincetheworldwasaballofmoltenlava.ButtheLivingTrustworldhadchanged,andwehadtochangewithit.TheclientbaseforLivingTrustbusinesshadbeentappedout,and people were weary of being bombarded with flyers, advertisements, andseminarinvitationsforlow-costLivingTrusts.

Asaresult,ourLivingTrustseminarsbecame“FamilyInheritancePlanning”seminars. Instead of talking aboutLivingTrustmechanics,we focused on thehumansideofinheritances,suchashowyourchildrencanshareaninheritancewhen they could not even share their toys, and how you can prevent yoursurvivingspousefromlosingcontrolofhermoneyandpropertyifthechildrenare grasping for an early inheritance. Eventually, this new emphasis on thehumanandpersonalelementintheinheritancearenacomprisedthethemeofthefirstbookmyfatherandIco-wrotein1996,BeyondtheGrave:TheRightWayandtheWrongWayofLeavingMoneytoYourChildren(andOthers),whichhas

sincebecomethemostwidelydistributedinheritanceplanningbookinAmericanpublishinghistory.

In connectionwith themarketingof the book,my father and I appearedonmore than 100 radio talk shows throughout the United States, where weansweredhundredsofquestionsfromlistenersaboutawiderangeofinheritanceplanningissues—fromsuccessionofthefamilybusiness,toprotectingawidowfromherownchildrengraspingforanearlyinheritance,toleavingmoneytothefamilydog.Yet,ofall thequestionsaskedbycallers,90percentof themwereaboutthebasicsoftheLivingTrust.Whatisit?Howdoesitwork?Whatdoesitdo?WhyshouldIhaveone?WhathappenstoitafterIdie?WhereshouldIkeepit?Whydoesithavesomanypages?Moreover,thesequestionswereaskedbycallers who informed us that they have Living Trusts that were prepared bylawyers!

IhavebeenconductingFamilyInheritancePlanningseminarsonmyownforabout 10 years. Although my style is certainly more freewheeling than myfather’shorse-sensesuffer-no-foolsapproach,Iproudlywalkinhisfootstepstooffer invaluable information about Family Inheritance Planning to audiencesaround the country.And as theydidyears ago, folks comeup tome aftermytalkswiththeirLivingTrustsinhand,pointingtocertainpagesandaskingme,“Whatthehelldoesthismean?”

And if you think there is a lot of ignorance out there with lawyer-draftedLivingTrusts, don’t getme started on themisconceptions andmisinformationthatarisesinLivingTruststhatarepreparedwithoutlawyers.

Toolate!Yougotmestarted!

TheSelf-DraftedLivingTrust—Don’tDoIt!

Thisbook’stitlemayhavegivenyoutheimpressionthatIamgoingtotellyouhow toestablishyourLivingTrustonyourown—withouthaving topay for alawyer.

IhopeIdidnotgetyourhopesup.This isnota“howtobecomeyourownlawyer” book. You would never even consider being your own doctor. Whywouldyoueventhinkaboutbeingyourownlawyer?

Certainly,takingthelawyeroutoftheprocessprobablysoundsprettygoodtoyou.After all, if you are likemost people, you have never beforemetwith alawyer,because,quite simply,youneverhad to.Youhaveneverbeen suedordivorced. You have never sued anyone. You have never been charged with acrime.Youhavenotsetupacorporationorpartnershiporengagedinacomplexbusinesstransaction.

Indeed,youmayhavegonealmostyourentirelifewithouttheneedtoconsultwith a lawyer. I said “almost,” because now you face the prospect of aninheritance document that, while simple in concept, can be quite daunting toconstruct.IfyouhaveseenaLivingTrustbefore,youhavefoundthattheyaresomewhatlengthy.Inmyoffice,thetypicalLivingTrustis50pageslong.

Buteven thoughyourheadsaysyouneeda lawyer tohelpyou through theminefield,yourheartmaybeurgingyoutodoitalone.Why?Becauseyouhaveheardthelawyerhorrorstoriesfromyourfamily,friends,andco-workers.“Mylawyer charges too much.” “My lawyer never returns my calls.” “I paid mylawyeraretainermonthsagoandIhaven’tseenanydocumentsyet.”Andonandon...

Ofcourse, there isnothing tostopyou fromgiving it theoldcollege try. Infact, you will find a lot of help. There is a host of how-to books, softwareprograms,andstationeryforms,repletewithtermsandprovisionsthatyoucanpickandchoosetoincorporateintoyourownLivingTrust.

Inallmyyearsasaninheritanceplanninglawyer,Ihavemetwithhundredsofdo-it-yourselferswhohavepaidmeafeetoreviewtheirefforts.Yes, thatdoessoundinconsistent.Whywouldtheywanttopaymeafeetoreviewtheirself-draftedLivingTrustswhentheirmaingoalwastoavoidpayingmeafeeinthefirstplace?Theiranswerswereuniversally thesame:“I justwanted tobesurethateverythingislegal.”

Letmetellyousomething,andpleaseconsiderthisasyourfirstpieceofmyadvice. If you prepare your ownLiving Trust, itwill bewrong in someway,shape,orform.

Maybeitwillbeaharmlesserror,suchasexplainingestatetaxconceptswithoutdatedlanguage.DoesyourLivingTrustusethetermA-BTrusttoincorporatetheplanofpreservingthedeceasedspouse’sapplicableexclusionamount?Thatis the rightconcept,but thewrongwords.Theuseof thewrong languagewillnot be fatal to that tax-saving plan, but the Living Trust is, technically, still

wrong.

Maybethemistakewillbeoverkill.Severaltimesayear,Ireviewself-draftedLivingTruststhatcontaincomplextax-reductionplansthatwouldbeappropriateonlyfortheheadsofFortune500companies.ButthepersonswhodraftedthoseLivingTrustsarenowherenear thatwealthcategory. If thosepersonsdiewiththoseplansinplace,theirbeneficiarieswillbestuckinmorassofexpensiveandunnecessaryprocesses.

Maybe the mistake will be fatal to your children. One man came into myofficeexplainingthathissonwasadrugaddict.AfterreviewingtheLivingTrusthepreparedwiththehelpoftheTrustmakersoftwareprogram,Isaidtohimwithall thesarcasmIcouldmuster:“WhydoesyourLivingTrust leaveyourdrug-addicted son his inheritance share outright and under his full control? Thesecondhegetshisinheritance,he’sgoingtoturnitovertohispusher!”

Afterhavingreviewedhundredsofself-attemptedLivingTrusts,Ihaveneverseenonethathasbeencorrect,complete,orappropriateforthecircumstances.Itdoesn’tmatter how smart you are, andwhat you do for a living is irrelevant(unlessyouareaninheritanceplanningattorney).TherearetoomanysubtletiesandintricaciesconcerningyourinheritanceinstructionsintheLivingTrustthatthehow-tobooksjustdon’tpickup.Youdon’trealizethisbecause,inacircularbitof reasoning, thehow-tobookshavenotmadeyouawareof them.Inotherwords,youdon’tknowwhatyoudon’tknow.

Theonlytruewaytolearnaboutthedosanddon’tsoftheLivingTrustisthehard way—from on-the-job training. That is whymy profession is called the“practice”oflaw.Wegettopracticethisstuffuntilwegetitright.

Forexample,whenIwasayoungerattorney,Iwasinnocentinmyapproachto drafting my clients’ inheritance instructions in the Living Trust.When myclients told me there would never be any inheritance conflicts between theirchildren,Ibelievedthem.Afterall,whowasItodisputemyclients’conclusionsabouttheirchildren?

Nothing,however,preparedmefortheharshrealityofhumanconflictwhenmyclients’perfectchildrendividedtheirinheritance.Lawyersarenottaughttorecognize inheritance conflicts in law school. There are no advice books orclasseson this subject.TheonlywayI learnedabout inheritanceconflictswasfromhavingavolumeofclientsdieand thendealingwith theirchildrenwhentheydividedthefamilymoney.Havingobservedwhathappensbetweenchildren

followingtheirparents’deaths,Ihavearrivedatthisindelibleconclusion:Yourchildrenmaybeperfect—butyoureallydon’tknowthemuntiltheydivideyourmoney.

YouMayHaveLivingTrustTraining,butYouHaven’tBeenTrainedMyWay!

These experiences with both lawyer-prepared and self-drafted Living Trustscausedme to arrive at the sweepinggeneralization about how little youknowabout the Living Trust, even if you have one. A ton of people have been toLiving Trust seminars, read Living Trust books, downloaded Living Trustsoftware,andattendedcomplimentaryLivingTrustconsultations.AnothertonofpeoplehaveLivingTrusts.But,thosesametonsofpeoplestillpossessadefiniteandpalpablethirstforknowledgeaboutLivingTrustbasics.

Inordertoanswerthequestionsofthesemanybewildered,misinformed,andmistakenpeople,I’mbackwiththis,mysecondbook,whichisaboutlivinganddyingwith aLivingTrust. I like to refer to it as “TheLivingTrust’sGreatestHits.”Inotherwords,thisbookpresentseverythingyouneedtoknowabouttheestablishment,maintenance,andmanagementofaLivingTrustatall stagesofthegame.Why shouldyoupay thousandsofdollars for aLivingTrust just tohave no meaningful and practical understanding of what may be the mostimportantdocumentofyourlife?

If you think you know everything about your Living Trust because yourlawyer explained it to you—or you read the guidebook that came with thesoftware—youdon’t!

If you think you don’t need training on your Living Trust because you’vealreadyreceivedthattraining—youdo!

YouhavenotbeentrainedinyourLivingTrustmyway.Mywayistoshowyou what you need to know before your Living Trust is set in stone. It willfollowtheflowofyourmoneyandpropertyintheLivingTrustatallstagesofthegame:whilebothyouandyourspousearealive, thenafter thefirstspousedies,andthenwhenthelastspousediesanddistributionismadetoyourchildrenandgrandchildren.ThechaptersthatlieaheadexploreaspectsaboutyourLivingTrustthatyourlawyer—orsoftware—neverorinadequatelyexplainedtoyou.

So,justwhenyouthoughtyouweredonewithallmattersLivingTrust,I’vepulled youback in.TheLivingTrust is back, baby!And I, yourLivingTrustadvisor,willhelpyougetthroughit.

CHAPTER2

WhatDoestheLivingTrustDo,andHowDoesItDoIt?ORTHEBESTEXPLANATIONOFTHELIVINGTRUSTYOUWILL

EVERGET

Ihaveattended (snuck into?)someof theLivingTrust seminarsconductedbymycolleagues.Ihaveheardthemtakemorethananhour todescribewhat theLivingTrust isandhow itworks.Maybeyouhavebeen tooneandwonderedwhyyouaresittinginahotroomforoveranhour,listeningtosomeonetalkandtalkaboutthepurposeofaLivingTrust.Inthischapter,Iwilltellyou—inaboutthreetofiveminutes—whataLivingTrustisandwhatitdoes.

Asyoulistentomyadvice,IwouldaskthatyouforgeteverythingyouhaveeverheardaboutthebasicmechanicsoftheLivingTrust,evenifyouhaveone.Ifyoufocusonmyexplanationof theLivingTrust—that it issimplyanafter-death power of attorney—youwill guide yourself out of the legal haze thrustuponyouby theLivingTrust’smultiplepages filledwith legalwords thatwelawyershavetousesothedocumentcanqualifyasalegallycorrecttrust.

ASimpleExplanation

TheLivingTrustisnotatruetrustarrangement.Oh,yes—itlookslikeatrust,readslikeatrust,smellslikeatrust,andtasteslikeatrust.Ithasallthecomplexwordsandphrasesthatatrustissupposedtohave.Butstill,itisnotatruetrustarrangement.

Atruetrustarrangementtakesplacewhenyoutakeyourmoneyandpropertytoamoneymanagerandsay,“Iwantyoutomanagetheseassets.Iwantyoutotake care of all the transactions—the buying, selling, leasing, exchanging,investing,wheeling and dealing—and sendme a check for the income on thefirstofeachmonth.IalsowantyoutodipintotheassetsandgivemeprincipalorsendittosomeoneelsewhenIsoinstruct.”

Butthat’snothowitgoeswithaLivingTrust.Youdon’ttransferyourassetsto a third-party moneymanager. You transfer it yourself.When you set up aLivingTrust,youaresayingtoyourself,“Self,Iwantyoutomanagetheseassets—all thebuying,selling, leasing,exchanging, investing,wheelinganddealing.And Self, I want you to send me a monthly check for the income. Andfurthermore,Self,IwantyoutogivemetheprincipalwheneverIwantitorpayittowhomeverIwant.”

Youmay think,Whatanabsurdandsillyproposition!Whywouldanysanepersonsetthisup?

Hereiswhy:

ThemainpurposeoftheLivingTrustistoprovideyouwiththepowertoappointthepersonorpersonsofyourchoicetosignyournametothetitle-transferring documents after you die. In short, the Living Trust is yourafter-deathpowerofattorney.

Inordertobetterunderstandthisconcept,therearesomeimportantquestionsthatneedtobeanswered.

•Doyouknowwhatapowerofattorneymeans?Apowerofattorneyisadocumentthatyousigninwhichyou—astheprincipal—givesomeoneelse—astheagent—thepowertosignyournametodocumentsandbindyoutolegaltransactions.Forexample,let’ssayyouaresellingyourhouse,butwillbevacationinginLiechtensteinwhenthetransactionwilltakeplace.Sinceyouareunabletosignthelegaldocumentsyourself,youdesignateyoursistertohavepowerofattorneytosignyournametothedeedandescrowdocuments.Thisisaquitecommonarrangement,andperfectlyvalidandlegal.

That example is identical to your Living Trust, with an additionalcaveat. It is a power of attorney that you sign in which you—as theprincipal—give someone else—as the agent—the power to sign yourname after your death to documents that transfer your lifetime ofaccumulations to your designated beneficiaries, such as your spouse,children, charities, and so forth.Documents thatmay be signed by theagent include the deed to your house, bank account forms, brokerageaccount forms, partnership and limited liability company assignments,and automobile transfer forms provided by the Department of Motor

Vehicles.

•Whataretheassetsthataretobetransferred?Yourafter-deathagenthasthepowertosignthetitle-transferringdocumentsforanyassetsthatyoutransferredtoyourLivingTrustduringyourlifetimeandthatarestillinyourLivingTrustatthetimeofyourdeath—yourhouseandotherrealestate,bankaccounts,brokerageaccounts,insurancepolicies,partnerships,corporations,cars,silverware,fancydogsandcats—prettymucheverythingyouown.

•HowdidyourassetsgetintoyourLivingTrustinthefirstplace?YoutransferredthemtoyourLivingTrustafteryouestablishedit.Foryourhouseandotherrealestate,yousignedadeedthatyourlawyerprepared,whichtransferredtitlefromyoutoyouastrusteeofyourLivingTrust.Foryourbankandbrokerageaccounts,youvisitedyouraccountrepresentativesandtoldthemthatyouwantedtotransferyourassetstoyourLivingTrust.TherepresentativesthenpresentedyouwithdocumentsforyoutocompletetoestablishnewaccountsinthenameofyouastrusteeofyourLivingTrust.

•Howdoesyourafter-deathagentknowwhatassetsareinyourLivingTrustafteryourdeath?PerhapsyouhavemadealistofallofyourLivingTrustassetsandinsertedthatlistwithyourLivingTrustdocuments.However,themostcommonmethodthatanafter-deathagentusestodiscoveryourLivingTrustassetsistorummagethroughyourbusinessdeskandlookforyourmostrecentaccountstatements.

•Whoarethepersonstowhomtheafter-deathagenttransferstheLivingTrustassetsafteryourdeath?Yourafter-deathagentwilltransferyourLivingTrustassetsafteryoudietowhomeveryouhavedesignated.

•WheredoyoulistwhogetsyourLivingTrustassetsafteryoudie?Youdescribewhogetswhat,whentheygetit,andhowtheygetitinyourLivingTrustdocument.Afteryoudie,yourafter-deathagentopensupyourLivingTrust,readstheinheritanceinstructions,andtransferstheLivingTrustassetstothepersons—andinthemanner—describedinthoseinstructions.

•Whowillbeyourafter-deathagent?Yourafter-deathagentwillbetheperson(s)younameinyourLivingTrustasyourafter-deathagent.

Putting this all together . . . the Living Trust is a signed document in

which you authorize an agent to transfer your Living Trust assets to thepersonswhomyouhavenamedasbeneficiariesafteryourdeath.

It’sanAfter-DeathPowerofAttorney,butIt’sNot

Do not takemy simplistic explanation thewrongway. Inmy seminars,manypeopleask,“Mr.Condon,ifanafter-deathpowerofattorneywilldothejoboftransferringmyassetsafter Idie,whycan’t I justsignoneof thoseandforgetabouttheLivingTrust?”

It’s a good question.Here’s the answer:There is no such thing as an after-deathpowerofattorney.Itdoesnotexist.Anypowerofattorneythatyousigndieswhenyoudie.Itdoesnotliveonafteryourdeath.

Butwelawyers,nottobedaunted,developedtheLivingTrustsothatitwouldhavethesameeffectasthenonexistentafter-deathpowerofattorney;allwedidwaschangethelanguageandterminology.Insteadofusinglanguagefoundinapower of attorney (principal, agent), we used the language found in a trust(settlor, trustee).Whereasyouwouldbeconsidered the“principal”authorizingthepowerofattorney,youarelabeleda“settlor”intheLivingTrustdocument.Instead of you appointing a power of attorney “agent,” you appoint a LivingTrust “successor trustee.”Now, here iswherewe introduce a completely newterm—the “trust estate.” After you—the settlor—die, your successor trusteedistributestheassetsinyourLivingTrust.Theseassets,referredtoasthe“trustestate,”aredispersedamongthepersonswhomyouhavenamedinyourLivingTrustasyourbeneficiaries.

NowthatyouknoweverythingyouneedtoknowaboutwhattheLivingTrustisandhowitworks,thebigquestionnowbecomes:Doyouneedone?Thelastthingyouwant is tobesoldsomethingyoudon’tneed.Tohelpyoumakethisdecision,Ireferyoutothenextchapter.

CHAPTER3

DoYouReallyNeedaLivingTrust?ORDON’TLETSOMEONESELLYOUSOMETHINGYOUDON’TNEED

InChapter2,IpresentedyouwiththebestexplanationoftheLivingTrustyouhaveeverheardinyourlife.ByhavingtheLivingTrustdescribedasan“after-death power of attorney,” you now understand that the Living Trust appointssomeone—your after-death agent—to sign documents after your death totransferyourassetstothebeneficiariesyounamedinyourLivingTrust.Lovely!

Okay.Sowheredowegofromhere?Wecontinuewithaseriesofquestions:Sowhat?Who cares about appointing an after-death agent?Why is that fun?Answering those questions in the order inwhich they just appearedmay giveyouabettersenseofthenextsteps.

•Sowhat?TheLivingTrustprocesswillsaveyourbeneficiariesthousandsofdollarsafteryourdeathbecauseitpreventsthemfromhavingtoprobateyourassets.

•Whocares?ThebeneficiariesyounamedinyourLivingTrustcare.•Whyisthatfun?Themoneyyousavedforyourbeneficiariesbyavoidingtheprobateprocesswillprovidethemwiththeadditionalfundstheyneedforthatshoppingspree,carpurchase,dreamtrip,orwhateverelsefloatstheirboats.

TheReasonsWhyaLivingTrustIsaNo-Brainer

Youmayhaveheard—oryouknow—thattheLivingTrustkeepsyourchildren(andyourassets) fromhaving togo through theprobateprocessafteryoudie.Thatisthenumber-onereasonwhypeopleestablishtheirLivingTrusts.Withoutthedesiretoavoidprobate,therewouldbenosuchthingasaLivingTrust.

Probate is the court-supervised process of transferring your assets to the

beneficiariesofyourestate.Actually,thatisafairlyboringlegalexplanationofprobate,andIpromisedyouthatIwouldavoidlegaljargonasmuchaspossible.Letmestateitinamoreaccessiblefashion.

The purpose of probate is to get the judge to do something. And thatsomething is tosignanorder thatauthorizessomeone to jumpinafteryoudieandtransfertitleofallofyourassetsfrom“deadyou”toyourspouse,children,orotherheirs.

Thesomeonewhotransfersyourassets is thepersonyouhavenamedastheexecutorinyourwill.Isometimescalltheexecutorthejudge’shelper.Afterall,thejudgeiscertainlynotgoingtodothedown-and-dirtyworkofmanaginganddistributingyourassetsafteryoudie.That’snotwhatthejudgedoes.Instead,thejudge is merely a voice box that gives your executor permission to do whatneedstobedone:marshalyourassets,inventorythem,payoffyourcreditors(ifany), and distribute your assets to your beneficiaries, who are the designatedpeopleyouhavenamedinyourwill.

Is that it? Is that all probate is . . . just getting the judge to sign an orderdistributingyourassets?Thatsoundsprettysimple.Afteryoudie,maybeyourexecutorcangotothecourthouseonhisorherlunchhour,flagthejudgedownin thehallway,showthe judgeyourwill,andsay,“Pleasesign thisorderrighthere.”

Obviously,thisfacetiousstatementisdesignedtomakeapoint:Itisnoteasy.In fact, probate is time-consuming, with most normal, garden-variety,noncontested probates taking aminimumof sixmonths to complete; and it isexpensivebecauseoffilingfeesandcourtcoststhatcanrunintothethousandsofdollars.Perhapsmostdaunting,probateisalawsuit.Inotherwords,wheneveryou try toget a judge todo something, even if it is just signingadistributionorder, you have to bring a lawsuit. Therefore, probate is litigation that yourbeneficiariesbringtoobtainanorderofthecourttotransferyourassets. . . tothem!

Likeanylawsuit,probateinvolvesattorneys.Andwhereyouhaveattorneys,youhavefees.Therearetwotypesoffees.First,thereisafeeforordinarylegalservices, such as filing the court petitions, preparing the distribution order,inventorying the assets, and preparing the accounting.These ordinary fees areusually based on the value of the assets that are going through the probateprocess.Forexample,inCalifornia,attorneysget4percentofthefirst$100,000

oftheassetsgoingthroughprobate,then3percentofthenext$100,000,then2percentofthenext$800,000.Anestateof$1millionwillcostthebeneficiaries$23,000!

Forusattorneys,thisisgreat!It’salotofmoneyforwhatisnotespeciallyalotoflegalwork.Nowondermyfathercalledprobate“thelawyer’sretirementfund.”

Butitgetsbetter...atleast,formycolleaguesandme.Theotherfeeisforservicesthatthecourtconsidersextraordinary,anditispaidontopofthefeewealreadygetforordinaryservices!So,iftherearelegalservicesrenderedtodealwithmatters“beyondtheordinary,”suchassellingrealestate,defendingagainstawillcontestbroughtbyadisgruntledheir,orfilingalawsuitagainstapersonwhohasanassetthatshouldbebroughtbackintotheestate,theattorneygetstobilltheusualhourlyrate.

Thedelaysand feesassociatedwithprobateareoutrageous,andyoushouldgooutofyourwaytopreventthemfrombefallingyourfamily.Inordertoavoidtheseproblems,youshouldestablishaLivingTrust.WiththeLivingTrust,youappointsomeoneother than the judge—yoursuccessor trustee—todowhat thejudgeusuallydoes,whichistransferyourassetstoyourlivebeneficiariesafteryourdeath.TheadvantagesofaLivingTrustare:

•ALivingTrustislessexpensiveandmoretimeefficient.•ThefeesforaLivingTrusttransferaresignificantlylessthantheprobatefees,perhaps0.5percentofthevalueofLivingTrustassets.

• The transfer of the Living Trust assets can take place as soon as yoursuccessortrusteewantsittotakeplace...perhapsassoonas20minutesafter your funeral. That situation has actually occurred during mypractice, but it was borne out of efficiency (as opposed to greed andselfishness).Myclient’sLivingTrustappointedherfourchildrenashersuccessortrustees.Aftershedied,herchildrencametogetherforthefirsttimeinmanyyearsforherfuneral.Thinkingtheymaynevergatheragaininthesamecityfortherestoftheirlives,theycamedirectlytomyofficeafter the service where I prepared a deed that transferred my client’shouse fromherLivingTrust to her children,which they signed on thespot.

So,What’sNottoLike?

ItsoundslikehavingaLivingTrust,asopposedtoawill,isano-brainer.Iagree.Use a will—go to probate. Use a Living Trust—avoid probate and savethousands of dollars for your family. But still, you may believe you need aLivingTrustwhen,infact,youreallycoulddowithout.

MybasicruleaboutwhetheryouneedaLivingTrustisthis:Ifyouownrealestateof anyvalue,whether$10,000or$10million,youneedaLivingTrust.It’s that simple. If you own any real estate, you should establish your LivingTrustand transfer titleofyour realestate toyourself as trusteeofyourLivingTrust.Thisvestingisaccomplishedwithadeed,whichwillreadasfollows:

Grantor:Mr.andMrs.Bookbuyer,HusbandandWifeHerebytransfers,conveys,andquitclaimsto:Grantee:Mr.andMrs.Bookbuyer,TrusteesoftheBookbuyerLivingTrust

When both of you have died, the person or persons you appoint as yoursuccessor trustee—probably your children—will transfer the property to thepersonswhomyouhavenamedinyourLivingTrustasthebeneficiariesofyourhouse.Nomess.Nofuss.Nomuss.

If you do not own real estate, and your estate consists of, say, cash orbrokerage assets, you could prevent those assets from going through probateafteryourdeath,andwithouttheLivingTrust,bysimplyrevestingtheaccountssothattheyare“payoverondeath”accounts.Theseareaccountsthatkeepthecash or stock in your name during your lifetime and, on your death, areautomatically transferred (without probate) to the persons whom you havenamedasbeneficiariesontheaccount.

Inordertoestablishthistypeofaccount,youhavetoschleptoyourbankorbrokerage house and tell the account representative, “I want to change myaccountsothatitbecomesa‘payoverondeath’accountlikeMr.CondonsaidinhisamazingLivingTrustbook.”Therepresentativewillthenhaveyoucompletesomepaperwork inwhichyounamethepeoplewhomyouwant toreceive theaccount after you die. For example, if you want your daughter to be thebeneficiary of that account, the account will then be vested as:Mr. andMrs.

BookbuyerATF theBookbuyers’Daughter.” The termATFmeans “as trusteefor,”whichexpresslystatesthatyouarenowholdingtheaccountastrusteesforyourdaughter.

The“payoverondeath”accountiskindoflikeestablishingaseparateLivingTrust for that asset. I say “kind of” because there is no separate inheritanceinstrument for that account other than the account itself. But during yourlifetime,youhavecompletecontrolandownershipoftheaccountasifitwereina Living Trust, and your daughter has no access to that account during yourlifetime.Whenyoudie,yourdaughtertakesovertheaccountasifshewerethesuccessortrusteeandtransfersittoherselfasthebeneficiary.

Thissoundslikeaprettygoodarrangement.Soyouthink,“Iwilljustperformthe ‘pay over on death’ arrangement onmy house and prevent it from goingthroughprobate.WhydoIneedanexpensiveLivingTrusttoavoidprobateonmyhousewhenIcanjustputitinthe‘payoverondeath’format?”

Iwilltellyouwhy!BecausethatmethodofholdingtitletorealestatedoesnotexistintheUnitedStates.Thereisnoformofrealestateownershipinwhichyoucan put real property in an “ATF”manner and still have the full use of yourhousewhileyouarealive.

Thereis,however,onemethodofholdingtitletorealestateinwhichyoucanavoidprobateofyourhousewithoutaLivingTrust:jointownership.Asyouarereadingthisverysentence,youhavetheperfectlegalrighttoputyourchildrenontitletoyourhouseasjointtenants.Whenyoudie,yourshareofthehousewillautomaticallytransfertoyourchildren(withthepreparationandrecordingofadocumentthatstatesthatyou,aco-jointtenant,havedied).Itisassimpleasthat.

There!Likeamagicianwhohasdisclosedthesecretofanancientillusion,Ihave told you how to beat the system. Actually, I am probably not revealinganythingnewtoyou,soIdon’thavetoworryaboutmycolleagueshuntingmedownfordisclosingatradesecretthatcancostthemsomefees.Mostlikely,youhold title to your house jointly with your spouse. It is a logical extension toconsiderputtingyourchildren’snameson titleaswell—especially if that trickcanpreventyourassetsfrombeingdiminishedbytheprobateprocessafteryoudie.

So,ifyoucanpreventyourhousefromgoingthroughprobateafteryourdeathbyputtingyourchildren’snameson thedeed,whyhaveaLivingTrustatall?WhynotjustusethatdeviceandforgettheLivingTrustaltogether?Theanswer

ishintedatinthenextheading.

PuttingYourHouseinJointTenancywithYourChildIsThisSideofInsanity

Youhavetobemad,ormanipulativelypersuadedbyaself-servingbeneficiary,toputyourchildren’snamesonthetitletoyourhouseoranyotherrealpropertythatyouown,becausewhenyouputyourhouseinyourchild’sname,younowsubjectyourhousetotheirfinancialburdensandrisksinlife.Forexample:

•Divorce: What if your daughter gets a divorce? Your son-in-law willclaim thathehasanownership interest in theportionofyourhouse inyourdaughter’sname.Hemaynotsucceed,butyourhousebecomespartof your daughter’s divorce settlement. And as we lawyers say, whoknowswhatsomecrazyjudgewilldo?

Orperhapsyoursonputshisshareintothejointnamesofhimselfandhiswife?Lovetodayisadivorcetomorrow,andyourex-daughter-in-lawwalksawaywithaportionofyourhouse.

•Bankruptcy:Whatifyoursonfilesbankruptcy?Thebankruptcytrusteewill attempt to attachyourhouse as an asset that canbeused—that is,sold—topayoffyourson’screditors.

•TheInternalRevenueService(IRS):Whatifyourdaughtergetsintoatusslewith theIRSover incometaxes?TheIRSwillattempt toplaceataxlienagainstyourhousetoensurethatshe,someday,paysallherbacktaxes.Withthatlieninplace,youwillhaveanunbelievablydifficulttimesellingorrefinancingyourhouse.

•Othercreditors:Whatifyoursongetsintoanaccidentanddoesnothavesufficient insurance?Orwhat if your daughter is a physician and runsintoabigmalpracticeaction?Ineithercase,yourhousemaybesoldtopayofftheircreditors.

Certainly,youdonothavethesethoughtsinmindwhenyouconsiderplacingyourhouseinjointtenancywithyourchildinordertoavoidprobate.ButthisistheLawofUnintendedConsequences;thatis,thesearetheeventsthatareneversupposedtohappen—andtheyhappennotwithstandingourbestintentionstothecontrary. I have seen numerous situations where clients have co-owned their

houseswiththeirchildrentosavetheirfamiliesthecostsandhasslesofprobate,onlytoloseallorportionsofthemtotheirchildren’sspousesandcreditors.

Andforthosewhowerefortunateenoughnottobedivestedoftheirhomes,they nonetheless suffered extreme distress and anguish from living under thecloudofuncertaintybroughtaboutbythelitigationintheirchildren’slives.

InSummary

Allof thisbringsmeback tomymain tenetaboutwhetheryouneedaLivingTrust.

Again, if you have real estate, use a Living Trust to transfer it to yourbeneficiariesafteryoudie,aswellasyourbankandbrokerageassets.

Ifyoudon’thaverealestate,youcanusejointownershiporATFaccountstotransferyourassetstoyourbeneficiarieswithoutaLivingTrust.However,youmust be advised that the assets you place in joint ownership with yourbeneficiarywillbesubjecttoyourbeneficiary’sproblemsandrisksofloss.

Toavoidendingupasacautionarytaleofwhatnottodo,IstilladviseyoutouseaLivingTrustfortheafter-deathtransferofyourassetstoyourbeneficiaries.

CHAPTER4

EstablishingYourLivingTrustORNOBETTERWAYTOGETSTARTED...THANTOGETSTARTED

TheLivingTrust,asaconcept,isactuallyeasilycomprehensible.AsIexplainedin Chapter 2, it is just like an after-death power of attorney in which youauthorizealivepersontosignyournametodocumentsthattransferyourassetstodesignatedbeneficiariesafteryourdeath.

AlthoughtheconceptofaLivingTrustsoundsfairlysimplistic,youhavetoprepareyourselffortheprocessofestablishingtheactualdocument.Beforeyouretain the services of an attorney to prepare it for you, you must do yourhomework.

Yes,Isaid“homework”—awordthatmay,foryou,stillringwiththenegativeconnotationofsittingdownatadeskandreading,writing,andresearchingwhileyouwouldratherbedoingsomethingelsethatyouconsidermorefun.Atleast,that’s the first thing that comes tomindwhen I hear that word. Even thoughbeinganadultmeanshavingtoworkforalivingandbeingslavetoamortgage,youknowwhatcompensatesforthat?Noschooltomorrow—andnohomework!

Butnow,yourLivingTrustadvisor is tellingyoutodoyourhomework. It’spartofyourLivingTrusttraining.It’swhatyouneedtodobeforeyousetyourLiving Trust in stone.And this homework involves picking the right attorneyand familiarizing yourself with certain basic words and concepts that yourLivingTrustmustcontaininorderforittobeavalidandeffectivedocument.

YourFirstHomeworkAssignment:SelectingYourLivingTrustAttorney

TherearemanyfineLivingTrustlawyersintheareainwhichyoulive.Howdoyoufindtheonethatyouwillhire?Certainly,youcanrandomlyselectonefrom

Internet or yellow pages listings. I encounter such left-field reasoning almostdaily, such as the ladywho hiredme because she liked the font I used inmyyellowpagesad,or thegentlemanwhobasedhisdecisionon the fact thatmylastnameisthesameasthatofhisfavoritepubinIreland.

Butifyouwantaninformedopinion,askyourfriendswhohaveLivingTrustswhethertheywouldrecommendtheirattorneys.Ifyouhavenofriends,ornonewhohaveLivingTrusts,thencontactthetrustdepartmentofthebankatwhichyou do business and ask to speak to one of the trust officers. The trustdepartmenthasofficerswhodealwithLivingTrust attorneysonadailybasis,and theywillbehappy toshare theiropinionsonwhomthey like todealwithandwhytheyhavearrivedatthoseopinions.

Butnomatterhowyou reachyourdecision, there isoneuniversal factorofwhichyoumustbecertainbeforeyoubookyourappointmentwith thechosenattorney:Thefirstconsultationmustbefree.Why?Becauseit isonlyduringthatfirstmeetingthatthelawyerlearnsaboutyou,yourfamily,andyourassets,andheorsheneedsthatinformationinordertodeterminewhetheryouneedaLivingTrustand,ifso,whatkindsofbellsandwhistlesitshouldcontain.Oncesoinformed,thelawyercanassesstheamountofworkthatwillbeinvolvedandarriveatanopiniononthefeethatwillbecharged.

Inotherwords,thelawyershouldnotchargeyouafeejusttotellyouwhatthefeewillbe.

Furthermore, the fee should be a flat fee, not an hourly rate. The flat feeshouldincludeallmeetingsandconferenceswiththeattorney.TheLivingTrustisaprocessinwhichthelawyergetstoknowyou,understandyourinheritancedesires, and draft a carefully constructed plan to achieve those goals. Thelawyer’sfunctionistoreviewthosedraftswithyouandspendasmuchtimeasittakes tomake you comfortablewith the documents.This is a time-consumingprocessforwhichthetickingbillingclockshouldnotapply.

YoudonotwanttohavetolookatyourwatcheverytimeyouspeakormeetwithyourLivingTrustattorney.

YourSecondHomeworkAssignment:MakingSureYourLivingTrustDocumentContainstheBareMinimumofRequirements

InorderforyourLivingTrusttobewhatyouwouldcalllegal—valid,operative,andeffective—your lawyer isgoing to toss inamorassof terms, legal jargon,and provisions thatwill exponentially increase its length and complexity.Youmay lookat itsgirthand run screaming from the room(which Ihaveactuallyexperienced).Inmyoffice,theminimumnumberofpagesis50.IwishIcouldchargebytheword!

YourLivingTrustwill containanentirenewvocabulary thatyoumayhaveneverbeforeheardorencountered.AsyourLivingTrustcoach,myfunctionistogiveyousometoolsthatcanhelpyoudecipherthatforeignlanguage.Yes,thisispartofyourhomework!

LivingTrustsareacreatureofstatelaw,meaningthateachstatehasitsownsetof rules (trust law) thatmustbe followed inorder foraLivingTrust tobelegal.However, thereare sixdeclarations thatare sobasicandessential to thevalidityandeffectivenessofaLivingTrust that theymustbeincorporatedintoeveryLivingTrustmadeintheUnitedStates.

Thesearethe“SixGreatestHitsoftheLivingTrust.”

DeclarationThattheLivingTrustIsYourTrust

ThefirstsectionistheDeclarationofTrust,oftencalledtheIntroduction.Thisisthe second most important part of the document, because this is where youdeclarethatyouareestablishingyourLivingTrust.Asobviousasthatis,ifyoudon’t declare your intention to establish your Living Trust, you have notestablishedatrust,evenifyourLivingTrusthasalloftheothercomponents.

DeclarationThatYouHaveTransferredYourAssetstotheLivingTrust

ALivingTrust isnotvalidunlessyou transferassets to it—even though thoseassetscanbeaslittleasasingledollar.Therefore,therehastobeaprovisionthatsaysthatyou“herebytransfer”yourassetstoit.ThinkofyourLivingTrustasabucketinwhichyoudeposityourhouse,bankandbrokerageaccounts,personalproperty,andallelsethatyouown.

DoesyourLivingTrusthavetodescribeeveryassetthatyouaredeliveringtothebucket?No.Thereshouldbeaprovisionthatstates,ineffect,thatallassets

described in an attachment to the Living Trust, which I call Exhibit A, aretransferred to the Living Trust. This attachment (Exhibit A) is a catchall thatfunctions as a general assignment of everything you own, and assets that youaccumulateinthefuture,intothebucket.

But thisExhibitA is not thebe-all and end-all.You still need tophysicallyretitleallofyoursubstantialassets to thebucket.This requiresadeed toyourhouse,avisittoyourbankandbrokeragerepresentativestoopennewaccounts,andpreparationofassignmentsofyoursharesandinterestsinyourpartnerships,corporations, and limited liability companies. You are required tomake theseeffortstoensurethatyoursubstantialassetsareinthebucket,becausetheLivingTrustisoperativeonlytotheextentofitsassets.

Whathappensifyouforgettoputabankorbrokerageaccountintothebucketandthenyoudie?Iftheaccountisheldjointlybetweenyouandanotherpersonwhooutlivesyou,thatpersonwillreceivetheentireaccount.Thatwouldnotbea problem—unless the surviving joint tenant is someone you do not want toreceivetheentireasset.

If the account has an already-designated beneficiarywho takes that accountautomaticallyonyourdeath,suchasan individual retirementaccount (IRA),a401(k), or a “pay over on death” account, that beneficiary automaticallybecomestheownerofthataccount.

However,iftheaccountisinyourindividualname,andyouforgottoputthataccountintothebucket,thenyou,oractuallyyourheirs,haveabitofadilemma.ThataccountneedstobepartofthebucketinorderforittobesubjecttoyourLivingTrust’s inheritance instructions.But it isnot in thebucket,and it is leftswinginginthebreeze...directionlessandalone.

Butwait!Welawyershavealreadyanticipatedthepossibility thatyoucoulddiewithanasset that isnot inyourLivingTrust.Whenyou signyourLivingTrust, you will also sign a will. It is not the typical will that contains yourinheritance instructions—those are already in your Living Trust. Rather, yourwill has only one inheritance instruction, which is this: Any asset in yourindividualnameatyourdeaththatisnotpartofyourLivingTrustshallbeaddedtoyourLivingTrust.

In legal parlance, this document is called a pour-overwill, because it poursassets that are out of the bucket . . . into the bucket. Personally, I prefer themoniker my father bestowed on this document: the “I forgot will”—as in “I

forgot toput this asset intomybucket duringmy lifetime, so I leave it tomybucketaftermydeath.”

IfyouandIdoourjobscorrectlyandplaceallofyourindividualassetsintothebucket,your“Iforgotwill”willneverbeused.Inmy20yearsofpractice,Ihave had to resort to the “I forgot will” only three times. On each of thoseoccasions, a client transferred real estate out of the bucket as required by alender for refinancingpurposes, but forgot toput it back.Wheneachof thoseclientsdied,the“Iforgotwill”putthepropertiesbackintotheLivingTrust.But,aswithanyafter-deathtransferofpropertywithawill,thepropertieshadtogothroughprobate.

Veryironic.TheclientspaidmelargeamountstosetupLivingTrustssotheirhouses could avoid probate, but their houses wound up in probate anywaybecauseoftheinadvertentfailuretoputthehousesbackintothebucket.

Don’t let thishappentoyou.Ifyourefinanceyourpropertyandyour lenderforcesyoutotakeitoutofthebucketasaloanrequirement,makeamentalnotethat it needs to be put back into the bucket after the property has beensuccessfullyrefinanced.Asincongruousasitmayseem,youareperfectlywithinyour rights as a property owner to transfer your property back to yourLivingTrustafteryouhaverefinancedit.

Withregardtothetransferofyourpersonalpropertytothebucket,youdon’thave tobe soconcerned. InExhibitA, therewillbeaprovision that states, inessence, that all of your personal property, such as your furniture, clothes,jewelry, antiques, coin and stamp collections, safes, automobiles, silverware,pictures,andphotographs,aredeclared tobe inyourLivingTrust.Youdonothave to face thearduousanddifficult taskofaffixing“LivingTrust” labelsoneverythinginsideyourhouse.ExhibitAdoesthatforyou.Youmaynowbreatheasighofrelief.

DeclarationThatYouAretheOwnerandManageroftheLivingTrustAssets

YourLivingTrustwillrefertoyouasthe“settlor”or“trustor”or“grantor.”Youwill see a thousand repetitions of the chosen word throughout the document.Whenever you see that word, substitute theword owner in yourmind.Why?BecauseyouaretheownerofalltheassetsintheLivingTrust.Theassetsinthe

bucketbelongtoyou.

Youownthem.Youreceivetheincomefromthem.Yougettospendthemonanythingyouwant.Yougettodipintotheprincipalforanypurposeyoudesire.Enjoy!

Your Living Trust will also contain thousands of references to the wordtrustee.Thisisalsoyou,butinadifferentcapacity.

The word trustee means manager. This means you are the manager of theassets in theLivingTrust.Youmanage them.Youwheel and dealwith them.Youcaninvesthoweveryoudesire.Youcanchoosenottoinvestatall.Youdoasyoupleasewiththeassets,justasifyoudidnothaveaLivingTrustatall.Sellthem. Refinance them. Exchange them. Insure them. Give them away towhomeveryouwant.Burnthem.Throwthemintothestreet.

Ofcourse,youarenotgoingtotreatyourassetssorandomlyandwastefully,butIwantedtomakesureyougotthepoint.Withyouastheownerandmanagerof theLivingTrustassets,doyouhaveanylessright to theassets thanif theywere out of the Living Trust? Is there any diminishment to your ownershipinterestintheassetsnowthattheyareinyourLivingTrust?Tobothquestions,theansweris...nope!Thinkofitthisway:YouaretheLivingTrust,andtheLivingTrustisyou.

DeclarationofYourPowersasManager

Asthetrustee,orthemanager,ofyourLivingTrust,youhavethecompleteandabsolutepowerandauthoritytowheelanddealwiththeLivingTrustassetsasyoupleasewithnorestrictions.Butinordertohavethatfreedom,youhavetoinclude a recitationof all of thosepowers.As a result, yourLivingTrustwillcontainmanypages that dutifully list anddescribe everypower that anownerandmanagerofassets—anyassets—couldexerciseoverthoseassets.

Mostlikely,youwillnotengagein90percentofthepowersenumerated.Forexample,areyoureallygoingtoexerciseyourpowerto“redeematlessthanparobligations of the United States of America that are redeemable at par inpayment of any estate tax liability”?Do you even own any of these types ofobligations (called“flowerbonds”)?Forallpracticalpurposes,youaremainlyfocused on the one paragraph that gives you the power to “manage, control,

grant optionson, sell, convey, exchange, partition, divide, improve, and repairassetsofthetrustestate,”whichaboutcoversallyouprobablyareevergoingtodo. However, since none of us wants to accidentally foreclose you fromperformingorengaginginanyactivitywithyourLivingTrustassets,nomatterhowobscureorunlikelyitis,yourLivingTrustlistseverypowerunderthesun.

Therefore, yourLivingTrustwill includemany pages that empower you toengage inactivitieswithyourLivingTrustassets thatyouprobablywillneverconsider,becauseoftheinfinitesimalchancethatsomedayyoumightneedthatauthorization.Welawyerscallthis“coveringourrearends.”

DeclarationofWhoTakesOverasYourSuccessorTrusteeIfYouDieorBecomeIncapacitated

The probate-avoidance aspect of the Living Trust is predicated uponappointmentofthepersonwhowilltakechargeoftheLivingTrustassetsafteryourdeathanddistributethemtoyourbeneficiaries.Asmentionedearlier, thispersonisyourafter-deathagent,whoisreferredtointheLivingTrustdocumentasyoursuccessortrustee.

Your successor trustee is called a successor trustee because that personsucceedsyouastrusteewhenyouarenolongerabletoserveastrustee.Deathisthemostcommontriggerofthesuccessortrusteeprovisions.

However, you may also become incapable of serving if you becomeincapacitated—whethermentally,physically,orboth—totheextentthatyoucannolongermanageyourfinancialaffairs.ThedeterminationofwhetheryouareincapacitatedtothatpointisgovernedbythesuccessortrusteeprovisionsintheLivingTrust.Forexample, if IdraftedyourLivingTrust, Iwouldprovide thatyou are capable of managing the Living Trust assets unless two licensedphysicianswhoarenotrelatedtoeachotherortoanyofmemberofyourfamilypreparewrittenopinionsontheirletterheadsstatingthatyouarenotcapableofmanagingyourLivingTrustassets—notexactlyacasuallymadedecision.

Ifyouaredeemedtobeincapacitated,thesuccessortrusteetakesoverduringyour life tomanage theLivingTrustassets foryourbenefit,andonly foryourbenefit. This does not mean your successor trustee can take your assets for agreat time in Las Vegas. It does not mean that your successor trustee can

distribute theassets to thepersonswhoarenamed in theLivingTrust asyourbeneficiaries. Quite the contrary—your successor trustee cannot do anythingwiththeLivingTrustassetsunlesstheactivitiesareforyourbenefit.

Whodetermineswhatactivitiesareforyourbenefit?Thesuccessortrustee—the same personwho is in charge of your Living Trust assets if you becomeincapacitated.Thus,theselectionofthepersonyouappointassuccessortrusteewhotakesoveruponyourincapacityiscritical.Ifyouchoosewisely,thatpersonwilltakeallstepsnecessarytoensurethatyourLivingTrustassetsareusedforyour benefit—your food, medical bills, health care, house payments, utilities,transportation,andallothermattersthatarenecessarytotendtoyourday-to-dayneeds.However,ifyoumakethewrongselection,itisfox-in-the-henhousetime,with your successor trustee taking the position that it benefits you that yourLivingTrustassetsareusedtofurnishhimorherwithlovelymealsatthemostfabulousrestaurantsintown.

Inanyevent,usingyourLivingTrustassetsforyourbenefitwillrequirethesuccessor trustee to collect income generated by your Living Trust assets,deposittheincomeinyourLivingTrustbankaccounts,andwritechecksagainstthoseaccountsforyourhealth,support,care,comfort,welfare,andmaintenance.If the bucket consists of more complex assets (e.g., partnerships, businesses,shares of closely held corporations), themanagement tasks attended to by thesuccessortrusteewillbemoreintricateandinvolved.

Asyoucan see, theofficeof the successor trustee is filledwith importanceandresponsibility.Duringyourincapacity,thatpersonislegallyresponsibleforyour financialwell-beingandensuring thatyourmostbasicneedsaremetandpaidfor.Afteryourdeath,thatpersonislegallyobligatedtofaithfullycarryoutyourinheritanceinstructionsasyousetthemforthinyourLivingTrust,andtomakesuretheassetsarepreservedandproductivefromthedateofyourdeathtothetimetheyaredistributedtothebeneficiaries.

Notice Imentioned, and italicized, theword legally twice, before thewordsresponsibleandobligated.IdosobecauseIwanttoimpressuponyouthatyoursuccessortrusteehasalegallychargeddutytomanageanddistributetheLivingTrust in accordance with its instructions. Perhaps that gives you a sense ofconfidence thatyour successor trusteewill—in fact,must—doagood job . . .untilIremindyouthatpeoplebreaklawsallthetime.

During your incapacity, will your successor trustee skip town with your

LivingTrust assets?Perhaps shebelieves that a lovely triponaDisneycruiseship with the children on your dime is just the pause that refreshes andreenergizeshereffortsasyoursuccessortrustee.

Duringyourincapacity,willyoursuccessortrusteemanagetheassetsmoreforhis benefit than yours? Perhaps your Successor Trustee believes that a brand-new car—paid forwith yourmoney—is justwhat is needed to schlep you toyourdoctors.Afterall,hethinks,hewillnotallowyoutobeseenbeingdrivenaroundtowninyouroldjunkheap.

DoesyourLivingTrustleaveapercentageofassetstoyoursuccessortrusteeafteryourdeath?Ifso,thenyoursuccessortrusteerealizesthatthelessspentonyouleavesmoreforher.Withthatinmind,willyoursuccessortrusteespendanyamountnecessarytogetyouthebesthealthcarearound,orwillshedumpyouintothatnursinghomethatwasprofiledon60Minutes?

Does your successor trustee have any asset investment or managementexperience? If not, will your well-intentioned successor trustee inadvertentlymismanageyourLivingTrustassetsintotheground?

Afteryourdeath,willyoursuccessortrusteedistributetheLivingTrustassetsinaccordancewithyourinheritanceinstructions?Perhapsyouleftsomemoneytoyourfavoritecharity.But,hethinks,yourwishisnothiswish.

Thesearenotjustwhat-ifscenariosthatexistonlyinconjecture.Ihaveseenvariationsoftheseabusesthroughoutmypractice,andI impart themtoyouascautionary tales. Indeed, you can have themost expensiveLivingTrust in theworldorasupercheaponewrittenonacocktailnapkin.However,theyarebothcreatedequalinthattheirsuccessorfailureisdependentonthefidelityandskillofthepersonyouappointasyoursuccessortrustee.

Idiscussthisissueinmoredepthintheupcomingchapters.

DeclarationofYourInheritanceInstructions

ThisisthemostimportantaspectofyourLivingTrust.Idescribethisparttomyclients as the “meat and potatoes” section.These are your lastwords to thosewhosurviveyou.Theseareyourinheritanceinstructions,andthelastlessonyouwill ever give to your children.But, if that lesson goes sour, so toowill yourchildren’smemoryofyou.

Are these thewords of a cynical and jaded attorneywhoneeds a vacation?Yes, theyare.But theyare truenevertheless.The subjectofpreserving familyrelationships in the inheritancearena isextraordinarilybroadandcoverseveryconceivablefamilyinheritanceproblemthatmayarisewhenpeopledieandthefamilywealthisdivided.

Thedeclarationofyourinheritanceinstructions—whenyourbeneficiariesgettheir inheritance,where theyget it, andhow theyget it—and the innumerablefactors, circumstances, and considerations you must take into account beforedecidingupon thatdeclarationarediscussedat length in theFourthQuarterofthis book, which covers the distribution of your Living Trust assets after thedeathsofbothyouandyourspouse.

But for now, it is sufficient to point out that it is a major part of yourhomework—and the function of your Living Trust attorney—to recognizepotential inheritance problems and conflicts that could befall your family, andarriveatsolutionssothatyourplandoesnoharmtoyoursurvivors,anddoesnotresultinmismanagementandthediversionofyourLivingTrustassetsfromyourbloodline. The cautionary tales of Living Trusts gone bad because of ill-conceivedanduninformedinheritancedeclarationsandinstructionsarebeyondcommonplace, and the training you receive and the lessons you learn in theFourth Quarter of this book will help you prevent your Living Trust frombecomingyetanothertaleofwoe.

AfterYouHaveFinishedYourHomework

Okay.Inthischapter,youlearnedhowtoselectyourLivingTrustattorney,andyouhavebecomecognizantofthebasicrequirementthatyourLivingTrusthastopossessthesixdeclarationsinordertobevalidandeffective.

Great.YournextassignmentistoselectthepersonwhocanmakeorbreakthesuccessofyourLivingTrust.ThisisthesuccessortrusteewhowillserveasyourLiving Trust’s lifetime agent if you become incapacitated, and who becomesyour Living Trust’s after-death agent who will carry out your Living Trust’sinheritanceinstructions.

Thesetopicsarecoveredinthenexttwochapters.

CHAPTER5

WhoShouldYouSelectastheLifetimeAgentofYourLivingTrust?ORIFYOUBECOMEINCAPACITATED,WILLYOUR

LIFETIMEAGENTMANAGEYOURLIVINGTRUSTFORYOURBENEFIT...ORFORHIS?

Alongerlifeisoneoftheblessingsofourtimes.However,alongerlifecapacitybrings with it the likelihood—perhaps a near certainty—that one spouse willbecomeseverelyinjured,incapacitated,orunabletomakeclearmentaldecisionsbeforethedeathoftheotherspouse.

Ifyoubecomephysically,mentally,oremotionallyincapacitated,youarenolongerabletoeffectivelyandefficientlycontrolandmanyouarenolongerableto effectively and efficiently control andmanage your own assets. Therefore,someone must step in and fill that role. This person is known as the court-appointedconservator.Aconservatorissomeonewhoreceivesanorderfromthecourt,whichallowshimorher to takeover the incapacitatedperson’smedicaland financial affairs. Generally, this person is your spouse, your child, yourcousin, or even someprofessional caretaker.Although conservator agreementsappeartobeasoundoption,theyaretime-consumingandexpensive.Moreover,thereistheunnervingpossibilitythatsomeoneyoudon’tknowordon’tlikewillmanageyourfinancialportfolioandinessencebeyourboss!

As an experienced attorney who has seen his fair share of disgruntledconservatorshiprelationships,Ibelievethattheyshouldbeavoidedatallcosts.Onaselfishlevel,preparingconservatorshipdocumentscanbeoneofthemosttime-consuming, work-intensive, and tedious tasks that falls on an estateplanningattorney’sdesk.Yet,Isupposethatisthewayitshouldbe.Afterall,ifacourtisgoingtotakeawayyourrighttomakeyourownmedicalandfinancialdecisions and then surrender that power to someone else, the court needs aboatloadofinformationaboutyouandthepersonwhohasappliedtotakeover.Onmanyoccasions,thispaperworkhastobedoneyesterdayinordertogivetheapplicantthepowertodealwithanemergencythatcouldresultinharmtoyou,

like revoking the power of attorney you signed while in your haze that gavesomepredatoryfortunehunterunfetteredaccesstoyourbankaccounts.

But donot fear.The conservatorshipprocess canbe avoided if you appointsomeone to be your financial agent in a non-Living Trust document called a“power of attorney for asset management.” In this document, you appointsomeonetosignyournametofinancialdocuments—deeds,checks,contracts—ifyoubecomeincapacitatedasdeterminedbyalicensedphysician.

However, thepowerof attorney isnot effectiveoverLivingTrust assets. Inotherwords, this financialagentdoesnothaveanypower tomanageorwheelanddealyourLivingTrustassets.

Therefore, in your Living Trust, you must appoint someone known as thesuccessortrusteetoactasyourlifetimeagentoveryourLivingTrustassets.Thesuccessor trustee comes into play during your lifetime if you becomeincapacitated to the pointwhere you can no longermanage yourLivingTrustassets.Translation:Youbecomesophysicallyormentallyaddledthatyoucannolongerwritechecksorpaybillswithoutsomeoneguidingthepeninyourhand.

In addition, your successor trustee can also kick in during your life if youresignastrusteebecause,forexample,younolongerwanttobebotheredwiththe seemingly endless details of managing your financial affairs. If yoursuccessortrusteetakesoverduringyourlifetimeforeitherofthesereasons,heorshebecomesyourlifetimeagent.(Ifyoursuccessortrusteekicksinbecauseyouhave...ahem...kickedthebucket,heorshebecomesyourafter-deathagent.)Becausethepersonwhoinhabitstheroleoflifetimeagenthastremendouspowerofyourfinances,thischapterfocusesonselectingyourlifetimeagent.

YourLifetimeAgent’sDutytoAccomplishtheThreePsofAssetManagement

Your lifetime agent’smajor objectives are tomanage yourLivingTrust assetsand to pay (or apply) the income and principal for your benefit. From anadministrativestandpoint,theresponsibilitiesincludecollectingtheincomefromyourLivingTrustassets,writingchecksforyourday-to-dayneeds,andmakingsure that noneof the assets are used for anypurpose other than your support,health, education, comfort, and maintenance. The lifetime agent also has the

dutytoengageinallstepsthatare“reasonableandnecessary”(lawyerlingo)toaccomplishwhatIcalltheThreePsofassetmanagement:preserveyourassets,protectthem,andmakethemproductive.

1.PreserveyourLivingTrustassets.Yourlifetimeagentcannotallowtheassetstobediminishedorwastedthroughdiversion,badmanagement,orinappropriateorriskyinvestments.Inotherwords,yourlifetimeagentcannotuseyourLivingTrustassetstopurchaseavacationhomeforyouwhenyoudonotneedthatpropertyforvacationorinvestment,andcannotspendyourmoneyonthat“can’tmiss”tiponthathorseinthethirdraceatSantaAnitathathegotfromhisshadybrother-in-law.

2.ProtectyourLivingTrustassets.YourlifetimeagentmustensurethatassetsareshelteredfromsuchoutsideinterloperswhomayattempttosecureandaccesstheassetsforpurposesotherthanthosesetforthinyourLivingTrust.Forexample,sayyourson-in-lawisthetypeofguywhomentallysizesupthevalueofyourestateeverytimehecomesovertoyourhouse.Youjustknowthatifyoubecomeincapacitatedhewillsomehowwormhiswayintoyourmoneyandproperty.Thisiswhereyourlifetimeagentstepsin.Duringyourincapacity,yourlifetimeagentisonthescenetoensurethatyourLivingTrustassetsstayinyourLivingTrustandareprotectedfromanyconjobthatyourson-in-lawwillmuster.

3.MakeyourLivingTrustassetsproductive.YourlifetimeagentmustinvestyourLivingTrustassetssothattheirvalueatleastkeepspacewithinflation.Thisisnotanexactingstandard.Forexample,adollarinyourLivingTrusttodaycanpurchaseadollaritemtoday.Tenyearsfromnow,wheninflationhasjackedupthepriceofthatdollaritem,thepurchasingpowerofthatLivingTrustdollarmustberaisedtopurchasethatsameitem.Thatliftoccursthroughsimpleinvestmentininterest-bearingaccountsandconservativeblue-chipbrokerageassets.

TheNotVeryScientificMethodofSelectingtheLifetimeAgentofYourLivingTrust

Okay. So now that I’ve trained you on the role of the lifetime agent—thesuccessor trustee—the timehas come to select the person or persons or entity

that will play that role if you, the trustee of your Living Trust, becomeincapacitated.

Firstoff,theonewhoautomaticallytakesoverasyourlifetimeagentisyourspouse.Thisisano-brainer.Yourspouseisalreadyaco-trusteeofyourLivingTrust.Ifyourspouseisaliveandcompetent,heorshewillassumecontrolasthesoletrustee—thesolemanageroftheLivingTrustassets.

Asthesolemanager,yourspousewillhavethepowertowheelanddealtheLivingTrustassetsalldaylong,justasyourspousehadthatpowersincebothofyou signedyourLivingTrust.Nothinghas changed.Your spousecan still selltheLivingTrustassets,exchangethem,buythem,andborrowagainstthem...whateveryourspousewantstodo.

And just asbeforeyour incapacity, your spouse collects the income.As thesolemanager,yourspousedistributesall incomegeneratedbytheLivingTrustassets to thepersonswhoare thebeneficiariesof theLivingTrustduringyourjointlifetimes(thatis,toyouandyourspouse).

Andjustasbeforeyourincapacity,yourspousehascontrolovertheprincipal.As the solemanager, your spouse has the power to dip into the Living Trustassets and distribute funds for the support, health, and comfort of the LivingTrustbeneficiaries,who,again,areyouandyourspouse.

It’seasytoseehowyourspouse,asthesolemanager,distributesincomeandprincipaltoyou.Buthere’sahead-scratcher:Howdoesyourspouse,asthesolemanager,distributeincomeandprincipaltohimselforherselfasabeneficiary?Isn’tyourspousejustoneperson?Yes,butyourLivingTrustreferstoyouandyourspouseintwocapacities—trusteesandbeneficiaries.ThatisanamegamethatmustbeplayedsothatyourLivingTrustcanqualifyasatruetrustunderthelaw of your state. So, even though your Living Trust describes this elaborateprocedure of delivering income and principal from the trustee to thebeneficiaries during your joint lives, you really do not have to engage in theexistential exercise of giving a check from your “trustee hand” to your“beneficiaryhand.”Remember,youaretheLivingTrust...theLivingTrustisyou.

DoYouTrustYourChildrentoWatchYourBack(FinanciallySpeaking)?

However,theplanofyourspousetakingoverasthesolemanagerisdependenton several assumptions: that your spouse will be alive when you becomeincompetent;thatyourspousewilloutliveyou;andthatyourspousewillremainaliveandcompetentduringyourentireincapacity.

Of course, we all know that it is entirely likely that your spouse may diebefore you, or will experience a period of time before death in which shebecomesincapacitatedherselftothepointwhereshecannotbethesolemanagerof the Living Trust. Therefore, you now need to engage in the process ofselectingtheperson,persons,orentitythatwilltakeoverasyourlifetimeagent—your successor trustee—in the event of your incapacity when your spousecannotplaythatrole.

BeforeyoudeterminethepersonwhowillberesponsibleformanagingyourLivingTrust,youmustfigureoutwhomyoutrusttobeyoursuccessortrustee.Ifyouarelikemostofmyclientswhohavechildren,youwillselectyourchildrenasyourlifetimeagent.Thismakessensesince,well,theyareyourchildrenandyourselectionofthemtoserveisnaturalandinstinctive.

Whenitcomestoyourchildrenservingasyourlifetimeagent,therearetwoinquiriesthatmustbemade:Willtheystepupandservewhencalledupon?AnddoyoutrustyourchildrenwithyourLivingTrustassets?

WillYourChildrenServe?

Ifyourchildrenarelikethevastmajorityofthosewhoareappointedaslifetimeagentof theLivingTrust, theywillaccept theresponsibilityofmanagingyourLivingTrust assets for yourbenefit. Perhaps theywill not be thrilledwith theideaof takingoveryour financialaffairswhen theyhave theirownfish to fry,but theywill still take the job of being your lifetime agent.Why?Because ofblood and instinct. The blood connection between parent and child creates aninstinctivemoralobligationtohelpparentswhentheyneedhelp.

Irealizethismaynotbetrueinallcases.AndIknowthatIdonotpossesstheacademic qualifications to bring forth such a psychological explanation. But,after being a percipient witness to hundreds of Living Trust takeovers by thechildrenduringmy20-yearpractice,Icansaythatnotonechildhasdeclinedtoserveasthelifetimeagentwhentheparentbecameincapacitated.Evenchildren

who initiallykickedand screamed in resentmentwoundup servingas lifetimeagents.

Letmeaskyouthisrhetoricalquestion:Ifnotforbloodandinstinct,whatelsewouldcausesomebody—fornocompensation—tospendaconsiderableamountoftimeontheoftenenervatingandthanklessfunctionofmanagingthefinancialaffairs of another person? Except for those who wish to capitalize on theopportunitytoraidtheLivingTrustassetsfortheirownuse,theonlymotivationcanbethatafamilymemberrequiresassistance.

DoYouTrustYourChildren?

HowdareIaskthisquestionaboutyourpreciouschildren,whoyoumaybelievecandonowrong?Oh,Idare!IfyouhaveseenwhatIhaveseen—thefinanciallossandabuseafterchildrenhavetakenovertheirparents’LivingTrustassets—youwoulddare,too!

At first blush, selecting your children as your lifetime agent makes sense.Afterall,yourchildrenareyourchildren,andtheywouldneverdoanythingtocause harm to you or loss to yourLivingTrust assets.As your children, theyhaveamoralobligationtoensurethatyourLivingTrustassetsareusedentirelyforyourbenefitandthattheyareprotectedforyouandfromanypotentialrisksofloss.

IknowIamsupposedtosoundlikealawyerinordertoconveytoyouasenseofprofessionalism,but...Ohyeah?!Moralobligation,mya**!YouarenotajadedLivingTrust lawyerwhohas seenhappenall the things thatwereneversupposed to happen, including financial abuse from children who just cannotwait to spend their inheritancewhileyouarealive.Checkout thisdialogue togiveyouasenseofmytakeonthatso-calledmoralobligation:

Client: Mr. Condon, I would like to tell you what my husband’s lastwordsweretome.

Me:Goahead.

Client:Hesaid,“Watchoutforthechildren.”

Me:Oh,howlovely!Hereallywanted tomakesure thatyourchildrenarealwaysprotectedandtakencareof.

Client:No,no,no.

Me:Oh, thenyoumeanhewantedyou tobefinanciallygenerouswiththemsotheyneverhavetoworryaboutmoney.Whatalovelymanyourhusbandwas.

Client:No,no,no.Youdon’tunderstand.Hemeantthathewantedmetobeonguardagainstthem.

Me:Why?

Client:BecauseheknewIwouldneedtoprotectmyselfagainstthem.

Thisbriefpassionplayactuallytookplaceinmyoffice,wordforword.Andyes, I am fond of peppering my sentences with the word “lovely.” Not verymanly, I admit. But I digress from the point I am making by relating thisdialogue. Your children are not getting any younger. They want to use theirinheritancetoenhancetheremainingyearsoftheirlives.Buttheproblemis,youarenotdeadyet.Theycanseetheirinheritance.Theycantouchitandsmellit.Butifyoukeeponliving,theywillbetoooldtoenjoytheirinheritance.

Isthisthemind-setofyourchildren?Youwillneverknow,becausetheywillnevertellyou,evenifthethoughtshavecrossedtheirminds.But,itcertainlyisprevalentamongchildrenwithelderlyparents.InoneconversationIhadwithanattorneyintheLosAngelesdistrictattorney’selderabuseunit,Ilearnedthat85percentof theircaseload involves financialelderabuseperpetratedbychildrenof the victims, and many of those cases deal with pressures imposed upondiminishedsurvivingspousesbytheirchildrenforanearlyinheritance.

Letmeputitanotherway.YourlifetimeagentissupposedtouseyourLivingTrustassetssolelyforyourhealthandsupport,butifyouselectyourchildrenasyourlifetimeagent,theyrealizethatthemoreofyourmoneyspentonyou,thelesstherewillbeforthemwhenyoudie.

So,asunpleasantasthetaskmaybe,youmustaskyourselfthesamequestionposedintheprecedingchapter:AreyourchildrengoingtopayforthebesthomehealthcareorassistedlivingfacilitythatyourLivingTrustassetscanbuy,oraretheygoingtodumpyouintothatnursinghomethatwasprofiledon60Minutes?

If you consider the possibilities—however remote—that your children willlookatyourLivingTrustassetsastheircheckbookduringyourincapacity,youareabletomakeaninformeddecisiononwhetheryourchildrenshouldserveas

yourlifetimeagent.Mostlikely,youwilldismissthispossibilityoutofhand,asin“Mychildrenwouldneverstealfromme,andI’mgoingtokeepthemasmylifetimeagent.”Fine.

CanYouTrustYourFriendtoProtectYou?

However,evenifyourchildrenarewillingtoaccepttheofficeofyourlifetimeagent,youmaywanttoconsidersomeoneelseinthatroleif:

•Yourchildrenaregeographicallydistantfromyou,makingthelogisticsoftakingoverimpracticable.

• Your children are not even capable of managing their own affairs, letaloneyours.

•Yousimplyfeeluncomfortablewiththeideaofyourchildrentakingoveryourassets.

•Youdon’thavechildren.•Youjustknoworstronglysuspectthatyourchildrenarethetypeofpeoplewhowillspendlessonyourmedicalcareinordertohavemoreofyourassetsleftoverafteryoudie.

In these situations, the question becomes: Should you select any otherindividualtotakeoverasyourLivingTrust’slifetimeagentintheeventofyourincapacity?

Theansweris. . .No!Neverletoneindividualholdandmanagemoneyforanother individual. (Isuppose if Iwere lessdogmatic, theanswerwouldbe: Ifyoucanpossiblyhelpit,donot letoneindividualholdandmanagemoneyforanotherindividual.)

Whysuchavituperativeandnegativeresponse?Actually,thereareabunchofreasons.Theindividualyouhaveselectedmaybedeadbythetimeyoubecomeincapacitated.YourchoicemaybealousymoneymanagerornotbeequippedtofulfilltheadministrativeandinvestmentdutiesnecessarytoachievetheThreePsthat I discussed earlier in this chapter.Your choicemay not have the time orinclinationtotakeoveryourLivingTrustaffairs.Butthenumerounoreasonfornot selecting a private individual as your lifetime agent is:There is no policeofficer lookingover that individual’sshoulder toensurethatheorsheisusingyourlivingtrustfundsforyourbenefit!

NoticeIsaid,“foryourbenefit.”Thismeans thatyour lifetimeagentcannotlegallyuseyourLivingTrustassetsforhisorherownbenefit.AlifetimeagentwhousesyourLivingTrustassetsforanypurposesotherthanprovidingforyourneedsiscommittingabreachoftrustandbecomessubjecttocivilandcriminalprosecution. Of course, in your incapacitated state, you may not have thecognitiveabilitytobecomeawareofsuchanillicitactivityandwillthereforebepowerlesstoprotectyourLivingTrustassets.

For example, your spouse is dead, youbecome incapacitated, andyourbestfriendisappointedinyourLivingTrustasyourlifetimeagent.Yourbestfriendgladly accepts the job. Just as the Living Trust dictates, he adds income toprincipalandwritescheckstopayforyourday-to-dayexpenses.

Oneday,yourbuddyispresentedwiththeopportunitytogoonthattriphehasbeendreamingaboutforalifetime—apackagetourofattendingabaseballgameateveryMajorLeaguestadiumintheUnitedStates.Hedoesnothavehisownfunds,buthenoticesthatyourLivingTrustassetsarejustsittingthere.Soaftermuchhandwringing,hesomehowjustifiesusingyourLivingTrustassetsforthattrip. (“He’ll nevermiss it.” “I promise to pay it back.” “Damn it, I deserve itwithalltheworkI’mdoingforhim.”).

For the baseball purist, it’s tough to be a fan these days in light of SenatorGeorge Mitchell’s report on the rampant use of anabolic steroids and humangrowth hormone. But for the casual fan like me, it’s still nice to go to theoccasionalDodgersgamewithmychildrenandtheirfriends,andatriparoundtheMajorLeague ballparks sounds like a lot of fun.But I cannot go on yourdime,andneithercanyourlifetimeagent.

The baseball trip does not provide for your support or health. It does notprovidecomforttoyoubyanystretchofthatword.Thereisnodirectorindirectconnection between this expenditure and your well-being. The use of yourLiving Trust funds for that purpose is a breach of trust.Unless there is somepolice officer looking over your lifetime agent’s shoulder, such as thebeneficiarieswhowillinherityourLivingTrustassetsafteryourdeath,thistypeofactivitycan,andprobablywill,takeplaceonarecurringbasis.

The foregoing baseball story is true, as one of my clients unfortunatelysufferedthatfatewhenIwasfirststartingoutinthisareaofpractice.Sincethisincident tookplace,Ihaveadjustedmyantennaetobecomeintenselysensitiveto receive signals that indicate that my clients are being victimized by their

lifetimeagents,thesamepersonsappointedbymyclientsintheirLivingTruststoprotectthemduringincapacity.

AGoodAlternative

AsyourLivingTrustcoach,Iwantyoutotakenoticeofthisincident.Youneedto take great care in deciding who will serve as your Living Trust’s lifetimeagentintheeventyoubecomeincapacitatedafterthedeathofyourspouseandyour children, for whatever reason, do not, will not, or cannot serve as yourlifetimeagent.And,inmyopinion,thebestrouteyoucantakeistoappointaninstitutional third party, such as the trust department of a bank, to be yourlifetimeagent.

In all cases where children do not serve as lifetime agent, I advocate theselectionof thecorporate trusteeoveranyotherprivate individual trustee.Thecorporatetrusteetreatsassetmanagementasafull-timejobwithpersonnelwhohavethesophisticationandexperiencenecessarytomanagetheassetsofothers.A private individual, in contrast, probably can give your assets only part-timetreatment,andmaynothavethenecessaryskillsforthejob.Also,whilethereisno police officer looking over the shoulder of the private individual to ensureyourfundsarebeingusedforproperpurposes,thecorporatetrusteehasmultiplelevelsofinternalmanagementreviewandissubjecttoauditbystateandfederalregulators. In addition, the corporate trustee has facilities to manage all yourLiving Trust assets, whether real estate, securities, or other assets, while anindividualmaynotbesoequipped.

Iamnotashillforthecorporatetrusteeindustry.Iam,however,anadvocateofprotectingyourownershipandcontrolofyourLivingTrustassetsduringyourincapacity.Ihaveseentoomanysituationswhereeventhemostwell-meaningofindividual lifetime agents inadvertently mismanaged and misused myincapacitatedclients’LivingTrustassets.Ihaveseentheparadeofhorriblesofallthosethingsthatwerenotsupposedtohappen.AsyourLivingTrustadvisor,myfunction is togiveyou the trainingyouneed,whichyoucanuse toensurethatyourLivingTrustassetswillbeprotectedandusedforyourbenefit.Evenifthattraininginvolvesastepyoumayhaveneverbeforeconsidered—selectingacorporatetrusteeasthelifetimeagentinyourLivingTrust.

CHAPTER6

YouCanSelectYourChildrenasYourAfter-DeathAgent,butWillTheyCarryOutYourLivingTrust’sInheritance

Instructions?OR“THATWASOURPARENTS’WISH,BUTITAIN’TOURWISH”

It’sawonderanyonewouldevervoluntarilyconsenttoactasalifetimeagentofaLivingTrust.AsyouseefromChapter5,thatrolecanbecomeahigh-pressuregig. Imagine that you are in charge of the financial affairs of another who iscompletely dependent on you for his existence. He is counting on you andrelyingonyoutomeethisdailyneeds.Andontopofthat,thispersoncansueyouifheevenmerelyperceivesyouarenotdoingyourjobproperly.

In comparison, the role of your successor trustee as after-death agent is arelativepieceofcake.TheheavyliftingofmanagingandcontrollingtheLivingTrustassetsforyourbenefitisgone.Afteryourdeath,thechiefpurposeoftheafter-deathagentistodistributeyourLivingTrustassetstothebeneficiariesyouhavenamedinyourLivingTrust.

Well, perhaps the allusion to cake is a bit misleading. In carrying out thefunction of the after-death transfer of yourLivingTrust assets, the after-deathagent must make many determinations that directly impact the distributionprocess,suchaswhenthedistributionwillbemade,whichassetsshallcompriseeachbeneficiary’sshare,whichassetswillbesold topay theestate tax,whichattorney touse,whichaccountant touse,whichappraiser touse,whether feeswillbechargedforthedistributionefforts,andthelike.

SelectingYourChildrenasYourAfter-DeathAgent

Ifyouare like95percentofmyclients,youwill appointyourchildrenas theafter-deathagentsofyourLivingTrust.Sinceyourchildrenare,mostlikely,thebeneficiariesofyourLivingTrust,itmakesperfectsensetoappointthemasthe

persons to carry out those inheritance instructions stipulated in your Trust. Inessence,they,asyourafter-deathagents,willtransfertheLivingTrustassetstothemselves,asyourbeneficiaries.Asmymothersays,“What’snottolike?”

There are, however, two questions that you must ask yourself beforedetermining that your children with be the after-death agents of your LivingTrust:Areyousuretheywillcarryoutyourinstructions?Shouldallofthembeyourafter-deathagents,oronlysomeofthem?

DoYouTrustYourChildrentoCarryOutYourInheritanceInstructions?

The question ofwhether you trust your children to carry out your inheritanceinstructions may appear somewhat puzzling. Why wouldn’t you trust yourchildrentodistributeyourLivingTrustassets?Afterall,theassetsaregoingtothem. And besides, your after-death agent has a legal duty to carry out theinstructions in your Living Trust to the letter. If they deviate from thoseinstructions,theycanbesued.

This iswhat I used to believe. In fact, evenwithout those considerations, Ibelievedthat thechildrenofmyclientsfeltamoralobligationtodistribute theLivingTrustassets inaccordancewith theirparents’ lastwishes.Togoagainstthosewisheswouldbetosourtheirparents’memory.

However,asanattorneywhoformorethan20yearshasbornewitnesstotheinheritancearenaaftermyclientsdied, Ihaveseenall theproblems,conflicts,jealousies,andthingsthatwerenotsupposedtohappen.

Howcouldthisbe?AsElainesaidtoJerryinoneepisodeofSeinfeld,“Oh,itbe!” Allowme to convey the following examples where my clients’ childrenhave deviated from their parents’ inheritance instructions.While reading theseseemingly unbelievable and outlandish tales, please keep in mind that thesesituations have repeated themselves in different variations during my 20-yearpractice.

“MyProperties...MyPyramid”

Mr.andMrs.Stylesmadeacareerofbuyingapartmentbuildings.Fromtheend

ofWorldWarII totheirdeaths, theyhadaccumulated17properties.Theytoldme that keeping the buildings in the familywould be theirway of preservingtheiridentitytotheirchildrenandgrandchildren.AsMr.Stylestoldme,“Iwantthesebuildingstobemypyramidtomyfamily’sfuture.”Withthisinformationinmind,IpreparedaLivingTrust,transferredthepropertiestotheLivingTrust,andprovidedthatthepropertieswouldbekeptintactuntilthedeathoftheirlastgrandchild.IadvisedMr.Stylesthataninstitutionaltrusteeshouldbetheirafter-death agent to preserve these properties. He said, “Hell, no! The bank willchargefees,andmychildrenwilldoabetterjobforfree.”

Undaunted,Ireplied,“Youdon’tknowthat.Maybeyourkidswillgettogetherandselltheproperties.Afterall,therewouldbenoonearoundtosayno.”Mr.Stylessaiddismissively,“Condon,Iknowmykidsbetterthanyoudo.Theyaresmartenoughtoknowthatthesepropertieswillmakethemagoodlivingfortherestoftheirlives.”

Mr.Styleswasright.WhowasItoarguewithhim?Iwasnottheirparent.So,I relented and Mr. and Mrs. Styles named their children as their after-deathagents.WhenMr.Stylesdied,Mrs.Styles carriedonwith themanagementofthepropertiesuntilherdeath.Then, their threechildren tookoveras theafter-deathagentsandmanagedtheproperties,collectedtheincome,andmaintainedthemsotheyremainedhabitableandproductive...untiltheysoldthem!Iknowthis happened, because the eldest son so informed me during the process ofpreparingMrs.Styles’federalestatetaxreturn.InlightofMr.Styles’confidenceinhischildren’sattitudeaboutkeepingtheproperty,Iwasstunned.

Withall the indignationand self-righteousness I couldmuster, I said, “Howdare you!That’s notwhat your parentswanted!Theywanted you to keep thepropertiesinthefamily!”

He calmly replied, “That’s what our parents wanted. That’s not what wewanted.Wewere so sick and tired of hearing about the damn properties.Mybrothers and Idon’twant tobe tied together through theseproperties.We justwanttosellthem,dividethemoney,andgoourseparateways.”

TheGreat Pyramids in Egypt have been kept intact for thousands of years.Relatively speaking, Mr. Styles’ pyramid lasted maybe 10 minutes after hiswife’sdeath.

“YourMoneyIsFamilyMoney”

InMr.Deering’sLivingTrust,heprovidedthathisgrandson,Joseph,wouldget$150,000onhisdeathifthegrandsonhadreachedage25.Healsoprovidedthatif his grandsonwas not 25 at the time of his death, his son,David,would beappointed as the after-death agent to manage the $150,000 and deliver it toJosephwhenhereachedthatage.

Joseph was 19 when his grandfather died. In accordance with hisgrandfather’sLivingTrustinstructions,hisfather,David,securedthefunds.

Fast-forwardtosixyearslaterwhenJosephfinallyturned25.InoticedinmyappointmentbookthatJosephhadmadeanappointmenttoseeme.Inreviewinghis grandfather’s trust, I was reminded about the gift provision to him.Therefore, I assumed that Joseph wanted to meet with me for advice on thetransferofthatgifttohim.AsImetJosephinmywaitingroom,Isaid,“HappyBirthday!What’sthefirstthingyouaregoingtodowithyourgift?

Heresponded,“Suemyfather!”

In my office, Joseph explained what he had meant by such a shockingstatement.Upon turning25,heapproachedhis father for themoney.Whenhedid,hisfathersaid,“Hey,son,sincemymoneyisfamilymoney,yourmoneyisfamilymoney.You’vebeenreceivingyourdistributionallalongintheformoffood,clothing,andshelter.”

Mr.Deeringwantedhisgrandsontohavethatbequesttohelphimgetalegupin life: to start that family, buy that home, establish that business. What hisgrandsongotinsteadwasalessonintheschoolofhardknocks.Whenitcomestomoney,familyloyaltygoesoutthewindow.

“ThatWasOurParents’Wish...NotOurWish”

Mr.andMrs.Evansused theirLivingTrust to leave$100,000 to their church.Whentheybothpassedaway,theirchildren—theirafter-deathagents—cametoseemeforadviceontheadministrationoftheLivingTrust.Duringthatmeeting,Isaid,“Don’tforgettocutthatchecktothechurch.Sincethatgiftisnotreducedbyestatetaxoranyotherobligation,thereisnoreasontowaitfortheendofthe

trustadministrationtodeliverthatbequest.”

Oneofthechildrensaidtomeinallseriousness,“Mr.Condon,thatwasourparents’wish.That’snotourwish.We’renotgoingtodoit.”

You are probably as aghast as I was. How do you decide to blatantly goagainst the inheritance instructions set forth in a Living Trust? The Evanschildrenjustdidit,anditwaseasyforthemtodo.Noregret.Nocompunction.Novacillation.Onsomestrangelevel,Iadmiredtheirabilitytomakea“damntheconsequences”decisionandnotlookback.IfthesituationwerereversedandIhadmadethedecisiontodisregardmyparents’clearinheritanceinstructions,Iwouldbelookingovermyshoulderfortherestofmylife.

“IGotRobbed—andMyOwnKidIstheBandit”

Mr. and Mrs. MacCallum were blessed with 12 grandchildren whom theyconsideredthelightsoftheirlives.WhenImetwiththem,theywereveryclearontheirfamilyprioritieswhenMr.MacCallumsaid,“Ourchildrenareokay,butwereallyloveourgrandchildren.”

IftheMacCallumshadtheirdruthers,theywouldhaveleftalloftheirLivingTrustassetstotheirgrandchildren.However,afterseveralconsultationswithme,theyrealized that suchanactwould leave theirchildren thinking that theygotrobbed and the bandits were their own kids. But, still wanting to leave theirgrandchildren something, they ultimately established theirLivingTrust,whichlefteachlivinggrandchild$10,000,withanyremainingassetsgoingtotheirfourchildrenequally.

WhentheMacCallumswerebothdeceased,theirLivingTrustassetsconsistedofabout$500,000,includingtheirhome,cash,andbrokerageassets.WhenImetwith the MacCallums’ after-death agents—their children—I advised them oftheirobligationtodistributeatotalof$120,000totheirparents’grandchildren.Their daughter responded this way: “That’s $120,000! That will leave only$380,000fortherestofustosplitfourways.That’sonly$95,000each.That’slikenothing!So,Mr.Condon,youknowwhatwe’regoing todo?MysiblingsandItalkedaboutitandagreedtotablethatdistributionfornow.They’llgetiteventually.”

At thatpoint, oneof theother childrenmuttered aloud, “Maybe.”To that, I

reminded them that as their parents’ after-death agents, they were legallyobligated tomake thatdistribution.But Imightaswellhavebeen talking toatoaster.Thedaughtersaid,“Mr.Condon,thanksforyourtime.”Theygotupandwalked out, never to be seen (by me) again. I can only assume that theMacCallums’ childrenhandled theLivingTrust businesson their ownwithouttheconscientiouslawyerbuzzingaroundandremindingthemofthedutiestheyaresupposedtofulfill.

Mr.andMrs.MacCallumwerenotfinancialslouches.AlthoughIhavemanyclients who have millions in money and property, $500,000 is not a meagerestate. Still, had the MacCallums been wealthier, I doubt that their childrenwould have even considered withholding those distributions. But when theinheritance dollars are fewer, each dollar becomes more precious to thebeneficiaries.

TheIndelibleConclusion:MoneyChangesEverything

Therearetoomanyotherexamplesofthisthemetomentioninthisshortbook,butIhopeyougetmypoint:Appointingyourchildrenasyourafter-deathagentsdoesnotguaranteethattheywillfaithfullyfollowthroughwithyourinheritanceinstructions.Basedonscenarios like those just referenced, Ihavecometo twoindelibleconclusions.

1.Youreallydon’tknowyourchildren...untiltheygetaroundtodividingtheirinheritance.

2.Whenitcomestodividingtheinheritance,familyloyaltygoesoutthewindow...andit’sawholenewballgame.

I delve more into the area of behavior in the inheritance arena in laterchapters,butfornowImakethesepoints inorder tohelpyourealizethat it isentirelypossible thatyourchildren,asyourafter-deathagents,couldverywelldisregardtheinheritanceinstructionsinyourLivingTrust—anddoittheirway.

That said, I don’twant tomislead you into thinking these scenarios are thenorm.AsIstatedearlier,Itendtomakesweepinggeneralizationsinordertogetmy point across.Most Living Trusts are fairly garden-variety documents thatleave the assets to the children, and the children are not going to cheatthemselves.And even if yourLivingTrust leaves assets to beneficiaries other

thanyourchildren,yourchildrenwillmostlikelycomplywiththoseinstructions—perhapsbecausetheyarelegallychargedtodoso,orbecausethethoughtofdeviationjustdoesnotentertheirminds.

However, 95 percent of the solution to any problem is recognizing that theproblem exists in the first place. I have pointed out to you a sampling ofsituations where inheritance instructions fell by wayside—intentionally. Withthispotentialproblembroughttoyourattention,youcannowmakeaninformeddecision by consideringwhether there is a risk that your childrenwill deviatefromyourLivingTrustinstructions.

Ifyouarelikemostofmyclients,youwillconcludethatyourchildrenwilldoa fine job as your after-death agent.Or perhaps youmay think, “Youknow, Ineverthoughtaboutthatbefore.NowIhavemydoubts.ItrustmychildrenwithmoneyaboutasfarasIcanthrowthem.MaybeIshouldconsidersomeoneelseto be my after-death agent.” Or perhaps you have dismissed this issue ofinheritance deviation by your children as yet another attempt by a money-grubbing lawyer who is trying to manufacture issues so he can charge moremoneyforyourLivingTrust.

In either event, I have donemy job of raising an issue that youmay haveneverbeforeconsidered.

ShouldYouNameAllYourChildren—orSomeofThem—asYourAfter-DeathAgent?

Thequestionofwhetheryoushouldnameallofyourchildrenor just someofthemasyourafter-deathagentsissuchanimportanttopicthatIgenerallydevoteatleast20minutestoitinmyseminars.Asit’sverydifficulttopontificateinabook,Iwon’tbeataroundthebush.Theanswertothisquestionisthis:Unlessyouhaveachildwithasubstanceabuseproblem,orunlessyouarecompletelyestrangedfromachild,always...always...nameallofyourchildrenasyourafter-death agents, because leaving out a child as an after-death agent is thefastest way to create family conflicts and jealousies among your children.Conflict will arise faster than if you had left your children an unequalinheritance.

To illustrate my point, consider the following scenario. Image that for no

apparent reason you were forced outside the playground while your siblingscouldremaininitplaying.Howwouldyoufeelasyouwatchedyourbrothersorsistershavingfun?Theemotionsyouwouldfeelareprobablythesameemotionsfeltbyyour left-outchild,who thinks,“Gee,MomandDaddidn’t lovemeasmuch,ordidn’ttrustmeasmuch,ordidn’tthinkIwassmartenoughtodothejob.”

Fanningtheflamesof thisemotionis thefact thatyourleft-outchildhasnosay on all the decisions thatmust bemadewith respect to the division of theinheritance.Continuingtheplaygroundanalogy,yourleft-outchildbecomesthekidoutsidetheplaygroundfencewhocanonlywatchindespairashissiblingshaveallthefunplaying,running,swinging,andsliding.

Whenyouexcludeachildfromthatprocess,thatleft-outchildmayattempttoassert some influence that, to the siblings-in-power, may be unwanted. Ifrebuffed,theleft-outchildmaychallengeeverydecisionmade—tothepointofhiringanattorneyandfilingpetitionswiththecourt.

At this point, you sayyouhave agood reason for excluding a child,whichmaybeoneofthefollowing:

•YouhaveachildwholivesinAlaskaorsomeotherdistantlocale,andthedistance is too great for that child to be actively involved in thedistributionandadministrationoftheLivingTrustassets.

•Youbelievethatnamingallyourchildrenasafter-deathagentswillcreatetoo much chaos and delay. In other words, too many cooks spoil thebroth.

• You believe that your professional child—the lawyer, doctor,businessperson, accountant, money manager—is more qualified toperformtheworkthanyournonprofessionalchildren.

• You believe that your children will not get along to make decisionstogether,andthedistributionoftheLivingTrustassetswillbecaughtupintheirdisagreements.

Whiletheseareallgoodpointsabouttheefficiencyofappointingfewerthanall of your children as your after-death agents, I respond with this rhetoricalquestion:Istheefficiencyyouachieveworthmorethanthepotentialdestructioninyourchildren’ssiblingrelationships?

Besides, many of the assumptions raised by these points can be counteredwithrealfact.

•Distancecanbeovercomebyfax,e-mail,andovernightmail.•Havingmorecooksdoesnotautomaticallymeanthatitwillbemoredifficulttoreachconsensus.Also,youcanalwaysincludea“majorityrule”provisiontoensurethatnodecisionoractionisboggeddownbyfailuretoreachunanimousagreement.

•Yournonbusinesschildisjustasqualifiedasyourbusinesschildtoperformthebasicfunctionsoftheafter-deathagent.

•Yourchildrenwilllikelynotdisagreewitheachother,becauseevenextremelyrecalcitrantandobstinatepeoplerealizethatthemoremonkeywrenchestheythrowintotheworks,thelongerthedelayingettingtheirshareoftheinheritance.

Ofcourse,therearereasonsthatareobviousforleavingachildontheoutsideoftheLivingTrustfence.Forinstance:

•Youdonotwant toappointachildwhosereasoninghasbeenadverselyaffectedbysubstanceabuse.

•Youwillnotappointachildwhohasbeenestrangedfromthefamilyformanyyears.

•Youwillnotappointachildwhohasaphysicalorpsychologicalproblemthatwoulddefinitelyimpactontheability tomakedecisionsthataffecttheinheritancedistributionprocess.

Then there is the reasonweencounteredwhenmy father and Iwereon theroadpromotingourpreviousbook.WewerebeingdriveninaniceLincolnTownCartoappearonTheDr.LauraShow.Duringthetrip,thedriversaidthathehadreadourbookandwasleftwonderingaboutouradvicetoalmostalwaysnameallthechildrenasafter-deathagents.Thedriversaidthathewastheyoungestof12siblings,andthatitwouldbeverytoughtogeteveryonetogetherforalltheworkthatneededtobedone.Myfatheragreed,saying,“That’salotofpeopletoact together. Signing every document—the deed, the bank and brokerageassignments—would be a formidable task. Not everyone should serve as asuccessor trustee. Your parents should just select a few of the children whorepresenteverynear-generation.”

Myfatheradded,“Buddy,thanksforyourquestion.I’veneverreallythoughtabouttheproblemof12childrenservingassuccessortrustees.You’vegivenmeabrand-newexception. If Ieverwriteanotherbook, I’llbecertain tomentionthisincident.”

Well,myfathermaynotbearoundtomakegoodonhisrepresentation,butIstillam.Hereyougo,LimoGuy!Iapologizefornotgettingyournamebeforewearrivedatourdestination.

THESECONDQUARTER

LIVINGWITHYOURLIVINGTRUSTDURINGTHELIFETIMESOFYOUANDYOURSPOUSE

Havingreadthepreviouschapters,younowknowthat theLivingHavingreadthe previous chapters, you now know that the Living Trust is an after-deathpowerofattorney thatcontains the inheritance instructionsofyourspouseandyou.But,noticethewordliving inLivingTrust?EventhoughtheLivingTrustis, at its core, an inheritance document, you still have to know how to use itduringyourjointlives.Inotherwords,Ihavegottenyouthroughthepartaboutknowingwhatthefootballis;nowIhavetoprovideyouwithdrillssothatyoulearnhowtothrowit.

Fortunately, the care and feeding of your Living Trust during the jointlifetimes of you and your spouse is not a high-maintenance endeavor.Remember,youaretheLivingTrust...theLivingTrustisyou.Youcontinuetomanageyourdailyfinancialaffairsasifyoudidnothaveone.

Still, there are severalmatters that popup that directly involve yourLivingTrust,suchaswhattodowhenyousellrealestateorwhatyoushouldtellyourchildren about the establishment of your Living Trust. The purpose of thisSecondQuarteristotrainyousothatyoucanbetterrecognizethosemattersandrespondaccordingly.

CHAPTER7

FunctionsofYourLivingTrustWhileBothYouandYourSpouseAreAliveORDON’TQUITEFORGETABOUTYOURLIVINGTRUSTAFTERYOUHAVETHROWNITINTOYOURSAFE-

DEPOSITBOX

If you are likemost people, you do not want to become vested in any high-maintenance endeavor that takes you away from the truepassionsof your life(e.g.,family,athletics,etc.).SoitprobablycomesaswelcomenewswhenItellyou that afteryouestablish and fundyourLivingTrust, there isnothingmoreyouhave todowith it.Put it inyourbookcase,desk,orsafe-depositbox,andallowittocollectdust.

Thisisabitofalie...butnotmuchofone.Istretchedthetruth(insertyourownlawyerjokehere)tomakethepointthatthereisalmostnothingmoreyouneedtodowithyourLivingTrustafteryouhavesigneditandtransferredassetstoit.

AsIhavesaidpreviouslythroughoutthisbook,youaretheLivingTrust...the Living Trust is you.You get all income and principal of the Living Trustassets,youarethemanageroftheLivingTrustassets,andyouaretheowneroftheLivingTrustassets.YouhavethepowertowheelanddealwiththeLivingTrustassetsinanywayyouseefit.Youdon’tneedtowhipoutyourLivingTrustto lookupany instructionsonhow toconductyournormaleveryday financialactivities.Youjustdothem.

However,pleasenotethewordalmost,whichimmediatelyprecedesthewordnothing in the secondparagraphof this chapter.Certainly, youdonot need toreferto,orwhipout,yourLivingTrustwhenyouarehandlingyourday-to-dayfinancialaffairs.However,therearefewsituationsinyourlifethatwillrequireyouandyourspousetocarefullyreviewtheLivingTrust’s instructionsas theyrelate to handling some day-to-day financial affairs. As your Living Trustadvisor,itismyjobtomakesureyouareawareofthosesituationssothatyoucanbeprepared.

Situation#1:RevokingYourLivingTrust

YourLivingTrustprovidesthatyouoryourspousemayrevoketheLivingTrustinitsentirety,andwithouttheconsentoftheother.No,Ihaven’tsnuckintoyourhouse and looked at your Living Trust and seen that provision. But for thereasons I discuss in the next few paragraphs, all Living Trusts established bymarriedcoupleshaveaprovisionthatgivesonespousethepowertorevoketheLivingTrust—unilaterally!

Isn’t that something? After all the money, time, and effort you spentestablishing your Living Trust, either spouse can cancel it.Once revoked, theinheritanceinstructionsstatedinthedocumentarecanceled,andtheLivingTrustassets must be returned to the persons who owned those assets prior to theirtransfertoyourLivingTrust,whichmeansyouandyourspouse!Forexample,ifyou and your spouse owned your house as community property before youtransferred title to your Living Trust, the house comes back to you and yourspouseascommunityproperty.

The most common reason why persons may revoke their Living Trust isseparationordivorce.Ifyouarenolongerwithyourspouse,thelastthingyouwantistomaintainaLivingTrustthatgivesyourex-spousetheuseofyourhalfoftheLivingTrustassetsifyoudiefirst.

It should be no problem to revoke yourLivingTrust.You and your spouseknow the score. Both of you realize there are innumerable financial concernsbetweenyouthatmustbeuntangled,andyourLivingTrustisoneofthem.Thismakescompletesense.Ifyourmarriageisnolonger,itfollowsthatyourLivingTrustshouldalsobenolonger.So,yougotothelawyerwhodraftedyourLivingTrust, you tell him or her to prepare the document that nullifies your LivingTrust,andbothyouandyourspousesignit.Soundssimple,right?

Wrong!Afterall,thereisprobablyareasonyouaregettingdivorced—maybeyouandyour spousecannot agreeonanything,ormaybeyou frequently fightover finances. With this thought in mind, imagine that you approach yourseparatedspousesaying,“MylawyersaysweneedtorevokeourLivingTrust.Signhere,please.”Doyouthinkyourseparatedspousewillsign?Aswelawyerssay,noway!WithyourLivingTrustleavinghalfofyourassetstoyourseparatedspouse,ortherighttouseyourhalfforlifesupport,medicalcosts,andgeneralmaintenance, your separated spouse may hope that you die first before the

divorce process has been completed, with the Living Trust in full force andeffect.

In order to protect your assets and prevent this from happening,weLivingTrust lawyers always take into account theworst-case scenario of a separatedspouserefusingtosignarevocation.Asaresult,yourLivingTrustwillhaveaprovision that allows one spouse to unilaterally cancel it. Be sure that this“revocationinstruction”clauseintheLivingTrustdescribestheexactmannerinwhichtherevocationtakesplace,which,typically,requiresthatitbeinwritingwithacopyofthatwritingsenttoyourex-spouse.

If you choose to sign this revocation, I caution you to follow strictly theinstructions stipulated in the Living Trust. Exact compliance with thoseinstructions is mandatory. One deviation from those instructions can result inyourex-spouseclaimingthattheLivingTrustwasnevervalidlyrevoked,which,asaresult,givesyourex-spouseyourhalfifyoudiefirst.

Remember,ifyourseparatedspousedoesnotsigntherevocation,toobadforyour separated spouse.Youhave thepower tounilaterally sign the revocation,andit’sadonedeal.YourLivingTrustcanberevokedwithjustonesignature.

After your Living Trust is revoked, there are two more matters you mustaddressinorderforallremnantsofthatinheritanceplantodisappear:reclaimingyourhalfoftheLivingTrustassetsanddestroyingyour“Iforgotwill.”

ReclaimingYourShareoftheLivingTrustAssets

OnceyourLivingTrustisrevoked,youmustreacquireyourshareoftheassetsyoupreviouslytransferredtoyourLivingTrust.

HowdoyoureclaimyourhalfoftheLivingTrustassets?Youaskyourspouseto cooperate in signing deeds, bank forms, brokerage forms, and all otherdocumentstotransfertitleoftheassetsoutoftheLivingTrustandbacktoyouinyourindividualnames.Ifyourspousewillnotcooperate,youcalltheattorneywho drafted your Living Trust to get him or her involved in securing yourspouse’ssignaturesonthosedocuments.Ifthatdoesn’twork,thenyourdivorcelawyergetstomakemoremoneybyfilingapetitionwiththecourtthatrequestsanordertransferringtheLivingTrustassetsbacktoyouandyourspouse.

DestroyingYour“IForgotWill”

AfteryourevoketheLivingTrust,youmustnowdestroythe“Iforgotwill”thatyou may have completely forgotten you signed when you established yourLivingTrust.

AsIpreviouslypointedout toyou,whenyouestablishedyourLivingTrust,youalsosignedan“Iforgotwill”thatleftallofyournon-LivingTrustassetstoyourLivingTrust uponyour death. If youdonot destroyyour “I forgotwill”after you cancel your Living Trust, all of your assets—which are now non-LivingTrustassets—arelefttoacanceledLivingTrust.AcanceledLivingTrustcannotreceivethoseassets.Itisasifyourwillleftallofyourassetstonobody.Ifthatoccurs,thentheprobatecodeofyourstateimposesitsdefaultinheritanceinstructions on your assets—and the lawdoes not really knowwhat your trueintentionswere.

Therefore, ifyouandyourspouseseparateordivorce,youmustruntoyourattorney’s office to sign two documents.One is the revocation of yourLivingTrust.Theotherisaquickiewillthatleavesallofyournon-LivingTrustassets(whichisnowallofyourassets)tobeneficiariesotherthanyourex-spouse.

Situation#2:AmendingYourLivingTrust

YourLivingTrustprovidesthatyouandyourspousehavethepowertoamenditatanytime.Thatmakessense.Ifyouhadawill,youcouldchangeitbysigninga codicil. With a Living Trust, which is like a will in that it contains yourinheritance instructions, you can change, delete, or restate of any of itsprovisionsbysigninganamendment.

WhywouldyouamendyourLivingTrust?Actually, thequestion shouldbewhywouldn’tyouamendyourLivingTrust?

If you establish your Living Trust in your 40s or 50s, you are still in theproductiveprimeofyourlife,yourchildrenareyoung,andyourfinancialpictureoccasionallybecomesredrawn.YourLivingTrustwillspeaktoyourlifeatthattime, with provisions that deal with the management of your children’sinheritanceifyoudieprematurelywhiletheyareminors.

Then,when you are in your 60s or 70s, your children are grown and yourfinancialpicturebecomesabitmorepermanent.Alongwith these lifechangescomenewprovisionsinyourLivingTrust thatdealwithminimizingtheestatetaxandprotectingyourchildren’sinheritancefromanyrisksoflossintheirlivesthatyouperceive(e.g.,divorces,addictions,financialimmaturity).

Finally,whenyou are in your 80s and90s andyour life expectancy can bemeasuredinsingledigits,nowit’sforreal.Yourfinancialpictureisset,andyouknowhowmuchestatetaxplanningmustbedone.Youknowwhoyourchildrenhave become, and you have the information you need to make informeddecisions on how and when they should receive their inheritances. You havegrandchildren who are precious to you whom you want to include asbeneficiaries to help them get a leg up in life to buy that home, begin thatbusiness, and start that family. Once more, you amend your Living Trust toaccommodatethosechanges.

Of course, there are amendments toLivingTrusts that arenot so sweeping.Whereasmanyofyourchangeswillinvolveacompleterewriteofthedocument,such as those which address the changes in your family and finances as justdescribed,manymorewilladdressonlyoneortwoissues.TheamendmentstoaLivingTrustthatare,inmyexperience,themostcommonare:

•Anamendmenttochangethepersonwhoservesasyourlifetimeagentintheeventofyourincapacity.

•Anamendmenttochangethepersonswhoserveasyourafter-deathagent.•Anamendmenttoaddordeletespecificbequestsofcashorotherassets.•Anamendmenttodeleteaspecificgiftofanitemafteryounolongerownthatitem.

•Anamendmenttodisinheritachildoragrandchild.•Anamendment to includeprovisionstominimizeoreliminatetheestatetaxonthedeathsofbothyouandyourspouse.

•An amendment to leave a beneficiary’s inheritance in a protection trust(discussed in Chapter 18), as opposed to leaving it to that beneficiaryoutright.

• An amendment to change the inheritance instructions so that they nolongerpromoteconflictbetweenyourchildrenintheinheritancearena.

After20yearsinthisbusiness,Iwouldsaythemostcommonamendmentisonethatchangesthedispositionofpersonalpropertysuchasclothes,furniture,

jewelry, antiques, automobiles, andcollections to anotherperson. Ihavemanyclients who relish coming tomy office so they can replace the people in the“whogetswhat”provisionsastheyrelatetotheirringsandthings—sometimesfivetimesayear.Frommyobservation,Iwouldsaymostoftheseare“I’llshowyou”changes,asin“Youdisagreewithme?I’llshowyounottodisagreewithme!”

However, such changes are a waste of money for my clients, and, quitefrankly, a waste of my time. For all the amendments that deal with personalproperty, I could spend the same time focusing on more intellectuallychallengingamendmentsthatcompletelyrestateanentireLivingTrust.

In order to save my clients money—and my sanity—I came up with thePersonalPropertyMemorandumProvision,whichInowincorporateintoallmyLivingTrusts.AsyourLivingTrustadvisor,IrecommendthatyouincorporateaprovisionofthisnatureintoyourLivingTrust.Itstatesthat...well,justreadityourself.It’sveryself-explanatory:

FollowingthedeathoftheSurvivingSpouse,theAfter-DeathAgentshalldistribute all personal property in accordancewith anywritten, signed,anddatedMemorandumleftby theSurvivingSpousewhichdirects thedistributionofsuchProperty.ShouldtheSurvivingSpouseleavemultiplememorandawhichconflictas to thedispositionofanyitemofpersonalproperty,thatmemorandumwhichisthelastmemorandumsignedbytheSurvivingSpouseshallcontrolastothoseitemswhichareinconflict.

Get it?Once thisprovision is inserted intoyourLivingTrust,youwillhavethe power towrite on any piece of paper—a legal pad, a cocktail napkin, anindexcard—yourinstructionsonwhogetsyourpiano,yournecklace,yoursoda-popcancollection,yourfirsteditionofDetectiveComicsNo.27(whichdepictsthefirst-everappearanceofBatman).Ifyouwanttochangeyourmindastowhogetsanitem,yousimplymakethechangeyourselfonthatdocumentbycrossingouttheoldandfillinginthenew,ordestroyingtheolddocumentandcreatinganewone,andplacingthatchangedornewdocumentinthesamelocationwhereyoukeepyourLivingTrust.

IfyoudiewithoutcreatingaPersonalPropertyMemorandumProvision,orifyou have a memorandum that does not cover the disposition of all of yourpersonalproperty,yourLivingTrustshouldprovidethatsuchnonmemorandumitemswillbedistributedtoyourchildren“astheysoshallagree.”Ifyoudonot

haveaPersonalPropertyMemorandumProvisioninyourLivingTrust,IadvisethatyouhaveyourlawyerprepareanamendmenttoyourLivingTrusttoputoneinthere.

ButregardlessofthesizeandextentoftheamendmenttoyourLivingTrust—from a one-pager to a complete restatement—amending it during the jointlifetimes of you and your spouse requires themutual consent and approval ofboth of you. That’s right. You read correctly. Although revoking your LivingTrustrequiresonlyonesignature,anamendmentrequiresbothsignatures.

YouReadRight!ItTakesOneSignaturetoRevoke,butTwoSignaturestoAmend

What’sthedeal?Sincerevokingseemsmoreseverethanamending,whyshouldonlyonesignatureberequiredtodestroyaLivingTrustwhentwosignaturesarerequiredforamereamendment?Quitesimply,becauseonespousecannothavethe unilateral power to change the terms of the Living Trust. If such singularpowerwereallowed,theLivingTrustcouldpotentiallyneverbesettled.

Toillustratethispoint,imaginethefollowingscenario.Youandyourspousehaveanargument.YouthinkJean-LucPicardisthebestStarTrekcaptainever,while your spouse believes the same about James T. Kirk. Of course, yourspouse’sposition ispreposterousanddemonstratesyourspouse’sdireneed fortherapy.Butfornow,bothofyouarereallysteamedateachother.Caughtupintheheatandpassionofthisissue,yourundowntoyourlawyer’soffice,poundyourfistonthedesk,andsay,“IwantthathorribleKirk-lovingspouseofmineoutoftheLivingTrust,andcutoutthechildrenfrommyspouse’sfirstmarriagewhileyou’reatit!”

Thelawyerprepares theamendmentandyousign it.Somehow,yourspousediscoverstheamendmentandsays,“Ohyeah?Twocanplayatthatgame!”Yourspouserunsdowntothelawyerforanamendmentreplacingtheoldprovisions,andaddingnewonesthatcutyouout.

Asyoucanseefromthisoutlandishexample,single-handedlyamendingtheLiving Trust can become a cyclical game of establishing financial superiorityovertheotherperson.SincebothofyoubroughtyourLivingTrusttolife,bothofyoumustconsenttoallchangesthatarewrittenduringyourjointlifetimes,or

chaosandanarchycouldensue.

LikeyourLivingTrust,anamendmentisalegaldocument.Ithastohavetheproper legal stuff in it for it to be valid and effective, and this legal stuff ismentioned in your Living Trust. It will say that the amendment must becontainedinanotarizedorwitnesseddocumentthat issignedbythesettlors—youandyourspouse—anddeliveredtothetrustees—whoarealsoyouandyourspouse.

How do you deliver a document to yourselves? You just simply sign astatement in the amendment that says that the “Trustees hereby acknowledgedeliveryofthehereinamendmentfromtheSettlors.”Iknowthatsoundskindofcrazy,butthatisthewayit’sdone.

AWordofWarning

IfyourequireanamendmenttoyourLivingTrust,don’tattempttoprepareityourself! I have seen dozens of self-prepared amendments that are laugh-out-loud incorrect. But what is less humorous is that I will not make thesediscoveries until after the self-preparers are dead, and little can be done topreventthatamendmentfromfailing.

AsyourLivingTrustadvisor,Iwarnyouthatthisisasceneyoudonotwantto create.Letme tell you about that scene,which I have seen repeated inmyofficemoretimesthanIwanttorecount.

You die and the persons who believe themselves to be the beneficiaries ofyourLivingTrustcometomyofficeforadviceonreceivingtheirsharesofyourLiving Trust assets. I say, “Show me the document that names you as thebeneficiaries.”Theywhipoutadocumentthatyoupreparedonyourown,titled“AmendmenttoLivingTrust.”Ireviewthedocumentand,yes,itstatesthatthepersonsinmyofficeshallreceiveyourLivingTrustassets.Forthosepersons,sofar,sogood.

BeforeIpronouncethatthepersonsinmyofficeare,infact,thebeneficiariesofyourLivingTrust,IwanttoseetheoriginalLivingTrust—theonethatwasamendedbyyourself-preparedamendment.Why?BecauseIwanttoseeiftheamendmentwaspreparedinaccordancewiththeinstructionscontainedinyouroriginalLivingTrust.

So,theygivemeyouroriginalLivingTrust.Iturnrighttothesectiondealingwith revocation and amendment. I read that section. It requires that theamendmentbenotarized.Ilookatyouramendment.It’snotnotarized.

I lookup from thepagesofyouroriginalLivingTrustat thepersons inmyofficewhohadnatural expectations that theywould receiveyourLivingTrustassets. I am about to devastate them with the news that the amendment youpreparedisnotvalidand,asaresult,theywillreceivenoneofyourLivingTrustassets.HowdoIbreakthisnewstothem?Ilearnedalongtimeagonottobeataroundthebush.Justdoit.

With a tone of sadness as sincere as I can summon, I quietly make theannouncement:“I’msorrytosaythatyoutakenothingundertheamendment.ItisinvalidduetothefailuretocomplywiththeoriginalLivingTrust’sestablishedamendment procedure. All the Living Trust assets will be distributed to thebeneficiariesdescribedintheoriginalLivingTrust.”Atfirst,thenewsdoesnotregister.Itdoesnotenterorcompute.Butultimately,aftertheshock,denial,andexplanations, thosepersonscometo realize to theirpersonalhorror thatdue toyourerror,theywillnotreceiveanyofyourLivingTrustassets.

Nothingismorelikelytocauseasmallriotinmyofficethanthebeneficiarywho,inafewseconds,goesfromafinancialwindfalltopotentiallyzilch.

Perhaps the mistake can be fixed by petitioning the court to rescue theintentions stated in amendment. But if not, and no other fix is available, itbecomes a failed amendment and will have no effect whatsoever, leaving thebeneficiarieswithouttheinheritancedescribedinthatdocument.

Do not let this happen to you. If you want to change your inheritanceinstructions,haveanexperiencedattorneydothechanging.Itmayseemsimpleenough to prepare the amendment yourself, but youmaymiss something thatcancausetheinheritanceinstructionsonthatdocumenttonotbecarriedout.

Situation#3:EitherYouorYourSpouseNoLongerActsasaCo-Trustee

InthesectionofyourLivingTrustthatappointsspecificpersonsorentitiestoactasthetrustee,thereisaprovisionthatstates,inessence,thatbothyouandyour

spouseserveasco-trusteesatpresent. It furtherstates that ifonespouse isnotableorisnotwillingtoactasaco-trustee,theotherspousecontinuesonasthesoletrustee.

These provisions come into play when either you or your spouse dies,becomesincompetent,orresigns.

YouorYourSpouseDies

Thisisano-brainer.Youarenotabletoactasaco-trusteeifyouaredeceased.Certainly,youmaystillbewillingtoact,butyourphantomisnotalegallyviableorrecognizedentity.That’sjustlifeintheBigCity.

YouorYourSpouseBecomesIncompetent

There is a significant likelihood that you or your spouse will become legallyincompetent at some point during your joint lifetimes. Your Living TrustconsidersthispossibilityandallowsthecompetentspousetocarryonasthesoletrusteeofyourLivingTrustwithouttheneedforcourtinvolvement.

The big question in this situation, however, is how incompetence isdetermined.This isnotacasualmatter.Youcannot just run toyourattorney’sofficeandpronouncethatyouarenowthesolepersoninchargeofyourLivingTrust assets because, in your opinion, your spouse is mentally addled. Theattorneywillthinkyouhavegonedaft,orthatyouaremakingapowerplayforcompletecontroloftheLivingTrustassets.

To prevent such attempts at complete control, your Living Trust providesstandardsbywhichincompetenceismeasured.Thesestandardsarenotuniform,and we lawyers often differ on what they should be. But no matter thedifferences, they need to provide assurance that a proper determination ofincompetenceismadetopreventonespousefromillegitimatelytakingoverthefamilymoney.

As your Living Trust advisor, I suggest to you and to my clients that youstipulate in theLivingTrust thatonespousecanbedeterminedincompetent tobe a co-trustee if the other spouse obtains two letters written by licensedphysicians on their stationery. Both letters must state that you have become

mentallyorphysicallyincapacitatedtotheextentthatyoucannolongermanageyourfinancialaffairs.Furthermore,toavoidcollusionbetweenyourspouseandthephysicians,theletter-writingdoctorscannotberelatedtoyouoryourspouse,andtheycannotberelatedtoeachother.

Once those lettersareobtained,your spouseautomaticallybecomes the soletrusteeofyourLivingTrust.Heorshenowhasthesingularpowertoexecutealldocuments binding the Living Trust, including checks, deposit statements,withdrawalstatements,deeds,escrowdocuments,contracts,andthelike.Asthisisalotoffinancialpower,IagainsuggestthatyoubesuretoincludeaveryclearstatementinyourLivingTrustthatdefineshowincompetenceismeasuredanddetermined.

YouorYourSpouseResigns

There isno lawor trustprovision that forcesyou tostayonasaco-trustee. Ifyounolongerwanttoserve,youcansignresignationpapers.

Why would you want to resign? Why would anyone voluntarily give upcontrol of the Living Trust assets? Using my clients’ experiences as a guide,resignationoccurswhenyouhavebecome ill to thepointwheremanaging thecheckbookhasbecomeaslowanddifficultprocess.Ultimately,yourealizethatthefamilyfinanceswouldbehandledmoreexpeditiouslyandefficientlyifyouarenolongerintheprocess.

Resigningisnotjustfortheaddled.Perhapsyouarethetypeofpersonwhowantstodiefirstsoyouwon’tbeleftwiththebookkeeping.Ifso,youmaywantyourmoney-managingspousetohandleeverything.Or,maybeyoubelievethattoomanycooksspoilthebrothandthatyourLivingTrustassetswouldbestbehandledbyoneofyou.

Whatever the reason, you cannot just remove yourself as a co-trustee bysimply throwing up your hands and shouting “That’s it!” Your Living Trustprovides that your resignation must be stated in writing, signed by you, anddelivered to the remaining co-trustee. The signing is not as dramatic as youmight think. It’snot like thecinematicdepictionof resignationswhereyou(1)storm into the highrise building conference room, (2) stride over to the longconferencetablesurroundedbyexecutivetypeswhoallresembletheMonopoly

guy,(3)slamdownyourresignationpapersonthetable,(4)signthem,(5)throwtheminthedirectionoftheevilexecutiveguyheadingthetable,and(6)stormoutthedoor.No,itmerelyinvolvesacalltoyourattorneytotellhimyoudonotwant to be a co-trustee. Your attorney will then prepare the appropriate legaldocumentsandsetupanappointment.

During that appointment, your attorney will make sure you read andunderstandtheeffectoftheresignation,whichisthatthesolemanagementandcontroloftheLivingTrustassetswillbeinthehandsofyourspouse.Ifyoucanhandle the prospect of your spouse having the sole power to bind you to alltransactionsrelatingtoyourLivingTrustassets,andifyoutrulywanttoresign,goaheadandaffixyoursignature.But,asyourLivingTrustadvisor, Isuggestyoureallyponderthisresignationbeforeyousignthatpaper.

TheLow-MaintenanceLivingTrust

LivingwithyourLivingTrustisalow-maintenanceproposition.Whilebothyouand your spouse are alive, living with your Living Trust essentially meanskeepingithandyintheeventeitheryouoryourspousewantstorevokeit,orifbothyouandyourspousedesiretoamendit.It’sthatsimple.Andinthischapter,youhavereceivedthepropertrainingonhowtoapproachandimplementthosecoursesofaction.

Butwearenotdoneyet.LivingwithyourLivingTrustalsorequiresattentiontovariousmattersrelatingtotherealestateyoutransferredtoyourLivingTrust,andinvolvesconsiderationofdiscussingyourLivingTrustwithyourchildrenorotherbeneficiaries.ThosesubjectsarediscussedinthefollowingtwochaptersinthisSecondQuarter.

CHAPTER8

TheFiveConcernsabouttheRealEstateYouTransferredtoYourLivingTrustORYOUSTILLOWNYOURHOUSE!

Thereisnospecial tricktoensurethatyoucontinuetoowntherealestateyoutransferredtoyourLivingTrust.Youownit.There isnothingtodoother thancontinuetodonothing—asyouweredoingbeforeyouestablishedyourLivingTrust.

However,asItrainyouonhowtolivewithyourLivingTrustwhilebothyouandyourspousearealive,ImustengageinatrainingsessiononfiveconcernsthatyoumustconsiderwhendealingwithrealestatethathasbeentransferredtoyourLivingTrust.

FirstConcern:OwningYourLivingTrustRealEstate

WhenIexplaintomyclientsthattheyneedtotransfertheirrealestatetotheirLivingTrust,Ioftenseethemwinceindiscomfort,asiftheyhadbeenhitinthechest with a tennis ball. As one client said, “Mr. Condon, I feel veryuncomfortable transferringmy house tomyLivingTrust. This ismy house. Iwanttomakesureitstaysinmyname.”

Asanexperiencedattorneyandpropertyholder,Idonotdismissthisconcernlightly.Realestateisalmostalwaysthemostvaluableassetapersonowns,andpeople are uncomfortable signing anything that potentially affects theirownership of it.However, theLivingTrust is effective only to the extent thattherearevaluableassetsinit;therefore,therealestatemustbetransferredtoit.Ifnot,yourLivingTrustwillsitasanemptybucketand,asaresult,aprobateprocedurewill be required after death to transfer the real estate to the LivingTrust.Themoneyused topaymeforsettingup theLivingTrustmight justaswellhavebeenthrownintothestreet.

Recall the most important words of advice that I have offered about the

ownershipof theassets inyourLivingTrust:Youare theLivingTrust . . . theLivingTrustisyou.Inotherwords,youaretheowner,manager,andbeneficiaryof the Living Trust assets. Therefore, when you sign a deed transferring titlefromyouasanindividualtoyouastrusteeofyourLivingTrust,youdonottakeawayanyrightsrelatedtothetitleandinterestofyourhouse.

SecondConcern:TransferringRealEstatetoYourLivingTrustwithoutRiskofPropertyTaxReassessment

One of the most common questions I get from clients when I establish theirLivingTrust is this:“Mr.Condon,whenyourecord thedeed that transfersmyhousetomyLivingTrust,willthepropertytaxesgoup?”

Here ismyanswer:No.Here ismyansweragain:No.Andletmegiveyoumyanswerforathirdtime:No.

WhyamIbeingsorelentlessintellingclientsthatthepropertytaxesontheirhouse will stay the same after the house is transferred to their Living Trust?Becausetheyaresofearfulthatsuchatransfercouldtriggerareassessment.Myclientsboughttheirhomesdecadesagowhenpropertyvalueswereverylow;andwithlowervaluescomelowerpropertytaxbases.But,ifthosebasessomehowbecome increased to current fair market values, the bases will increasesubstantially,whichwillcausethepropertytaxestoskyrockettothepointwheremyclientswillbetaxedrightoutoftheirhomes.Thatisnotapleasantprospectformyclients,whoareoftenpropertyrichandcashpoor.

Butagain,transferringrealestatetoaLivingTrustwillnotcauseapropertytaxreassessment.Letmegiveyoutheultimateproof.IpracticeinLosAngelesCounty,wheresitstheLosAngelesCountyassessor’soffice.Theassessor’sonlyfunction is to raise money for the county by increasing property taxes. Theassessorcanraisepropertytaxesinonlytwolimitedsituations:whenrealestateis built or improved (not our focus here), and when there is a transfer ofownershipofrealestate.Theassessorisveryaggressiveonincreasingpropertytaxesontransfers,butcannotincreasetaxesontransfersofrealestatetoaLivingTrust, because a transfer to aLivingTrust is not a transfer! Even themoney-hungry assessor realizes that a transfer to a trust is not a real transfer ofownership, because the settlor (owner), trustee (manager), and beneficiary are

thesamepersonasthetransferor.

Many of my clients own real estate in other states. During my 20-yearpractice, I havedealtwith the assessor in counties in almost everyoneof ourUnitedStates.Fromtheseexperiences,Ihavecometotwoconclusions.One,ifyoueverattempttonavigatethedeedrecordingsystemsinHawaiiorLouisiana,withtheirByzantineandabsolutelyconfusingproceduresandrequirements,youwillgoslightlymad.Second,notransferofrealestate inanystate toaLivingTrustwillresultinanincreaseinanyrealestatetax.

So,havenofearortrepidationwhenyourlawyerasksyoutosignthatdeed.Ifyourtransferresultsinanincreaseinpropertytaxes,thensomeonescrewedup.Icannotstateitmoreplainlythanthat.

ThenexttimeyouhavetoconcernyourselfwithyourLivingTrustrealestateisifyousellorrefinanceit.

ThirdConcern:SellingLivingTrustRealEstate

SellingthehouseorotherrealestatethatyoutransferredtoyourLivingTrustisjustlikeasalewithouttheLivingTrustcomponent.Youdecidetosell,youfindarealestatebroker,yourhousegetslistedforsale,youacceptanoffer,escrowcloses,andyouwalkawaywiththesaleproceeds.

However, because your property is titled in the name of your LivingTrust,youmay find yourself getting this type of phone call from the escrow officerafteryouhaveacceptedtheoffer,butbeforeescrowcloses:

Escrow:Mr.Bookreader?

You:Yes?

Escrow:Thisisescrowcalling.Ijustgotacallfromthetitleinsurancecompany. They just noticed that the house you are selling is in yourLivingTrust.Theyrequiremoreinformation.

You:Whatkindofinformation?

Escrow:Well,theysaidtheyneedtoseeyourLivingTrust.

You:Why?That’saprivatedocument.

Escrow: If youdon’t let them seeyourLivingTrust, theywill declinecoverage,andthatwillkillthesale.

You:Mylawyerneverwarnedmeaboutthis!

Whatisgoingoninthissituation?Well,beforeyoucansellyourrealestate,thepurchaserwillwantatitleinsurancepolicy,whichassuresthatheorshehasclear title to thepropertybeingpurchased.So, thepurchaserapproachesa titleinsurancecompanytobuythatpolicy.Theinsurancecompanythenperformsasearch of the title to your property and shows the latest vesting to be in thenamesofyouandyourspouseastrusteesofyourLivingTrust.

Certainly,youknowthatyouestablishedyourLivingTrust,andthatyouandyourspousearethetrusteeswiththepowertowheelanddealwithassetsintheLivingTrust inanyway thatyoudesire.But the title insurancecompanydoesnot. It wants to be 101 percent certain that you are the Living Trust and theLivingTrust is you, and itwants proof that you and your spouse, as trustees,havethepowertosellrealestatecontainedinyourLivingTrust.Toachievethatcertainty,theinsurancecompanywantstoseeparticularportionsofyourLivingTrust,whichare:

• The Declaration of Trust—the part that declares your intention toestablishaLivingTrust.

•Thetrusteesection—whereyouidentifyyourselfasthemanagerofyourLivingTrust.

•Thetrustee’spowerssection—toprovethatyouhavethepowertoselltrustassets.

•Thesignaturepage.

So what do you do? You whip out your Living Trust, find those portions,make copies, and send them to escrow. If you do not have your Living Trusthandy,callthelawyerwhodrafteditforyouandtellhimorher(nicely)tosendescrowthoseportionsfromthecopiesintheofficefiles.Igetthosekindsofcallseveryday.Andalthoughitisabitofanuisancetoschleptothefileroom,getthefile,makethecopies,andprovidethemtoescrow,itisaprocessthateveryLivingTrustattorneyknowsispartofthejob—andshouldbeincludedinthefeeyoupaid the attorney todraft thedocuments.So, donot feel guiltywhenyouissuethatinstruction.Yourlawyerwillgrumble,butexpectstoreceivethatcallandwillgetthosecopiestoescrow.

In any event, with these four portions, you are able to prove to the title

company that you own the property in a validly established Living Trust.Therefore,youareempoweredtosellitifyouwish.

FourthConcern:RefinancingLivingTrustRealEstate

Asanattorney,IwouldliketotellyouthatrefinancingLivingTrustrealestateiseasy.Muchof the time, it is.ButasyourLivingTrustadvisor, Imustcautionyouthatsometimesitisverydifficult,becausemanylendersandtitleinsurancecompaniesareunwillingtoparticipateinthetransactionunlesstherealestateisinyourindividualname.Asunfairasitsounds,thisunwillingnessmayrequireyoutosignadeedthattransfersyourrealestatefromyourLivingTrustbacktoyourindividualnamebeforeyoucanrefinance.

Ifyouaresoforcedtoretransferyourrealestatetoyourindividualnameasacondition to refinance, the escrow companywill prepare the deed,which youmust sign.But escrowwill not put your real estate back into yourLivingTrust when the refinance has been concluded! In other words, youwill beresponsibleforthenpreparingadeedthatagaintransfersyourrealestatebackintheLivingTrust.Ifyoudonotdoso—eitherbecauseyoudonotknowhowtoorbecauseyoumaynotrememberthat therealestateisnolongerinyourLivingTrust—thentherealestatewillremaininyourname.

This situation can be extremely problematic and can ultimately cost yourLiving Trust beneficiaries a lot of time and money. For instance, if you diebeforeyouretransfertherealestatebacktoyourLivingTrust,yourbeneficiarieswillhavetoestablishaprobateprocedurewheretheymustsubmityour“Iforgotwill”forapproval.Indoingso,theywillhavetoobtainanorderfromthecourtthat authorizes the transfer of your real estate toyourLivingTrust.Thus, thisprocessessentiallynullifiesthereasonyouestablishedaLivingTrustinthefirstplace.

Ihaveparticipated in threeprobateswhere theonlyassetgoing through theprocesswasforgottenrealestate.Thewasteof timeandfundswasnot lostonthe beneficiaries, who attempted to blame me for the screw-up and hold meliable for the costs, as typified by the following conversation I had with arepresentativeofonesetofbeneficiaries:

Attorney for Beneficiaries: Mr. Condon, my clients have to probate

their father’swill because his homewas not in theLivingTrust at hisdeath.Youneedtopayforthat.

Me:Why?

Attorney:BecausethepropertywasnotinhisLivingTrust.

Me:Iknowthat.That’sthesecondtimeyouhavetoldmethat.ButwhydoIneedtodofreeprobatework?

Attorney:BecauseyoushouldhaveknownthathewasgoingtotakehishouseoutofhisLivingTrusttodoarefinance.

Me:Herefinanced?

Attorney:Yes.Andyoushouldhaveknownthat.

Me:HowshouldIhaveknown?Ihavenotseenorspokentohiminnineyears.

Attorney:Oh!Nevermind.

Ofcourse,hadIknownabouttherefinance,Iwouldhavebeeninthepositionto advise the client accordingly.But in any event, I donotwant you to suffersuchasimilarstress-filledconversationwithpeopleattemptingtofindsomeoneto pay for the inadvertentmistake of another. So formy sake, if not for yourbeneficiaries’ sakes,make sure you remember to call your lawyer to put yourrealestatebackintoyourLivingTrustafteryourrefinanceisconcluded.

FifthConcern:RequiringtheSignaturesofBothYouandYourSpousetoSellLivingTrustRealEstate

Before establishing your Living Trust, you and your spouse owned yourchecking account in some form of joint ownership. When you opened thataccount, you told the new account representative that only one signature wasrequiredtonegotiatechecks.Ofcourse,thisisaverycommonarrangement,asyou do notwant the hassle of running to your spouse every time youwrite acheck.

Whenwe lawyers establish your Living Trust, we do not want to interferewith that arrangement. If one signature was good enough to negotiate checks

written from a joint account, then one signature is good enough to negotiatecheckswrittenfromaLivingTrustaccountwherebothyouandyourspousearethetrustees.So,inthesectionofyourLivingTrustthatsetsforththepowersofthe trustee, there is a standard (read: boilerplate) provision that says that onlyonesignatureofeithertrusteeisrequiredtotransactwithLivingTrustassets.

AsyourLivingTrustadvisor,Imustwarnyouthatthissingularpowerofonetrustee toenter into transactionswithyourLivingTrustassetsalsocovers realestateassets!Ifyouarelikemostofmyclients,youdonotwantyourspousetohave the ability to sell or refinanceyourLivingTrust real estatewithout yourparticipation. Rather, you expect the continuation of the pre-Living Trustrequirement of mutual consent and signatures of both you and your spouseregardinganymatterrelatingtotherealestate.

Ifthiscomesasashocktoyou,youcanimaginehowoneofmyclientsfeltwhen he discovered the effect of this provision the hard way. Mr. and Mrs.Southerland signed a Living Trust that contained such a “power of one”provision.Shewantedtoselltheirfour-unitapartmentbuildingbecauseshewastired of dealing with “crazy tenants.” He, however, believed in the magic ofappreciatingrealestate.Thisconflictexplodedwhenhediscoveredthatshehadsoldthebuilding!Hedidnotnotice that thesalehadtakenplaceuntilafterhecontactedatenanttoaskaboutthestatusofalaterentpayment.Itwasnotlate;ithadjustbeensenttothenewowner.

ThereisnothinginherentlywrongwithallowingonespousetobindthetrustorsingularlyfunctiononbehalfoftheLivingTrust.Indeed,somefolksliketheconvenience of one signature binding real estate transactions. If you dreadselling or refinancing your house because of seemingly endless documentrequirements,youmayfindyourself in thatcategory.However, this“powerofone”provisionisoftenpartofthesmallprintoftheLivingTrustthatisatriskofbeing overlooked by the attorney, so much so that I have brought it to yourattentioninthischapter.

Thus,ifyoudonotwantyourrealestatetobesweptupinthisone-signature-for-all-assetsprovision,youhavetotellyourlawyertoincorporatetherealestateexception, specifying that only one signature shall be required to transact allLiving Trust assetswith the exception of real estate. Real estate shall requirebothyoursignaturesduringthejointlifetimesofyouandyourspouse.

ConcerningYourselfwiththeFiveConcerns

DonotfretthattransferringyourrealestatetoyourLivingTrustdiminishesyourbundleofrightstoyourrealestate.YoustillownyourrealestateasitsitsintheLivingTrustjustasyouowneditbeforeyouowneditastrustee.However,asIpointedoutinthischapter,sellingandrefinancingyourLivingTrustwillrequireyou to engage in additional steps to satisfy the needs of outside agenciesinvolved in those transactions. However, your Living Trust advisor (me) isadvisingyouthattheadditionalworkisameagerpricetopayforthebenefitofprobateavoidancethatyourLivingTrustgivestoyourbeneficiaries.

CHAPTER9

ShouldYouTellYourChildrenaboutYourLivingTrust?ORDON’TDISMISSTHECHANCETOHAVEAFAMILY

INHERITANCEMEETING—ESPECIALLYIFTHELAWYERWON’TCHARGEYOU

YourLivingTrustisaprivatedocument.Thereisnolegalobligationthrustuponyoutoshareitscontentswithanyone.Afteryoubringithome,youcanstoreitunderlockandkeyandhideitfromtheworld.Andifyouarelikemostofmyclients, your first instinctwill be todo just that.Asyouplace it inyour safe-depositbox,youmutteraloud(perhapswithglee)thatyourchildrenwillneverseethisdocumentaslongasyouarealive.

ButasyourLivingTrustadvisor,Iadviseyoutorunagainstthatinstinct.Infact, Iwant you to do a 180-degree turn. I not onlywant you to inform yourchildrenaboutyourLivingTrust,Iwantyoutotellyourchildrenthesizeoftheirexpectedinheritance!

Are you appalled and shocked at this advice? You may very well be. Ofcourse,youmaybetherarebreedthatconsidersyourselfanopenbookwhenitcomes to family money matters. Most likely, however, either the thought ofdisclosinginheritanceinformationtoyourchildrenhasneverenteredyourmind,oryouhavedismisseditoutofhandatitsmeresuggestion.

Inthischapter,mygoalistochangeyourmind.Iwillmotivateandencourageyou to conduct a family inheritancemeeting by giving you plenty of reasonswhyitshould takeplace.Andonceyouaresomotivated,youwillknowhow,when,andwherethatmeetingshouldoccur.

WhyYouDon’tWanttoConductaFamilyInheritanceMeeting...

As an experienced attorney, I have heardmy fair share of reasons for clients’nondisclosureoftheirLivingTruststotheirchildren,andIamsuremanyofyoushare thesesame reasons.Please findyourself inoneof the followingexcusesthatIhaveheardduringmy20yearsofpractice:

•“Ilikemyprivacy.Endofstory.”•“Ifmykidsknowwhatthey’regoingtoinherit,theywilldonothingwiththeirlives.”

•“Mymoneyisnoneofmykids’business.”• “My childrenwill be very upset withmy inheritance plan. I just don’twanttohearit.LetthemgocrazyafterIdiewhenIwon’tbearound.”

•“IamSwedish.AndonethingSwedesdon’tdoistalkaboutsuchpersonalmatterswiththeirchildren.”

•“Iwouldlovetotellmychildrenabouttheirinheritance.Butwe’veneverreallytalkedaboutmoneybefore.Itwouldbetooawkward.”

•“Mychildrenliveallovertheplace.Nowaywouldyouevergetthemintooneroomforameeting.”

AndWhyIDon’tRespectYourReasonsastoWhyYouDon’tWanttoConductaFamilyInheritanceMeeting

I have heard variations of those excuses from almost all of my Living Trustclients (except the one involving the Swedish couple, which is the only timethosewordshavebeenspokentome).WitheveryLivingTrustIprepare,Iofferthe clients—for no extra fee—the opportunity to invite their children intomyofficetodiscusstheLivingTrustanditsinheritanceinstructions.Forevery100such invitations, perhaps two are accepted. I am not a psychologist, but thesenumbersstronglysuggesttomethattalkingaboutinheritanceswithourchildrenisnotpartofourDNA.

Nonetheless, I keepplugging awaywith these invitations, because I believethatthefamilyinheritancemeetingshouldbeanintegralpartoftheLivingTrustprocess,forseveralreasons.

•ThemeetingisanopportunitytoeducateyourchildrenontheformandfunctionoftheLivingTrust.Letthemhearaboutwhatitdoesandhowitavoidsprobate.Letthemlookatitspagesandseetheirnamesinthe

inheritanceinstructions.Ifyoufearthatthevoluminousdocumentswilloverwhelmthem,theycantakesmallbites.

•Yourchildrenarealreadythinkingabouttheirinheritance.Ofcourse,theyarenottellingyouthis,becausetheydonotwanttogiveyouthefalseimpressionthattheywantyoutodie.Theyarejustbeingnormalchildrenwhowonderabouttheirfinancialstatus,money,andtheirinheritance.Takeawaythisgrandmysterybylettingthemgetahands-onfeelforyourinheritanceplan.

•Yourchildrenmayhaveadistortedviewofyourfinancialsituationandmayhavemadetheirplansbasedonthatdistortion.Perhapstheyhavefailedtotakeintoaccounthowtheestatetaxwilldiminishtheirinheritance.Maybetheybelieveyouareworthalotmorethanyoutrulyare.Perhapsonechilddoesnotknowheorsheisreceivinglessthanyourotherchildren...ornothingatall.Youaredoingyourchildrenakindnessbygivingthemaroughlyaccurateviewofyourfinancialpicturesotheycanadjusttheirexpectations—andtheirplans—accordingly.

•YourchildrenneedtoknowthattheyarenamedasyourlifetimeagentswhotakeoveryourLivingTrustassetsduringyourlifetimeintheeventofyourincapacity.Speakingrhetorically,howwillyourchildrenknowtheyareyourlifetimeagentsunlessyoutellthem?Andhowwilltheyknowwhattheroleoflifetimeagentrequiresunlesstheyfirsthavethatinformation?ItsimplydoesnotmakesensetokeepyourchildreninthedarkaboutyourLivingTrustwhen,infact,theymaybecomeyourlifetimeagents.

•YourchildrenneedtofamiliarizethemselveswiththeLivingTrustdocumentsduringyourlifetimesothattheydonotseemsodauntingafteryourdeath.Therearefeweventsmorestressfulinyourchildren’slivesthanthedeathsofbothparents.Imaginehowthatstressisexacerbatedwhenshortlyafterthefuneraltheyarefirstpresentedwithseveralthickandlengthydocumentswrittenalmostentirelyinlegalese,whichtheyhavetoread,navigate,andunderstandwhilethebeneficiariesarebreathingdowntheirneckssaying,“Where’smine?”Youdonotwantthatforyourchildren.TakeawaythatbewildermentandflounderingbygoingovertheLivingTrustwiththemduringafamilyinheritancemeeting.

•YourchildrenneedtoknowabouttheprocessofadministeringaLiving

Trust.AlthoughtheconceptoftheLivingTrustissimple—yourafter-deathagentsignsthedocumentstransferringtitleofyourassetsfromyourLivingTrusttoyourbeneficiaries—theymuststillengageinaprocessthatinvolvespreparationofestatetaxreturns,draftingofdeeds,dealingwiththeIRS,communicatingwithbankandbrokeragerepresentativesandcompletingmanyoftheirrequiredforms,andonandon.Theyshouldhavesomesemblanceofunderstandingthisprocesswhileyouarealivesotheyarementallypreparedtohandleitafteryourdeath.

•Thefamilyinheritancemeetingcansmoothoverthepotentialconflictsaboutyourinheritanceinstructionsthatcouldariseafteryourdeath.Forexample,perhapsyoudecidetoleavemoreofyourassetstoyourstrugglingschoolteacherdaughterandlesstoyoursuccessfuldoctorsonbecause,youthink,yourdaughterneedsitmore.Whileyoubelieveyouareachievingeconomicjustice,yourdoctorsonseesitslightlydifferently:“MyparentshavepunishedmysuccessandrewardedmysisterwhoworksfewerhoursthanIdo!Howdarethey?”Yoursoncannotbeangryatyoubecause,well,youaredead.So,hetransfersthatangertohissister,andhenevertalkstoheragain.

This typeof situation canbe avoided if your asset allocationplan isdiscussed at a family inheritance meeting. During that time, your sonwouldbeabletoopenlydisagreewithyourplanandhearyourrationalefortheallocation.Inotherwords,thefamilyinheritancemeetingallowsyou to raise the conflicts now so they can be handled, discussed, and,perhaps,smoothedoverwhileyouarealive. Ifyoudonotwant tofacewhatyoubelievewillbeacontentiousatmosphere,asyourLivingTrustadvisorImustcautionyouintoitwiththisstatement:Bynotaddressingtheconflictnow,youallowittofesterafteryourdeathtotheextentthatitwillundermineyourchildren’ssiblingrelationships.

•Youhavespentconsiderabletime,expense,andeffortinputtingyourLivingTrusttogether.Youdidthisbecauseyoudesirethatyourchildrenreceivetheirinheritanceinthemostcost-freeandhassle-freemannerpossible.IfyourLivingTrustisprimarilyforthem,doesitnotfollowtocluethemintoit?

•Youmayhaveassetsthatareliterallyallovertheplace,andyouneedtotellyourchildrenwhatyouhaveandwhereitcanbefound.Alimited

liabilitymembershipinterestinapropertyinTexas.Alimitedpartnershipshareinagaslease.AbankaccountinNevada.SomecashoffshoreintheCookIslands.AnIRAinabrokerageaccountinDelaware.Withoutthemeeting,yourchildrenmaynotbeabletotrackeverythingdownorrealizethatyourengagementringishiddeninthehemofyourfavoriteredskirt!

Ifyoudonotbelievethatpeoplearecapableofhidingtheirassets inobscureplaces,letmetellyouthatonafewoccasionsIhavehadtohireaprivateeyetotraceandlocatemissingassets.Inparticular,whenoneofmyclientspassedaway,hischildrensuspectedthathehadbankaccountsand real estate investments outside California. Although he wasoriginally fromNewYork,heoften relocated to suchplaces asMiami,Baltimore, Israel, and Los Angeles. Therefore, they believed he hadassetsinthosevariouslocations.Theywererightandeventuallylocatedtheir father’s assets, but notwithout spending a lot of time, effort, andexpense.Thiswasnotasituationwherehewashidingassetsorfinancialinformation on purpose. Rather, with advancing age, he just did notremember the nature and extent of his holdings. Regardless of thereasoning, ifmy client had allowedme to arrange a family inheritancemeeting,hecouldhave savedhis children theaggravationandexpensethatcamefromhavingtotracehisassetsfollowinghisdeath.

HowtoConductaFamilyInheritanceMeeting

IhavepreviouslytoldyouthatImakesweepinggeneralizationsinordertohelpget a point across. However, my statement that you need to have a familyinheritancemeetingisnotoneofthem.ForthereasonsIdiscussed,thismeetingisanimportantpartoftheprocessofestablishingyourLivingTrust,evenifyourLivingTrustisthemostconventional,garden-varietyLivingTrustintheworld.

NowthatIhaveconvertedyoutomywill,yournextinquirybecomeshowtoconvene a family inheritance meeting. Ideally, it should take place in asomewhat formal setting that impresses on your children that this is SeriousTime. This is not at your family Labor Day backyard barbecue with yourgrandchildren runningaroundunderfoot. It isnot inyour living roomafter thebelt-bustingThanksgivingdinnerwith theDallasCowboysontelevision in the

background.

There are four essential steps to having an effective family inheritancemeeting.

1.ThemeetingshouldbeatyourLivingTrustattorney’soffice—withyourlawyerheadingthetableinthelawlibraryorconferenceroom.Thisisaveryofficialsettinganddoesmorethananythingelsetosendyourchildrenthemessagethatthisisaseriousconversation.

2.Yourchildrenmustattendthemeeting.Ifthisdemandcomesfromyou,yourchildrenmaynottakethematterseriously.Therefore,IsuggestthatyouhaveyourLivingTrustattorneysetupthemeetingandinviteyourchildren.Nothingwillmakeyourchildrenjumpintoactionmorethangettingacallfromtheirparents’attorney.

3.Donotacceptexcusesfromyourchildrenwhoclaimthattheycannotattend.Itislikelythatyourattorney’sinvitationwillbemetwithfalsebravado(“Whatevermyparentsdoisokay”),insincerity(“Tellthemtojustgoaheadandspenditall”),orlackofcaring(“I’mtoobusy”).TothosecommentsIgenerallyrespondwiththis:“Okay,thenIguessyouwon’tmindifyourparentsleaveyououtoftheLivingTrust.”Youwanttoseequick?Theycomea-runnin’afterthiscomment!Achildwhotrulycannotmakeitcanbepresentthroughspeakerphone.

4.Prepareanagendaforthemeetingwithyourattorney.Asyourchildrenareallgatheredaroundintheofficialsettingorpresentthroughspeakerphone,askyourattorneytogivetheopeningstatement.Perhapsheorshecanbeginbysaying,“Yourparentshavedoneamarvelousthing.Theyhaveundergonesignificantefforttomakesurethatyourinheritancecomestoyouinthemosttime-efficientandcost-effectivemannerpossible,andtheyhaveaccomplishedthiswiththeLivingTrust.”Atthatpoint,theattorneycansummarizeyourLivingTrustandgiveyourchildrenthehighlights.IrecommendthatyoumeetwithyourLivingTrustattorneybeforethismeetingtodiscusstheinformationoftheLivingTrustthatyouwilldiscloseandtodeterminethese“greatesthits.”

YourLawyerShouldNotChargefortheFamilyInheritanceMeeting

Whatwillyourattorneychargefortheseefforts?Itshouldbe...nothing!Youshould not have to pay extra for your lawyer’s participation in the familyinheritancemeeting,becauseitistooimportanttobeconsideredanythingotherthananintegralpartoftheLivingTrustprocess.Therefore,beforeyouhirethelawyer, I suggest that you respectfully mandate that his or her presence at afamily inheritancemeeting be part of the Living Trust package. If the lawyerbalksatthisinstruction,moveontoanotherattorneyuntilyoufindonewhowillagree.

Ofcourse,youcanalwaysconvenethemeetingonyourown.Justmakesurethat it takes place in a manner that lets your children know that it is seriousbusiness. In other words, turn the television off and gather around the diningroomtable.HandthemeachacopyofyourLivingTrust,givethemtheCook’stourofyourinheritanceinstructions,andaskforquestionsandcomments.Thenyouareofftotheraces.

THETHIRDQUARTER

LIVINGWITHYOURLIVINGTRUSTAFTERTHEDEATHOFYOURSPOUSE

AsaLivingTrustattorney,oneofmymainfunctions is toassist thesurvivingspouseinadministeringtheLivingTrustfollowingthedeathofthe“firstspousetodie,”whomIshallrefertoasthedeceasedspouse.

Dealingwithsurvivingspouses is thesecondmostgutwrenchingpartofmyjob.(Thefirstisworkingwithclientswhosechildrenhavediedbeforethem.)IrememberMrs.Abernathy,whosaidtomeafterherhusbanddied,“Mr.Condon,I didn’t want to even think about my husband dying before me. I couldn’timagine how my life would be without him. I really hoped I’d go first so Iwouldn’thavetofindout.Buthe’sgone,andIdon’twanttodoanything.Idon’tcareaboutmyLivingTrust.Ijustwanttodisappear.”

Mrs.Abernathy is not alone in her thinking. I have heard this refrain frommany of my clients who similarly cannot bear even the mere thought of lifewithouttheirspouses.

Likemymother.EstherwasbornandraisedinKnoxville,Tennessee.ShemetmyfatherintheresorttownofHighlandSprings,California,about30milesshyofPalmSprings.Theymetwhileplayingping-pong.Aftermarryingmyfatherameresixmonthslater,shequitherjobasafilingclerkfortheFBI.Supportingherhusband became hermain function. She lived that existence for 50 years,until inAugust2006myfatherdiedof lymphoma,aconditionthathehandledonewayoranotherforalmost20yearsbeforehisdeath.Tomyfather,along-timeathletewhosecredowas,“Surfingislife—allelseismeredetail,”hemostlamentedhowhis illness impactedhisability to surf, ski,play tennis,and ridedirtbikes.Butwhenhis illnesspreventedhim fromdoingwhathewanted,hedidwhathecould—withsuch“fallback”activitiesaswalkingandweightlifting.Mymother was inconsolable when he died, and still is. Not a week goes bywhen I do not hear her express the same sentiment as Mrs. Abernathy anddozensofothersurvivingspouseswhomIhaveencounteredduringmypractice:“Iwantedtodiefirst.”

I intellectually understand that Imust communicate to the surviving spousethelaundrylistofgoalsthatmustbeachievedtoassurethesuccessoftheLivingTrust established by both spouses. But it is often difficult to make effectivecontactwithasurvivingspousewhohaschosenthepathofleastresistance—thatis,withdrawingfromallmattersrelatingtoLivingTrustbusiness.

Ascrassitmustseem,Imustconvinceasurvivingspousethatshemustcometo grips with her husband’s death to the extent that she can deal with thenumerous Living Trust issues that must be addressed. If not tended to, thethousandsofdollarsthat thecouplespentontheirLivingTrustmaybewastedbecause no effortsweremade to effect the provisions in theLivingTrust thatwould,onthesurvivingspouse’sdeath,savethebeneficiariestensofthousandsofdollarsinprobateexpensesandestatetaxes.

Iknowthesewordsareharsh,but theyaredesignedtomotivateyouto takeaction. Ihavedealtwithmanysurvivingspouses in thismanner.Most times, Igetthanksforgivingthemakickinthepants.However,afewtimesIhavebeenfired for coming across as too insensitive. But ultimately, I have no regrets,becauseIamdoingmyjobofhelpingclientsdealwiththebusinessofachievingthegoalsofaLivingTrust,whicharethesubjectofthefollowingchaptersintheThirdQuarter.

CHAPTER10

WillYouDivertYourDeceasedSpouse’sHalfoftheLivingTrustAssetsfromYourOffspring?ORHOWTOMAKEYOUR

CHILDRENFRETANDHOPETHATYOUWILLDOTHERIGHTTHING

Duringthejointlifetimesofyouandyourspouse,youbothownedyourLivingTrust assets together. You owned half. Your spouse owned half. When yourspousedied,youbecametheownerofbothhalvesasonewhole.

But, for purposes of explaining the main issue of this chapter, I need tocharacterizetheLivingTrustassetsas“yourhalf”and“yourdeceasedspouse’shalf.”

BeforeIgetintothemainissueofthischapter—possiblydivertingyourassetsfromyouroffspring—let’sbeginbydiscussingthegoalsoftheLivingTrustafterthedeathofyourspouse.

TheThreeGoalsofLivingTrustManagementaftertheDeathofYourSpouse

After thedeathofone’s spouse, thereare threegoals thatmustbeachieved inordertohaveasuccessfulLivingTrust.

Goal1:Thefirstgoal is toprotectyourownershipandcontrolofyourLivingTrustassetsfortheremainderofyourlife.Inotherwords,ifyoubecome incapacitated to the point that you cannot manage the LivingTrustassets,youwant tobesure thatsomegoodpersonwill step inasyourlifetimeagenttousethefundsforyourbenefit,andnotrunoffwiththemtoBrazilduringCarnival.

Goal 2: The second goal is tomake sure that your deceased spouse’sshareoftheLivingTrustassetswillnotbedivertedbyyou,thesurviving

spouse,toyournewboyfriend,yournewgirlfriend,yournewspouse,oryournewspouse’schildrenfromhisorherfirstmarriage.Inotherwords,while you may want to divert the Living Trust assets from yourbloodline,Icantellyouwithallcertaintythatyourdeceasedspousedoesnotwanttoseethathappen.

Goal3: The third goal is to capitalize on the opportunity your LivingTrustgivesyoutosaveestatetaxesforyourchildrenafteryourdeath.Inotherwords,youhavetoimplementprovisionsinyourLivingTrustnow—duringyourlife—tomakesureyourchildrenpaylessestatetaxyearslaterwhenyoudie.

In order to help your Living Trust achieve these goals, I need tomeet andconferwiththesurvivingspouseonatleastaninfrequentbasis.Butasyoucanwellimagine,manysurvivingspousesareconsumedbygriefandunabletodealwith any type of business matter. As such, the most important issue initiallybecomesGoal2,whichisthefocusofthischapter.Afterall,wedonotwantagrievingwidoworwidowertosuddenlybetakenadvantageof,especiallywhenit comes to diverting assets away from your children and your first spouse’sintentions.

DoesYourDeceasedSpouseApproveofUsingHalfoftheLivingTrustAssetstoSupportYourSecondSpouse?

Whenyourspousedied,youcameintofullcontrolofbothhalves.Yougettheincomefrombothhalves.Youget todipintotheprincipalofbothhalves.Yougettowheelanddealwithbothhalves.Youhavethepowertouseyourdeceasedspouse’shalfanywayyouwant.Thisisconsistentwithallnormalexpectationsofhusbandand-wifeassets.

Thissoundslikeaprettygoodarrangementforyou,thesurvivingspouse,butnotsomuchforyourdeceasedspouse.Why?Becausehaving thepower todoanythingyouwantwithyourdeceasedspouse’shalfincludesthepowertoleavethathalftoyournewspouse,girlfriend,boyfriend,caretaker,orsignificantother.That ghostly whisper you hear over your shoulder is your deceased spousesaying,“Honey,youcandowhateveryouwantwithyourhalf.ButIdon’twantmyhalftoendupwithsomeopportunistictrollop.Makesureyouleaveittoour

children.”

Remarriageamongwidowsandwidowersiscommonplace.Afterspendingalifetimewith your spouse, you don’twant to be alone, unless you crave yournew solitary lifewhere you can focus totally on your own needs and desires.Thus,evenifyoudonotrealizeitnow,youmayremarry,andyournewsecondspousewillprobablybecometheprimaryfocusofyourexistence.

It ishoped thatyourchildren (whomI refer to in this chapter asyour“firstchildren”becausetheyaretheproductofyourfirstmarriage)willbehappyforyouwhenyoumarrythissecondspouse.Theywillrevelintheknowledgethatyouwillnotbealonefortheremainderofyourdays.Butletmegiveyouatasteofrealityfromthetrenches.InthemanysituationsIhaveencounteredwhenmysurvivingspouseclientshaveremarried,Irunintomanyfirstchildrenwhoarehappierfor themselvesthanfor theirparents.Why?Asonefirstchildput itsosuccinctly: “Mr. Condon, I can’t tell you what a relief it is for me that Dadhookedupwithanewwife.Nowhehasanautomaticcaretaker!Ifhebecomesincompetent, she can schlep him to the doctors. She can change his diapers.ThenIcanbefreetodomything,whichisskiing,surfing,andtennis.”

Such a lovely sentiment. When I hear such words from my clients’ firstchildren,Ialwayswonderwhatfamilybaggagecametobearthatcausedthemtoeffectivelydivorcetheirparentsatthetimewhentheirparentsneededthemthemost.Butwhatgoesaroundoftencomesaround.Thereisnosuchthingasafreelunch.The first childrenwhoseeuphoria stems from the fact thatyou remarrywill soonwake up to the fact that theymust now compete with your secondspousefortheLivingTrustassets.

Is this a valid concern?Youbetcha!YourLivingTrust has a provision thatstates,inessence,thatyouhavethepowertochangetheinheritanceinstructions.Ifyouloveyoursecondspouse,andifyourrelationshipwithyourfirstchildrenhasflattenedover time, it isonlynatural thatyouwouldwant tochange thoseinstructionstonameyoursecondspouseasabeneficiary.

Everyweek,IgetacallfromfirstchildrenwhoarescaredtodeaththattheirsurvivingparentwillleavealltheLivingTrustassetstotheirstepparent.Sadly,there is nothing the first children can do to prevent this occurrence. If thesurviving parent wants to cut them out of the Living Trust, it can be donebecause of the surviving spouse’s complete power and control of the LivingTrustassets.

However, your first children will be relieved to know it’s not a done deal.There are certainprotectiveplans that canbebuilt intoyourLivingTrust thattakesawaythesurvivingspouse’spowertoamendthedeceasedspouse’shalfofthe Living Trust in any way that affects the first children’s inheritances. Buttheseprotectiveplanshave tobeput into theLivingTrustwhenyouandyourspousefirstestablishedittogether.

ArethereanyprotectiveplansinyourLivingTrust?Didyouevendiscussthisissue with your attorney before you and your spouse signed it? Perhaps yourattorneywasnotexperiencedenough—ortoobusy—tosuggestthepossibilityofthe Living Trust assets being diverted from the bloodline by the survivingspouse.

Orperhapsyour attorneydid raise this issuewithyouandyour spouse,butyou dismissed it. Like many of my clients, you may rely on faith that thesurvivingspousewill“dotherightthing”andmakesurealloftheLivingTrustassets ultimately go to the first children. Regardless of the reasons, youmustrememberthisimportantmessage:Thepossibilitythatyourchildrenmaysuffersome inheritance loss because of the remarriage of a surviving parent issomethingthatmustbediscussedandconsideredbetweenyouandyourspouseatyourfirstLivingTrustmeeting.

FrettingandHoping—byYourFirstChildren

Now that your spouse is dead,what can your first children do to prevent youfromdivertingyourdeceasedspouse’shalftoyoursecondspouseifyouhaveaLivingTrustwithoutanyprotectiveplan?Really,alltheycandoishopethatyouand your spouse recognized this issue and put in the appropriate provision inyourLivingTrusttolimitthesurvivingspouse’sabilitytochangetheinheritanceinstructionsofthedeceasedspouse’shalf.

IfyourLivingTrustdoesnothaveanyprotectiveplan,thenyouaretheownerofbothhalves,andyourfirstchildrenmustlieawakeatnightfrettingaboutthepossibility that you will divert their inheritance to your second spouse, andhopingyouwilldotherightthing.Asmyfatherusedtosay,sometimesyourunintoproblemsthathavenosolution.Inthiscase,Isupposefrettingandhopingistheonlyremedialmeasureyourfirstchildrencanimplement.

PreventingYourFirstChildrenfromFrettingandHopingSoTheyCanGetSomeSleep

Forpurposesofcarryingthisadmonitionallthewaythrough,let’sassumethatyourLivingTrustdoescontainaprotectiveplanthatpreventsyoufrommessingwithyourdeceasedspouse’shalf.What,then,arethoseplansandwhataretheireffects?

Oneprotectiveplansimplyrequiresthatonyourdeceasedspouse’sdeath,thedeceasedspouse’shalfwillgooutoftheLivingTrustanddirectlytoyourfirstchildren.The outright distribution of your deceased spouse’s half to your firstchildren absolutely guarantees youwill never get your grubbymitts on it. Ofcourse,you,thesurvivingspouse,wouldbedeprivedoftheuseofthathalf,andyouwouldneversignaLivingTrustthatdoesthat.Afterall,thegoalisensuringthatthedeceasedspouse’shalfendsupwiththefirstchildren,notimpoverishingthesurvivingspouse.

Instead,themoreacceptableprotectiveplan(atleast,toyou)isthetransferofthedeceasedspouse’shalftoa“maritaltrust.”Themaritaltrustisnotcontainedin a separatedocument. It’s part of the inheritance instructionsofyourLivingTrust.

Inthemarital trust, it isstatedthatyou,thesurvivingspouse,receiveall theincomefromyourdeceasedspouse’shalf,andyouhavetherighttodipintotheprincipal for your health and support. Later, when you die, your deceasedspouse’shalfgoesoutofthemaritaltrustandtoyourbeneficiaries.

WhataboutthehalfoftheLivingTrustassetsbelongingtoyou,thesurvivingspouse?Canthatbecontrolledinthemaritaltrustaswell?No.Yourhalfbelongstoyou,andyouarefreetodoanythingwithit.Leaveittoanewspouse.Leaveitto a significantother.Leave it toyour first children.Spend it.Throw it in thestreet. The fact is, no one and no trust can controlwhat the surviving spousedoeswiththesurvivingspouse’shalf,exceptthesurvivingspouse.

Therefore, ifyou, followingyourspouse’sdeath,need tomarrysomeonesoyouwon’tbealoneor toprovideyouwithacaretakeryoucancalluponatallhours,orbecauseyoucannotfindyourwaytothekitchen,youcanrewardyoursecondspousewithyourhalfonyourdeath,andthereisnothingtopreventyoufromdoing so.Butwith amarital trust, youwill not have the power to leave

yourdeceased spouse’shalf toyour second spouse,much to the reliefofyourdeceased spouse and your first children.With themarital trust, your deceasedspouse’s half of the Living Trust assets is protected from you, while stillprovidingeconomicvaluetoyou.

CHAPTER11

ThePowertoChangeYourDeceasedSpouse’sInheritanceInstructions...orNot!ORHOWTOLORDITOVERYOURCHILDRENWITHTHREATSOFCHANGINGYOURLIVING

TRUST

AtthetimeyouandyourspouseestablishedyourLivingTrust, theinheritanceinstructions were designed to speak to your children’s circumstances as theyexistedbackwhenyoucreatedtheLivingTrust.

Forexample,sayyouhavetwochildren—asonandadaughter.

Yoursonisanormalperson.Inmyworld,“normal”meanshedoesnothaveanyproblemsthatposeariskoflosstohisinheritance.Heisnotanalcoholic,adrugaddict,oraspendthrift.Hedoesnotbelongtoacrazyculttowhichhewillhand over his inheritance. He does not suffer from any mental or emotionalinfirmitythathemusttakemedicationtocontrol.Andthereisnodramainyourson’slife,suchasawifewithcash-registereyes,anincometaxproblem,oranactual or pending divorce, whichwill cause your son’s inheritance to quicklydissipate.

Foryournormalson,youandyourspousebelievedhisinheritancewillnotbecaughtupinanyproblems.So,yourLivingTrustleaveshimincompletecontrolofhisshareoftheinheritance.

TheTyrannyofUnjustifiedLifetimeControl

Your daughter, however, is another story. She has never managed her moneyproperly,andyoudoubtshewillattainfinancialmaturityafteryourdeath.Shespends like a socialite, throwingmoney away on clothes, the latest handbags,designer shoes, and expensive dinners and nightclubs where patrons thinknothingofspending$400onabottleofchampagne.Youknewatthetimeyou

and your spouse established your Living Trust, and you know now, that anyinheritanceyourdaughterreceivedwouldendupatnightclubswherethepatronsthinknothingofspending$1,000onabottleofchampagne.It isquiteobviousthather shareof the inheritancemustbecontrolled. Itmustbeprotected fromhervice,andmustbeprotected forher so itwillbearound tobeused forhernecessitiesoflife.

Your spendthrift daughter cannot receive her inheritance outright. Yourdaughter’sinheritancemustbeheldbyathird-partymanagerfortherestofherlifesoitwillnotbespentonthehighlife.

As a result of your daughter’s behavior, you have taken the advice of yourLivingTrustadvisorandestablishedaprotectiontrust.Inotherwords,youandyourspouseprovideinyourLivingTrustthatyourdaughter’ssharewillbeheldinaprotectiontrustfortherestofherlifetoensurethatathird-partyinstitutioncontrolsandmanagesherinheritancetoprovideforhernecessitiesoflife.Withthis method, your daughter will never, ever, get to handle or spend her ownmoney. (I discuss the protection trust in almost debilitating detail later in thebook,inChapter18.)

Butguesswhat?Amiraclehappens.Afteryourspouse’sdeath,yourdaughterattends Shopaholics Anonymous, begins shopping at Wal-Mart, and startsvolunteeringatalocalsoupkitchen.

TothatIsay,wonderful!Yourdaughterhasbecomeanexceptiontotherulethatshopaholicswindupbrokeorfilingforbankruptcy.Butthereisaproblem.Youhave inheritance instructions that still speak to your daughter’s addiction.Eventhoughshehasbecomeaproductivememberofsociety,yourLivingTruststatesthatherinheritancewillbewithheldfromherbyathird-partymanagerfortherestofherlife.

ThisiswhatIcalltheTyrannyofUnjustifiedLifetimeControl.Thereasonforthe control no longer exists, but the control exists anyway. The question thenbecomes:DoesyourLivingTrustgiveyouthepowertochangetheinheritanceinstructions after your spouse’s death to meet your daughter’s changedcondition?

Even though I have never read your Living Trust, I can tell you with allcertainty that it gives you the power to change the inheritance instructions onyourhalfof theLivingTrust assets.But incertaincircumstances,yourLivingTrustmaynotgiveyoutheauthoritytochangetheinstructionsonyourdeceased

spouse’shalf.

What is thisstuff Ihave justseemingly throwninfromleft fieldaboutyourhalfandyourdeceasedspouse’shalfoftheLivingTrustassets?ThisisaconceptthatIdiscussmorefullyinChapter13inthecontextofestatetaxplanning.Butforthepurposesofthisdiscussion,itisnecessaryformetobrieflyintroducetheconceptof“splitting” the trust estate into those twohalvesafteryour spouse’sdeath.

PeriscopefromtheGrave

Asdiscussed inChapter13,whenyourspousedies,yourLivingTrustmaybesplitintotwoseparatesubtrusts.Yourdeceasedspouse’shalfwillbeallocatedtotheexemptiontrust.Byallocatingyourdeceasedspouse’shalftotheexemptiontrust,youdeterminethatthoseassetswillnotbeconsideredtobeownedbyyouon your death.And if you don’t own those assets, the IRS cannot impose anestate tax on them. In legal parlance, this is called “preserving your deceasedspouse’sexemptionamount,”andIdiscussthis inmoredetailabit later inthebook.

Whileyouhaveallocatedyourdeceasedspouse’shalftotheexemptiontrust,your half is considered to be in your “survivor’s trust.” The assets in thesurvivor’s trust are considered your assets. Because they are your assets, youhaveall the freedomin theworld toamendyoursurvivor’s trust tomakesureyourreformeddaughterhasdirectaccesstoherinheritancethatcomesfromyoursideoftheLivingTrust.

However, the exemption trust that contains your deceased spouse’s half isirrevocable.Youdonothavethepowertochangeitsinheritanceinstructions.Ifyou did, the IRS would consider you to be the owner of the assets in theexemptiontrust.Sinceyoudon’thavethepowertochangetheinstructionsoftheexemption trust, your recovereddaughterwill neverhave full control over theportionofherinheritancethatis“stuck”intheexemptiontrust.

Thisdouble lifemayprovequitemaddeningforyourdaughter.Shegets theassets from your survivor’s trust, but she cannot touch the assets in yourdeceasedspouse’sexemptiontrust.

However, there isaprovision that I suggestyouput inyourLivingTrust to

rectifythisproblem.Thisremedygivesyou,thesurvivingspouse,thepowertochange the exemption trust after your spouse’s death to meet this changedcondition. This provision is called the “limited power of appointment,”whichmeans the power to change the inheritance instructions of the otherwiseirrevocableexemptiontrust.

This power is like your deceased spouse’s “periscope from the grave.” Itallows you to imagine your deceased spouse seeing the changes in yourdaughter’s life and expressing the desire that you, the surviving spouse, canchangetheinheritanceinstructionsonyourdeceasedspouse’ssharetomeetyourdaughter’schangedconditions.

This limitedpowerofappointment isnot self-executing.Thechanges to theinstructionsintheexemptiontrustdon’tjustmagicallyoccursimplybecauseyouwantthemto.Thechangesmustbemadeinafairlycomplexlegalwritingcalledthe“ExerciseofLimitedPowerofAppointment.”

Don’ttrytopreparethisdocumentyourself.IfyourLivingTrustcreatesthislimited power of appointment, it will also require slavish conformance to allproceduresstated inyourLivingTrust thatare required fora limitedpowerofappointment to make a valid and effective change of the exemption trust. Iassureyouthatyouwouldmissatleastoneofthoserequirements.

WhatIfYouDon’tWanttoChangetheInheritanceInstruction?

There is, however, a downside of this limited power of appointment.There isnothingthatrequiresyoutoexerciseyourrighttochangetheexemptiontrust.

Remember,thelimitedpowerofappointmentgivesyou,thesurvivingspouse,thepower tochange the inheritance instructionsof theexemption trust (whichcontains your deceased spouse’s half of the Living Trust assets) tomeet yourdaughter’schangedcondition.Thispowerisvestedinyou,thesurvivingspouse.

But what if you don’t want to make that change? Sure, you can feel yourdeceased spouse’s ghostly presence rooting for you to call the lawyer to getstartedonpreparing the limitedpowerof appointment to allowyour reformeddaughterfullcontrolovertheexemptiontrustassets.Butperhapsyoudon’twantto spend the money on the lawyer for the “Exercise of Limited Power ofAppointment.”Orperhapsyou fear that your daughterwill relapse if shegets

controlofherinheritance.Or,maybe,youareavengefulbastardwhoisbentonmaking your daughter pay for the hell she put you and your spouse throughduring the worst of times, and denying her control of any portion of herinheritanceis,toyou,theultimatepayback.

If,forwhateverreason,youelectnottochangetheexemptiontrust,thenthat’sit. Your daughter cannot go to court to have a judge force you to sign the“Exercise of Limited Power of Appointment,” and your deceased spouse canhauntyouforonlysolongbeforegivingup.Yourdaughterwilljusthavetobeavictimofthetyrannyofunjustifiedlifetimecontrol.

Thereisalsotheriskthatyou,thesurvivingspouse,canusethelimitedpowerof appointment to reduce or eliminate your daughter’s share of the exemptiontrust.This is you saying, in effect, “It’smywayor the highway.You’d betterwatchyoursteparoundmeorIwillnotonlycutyououtofmyhalf,Iwillcutyououtofyourmom’shalfaswell.”

Obviously, I do not counsel the use of the limitedpower of appointment insuch an antagonistic fashion. The Living Trust is supposed to contain yourlegacytoyourchildren,notbeusedasaweaponagainstthem.

Noteveryproblemhasasolution,butiftherewereasolutioninthiscase,itwouldbeasarcasticone:timetravel.

Yourdaughterwouldhave to travelback to themomentwhenyouandyourspousewere discussing yourLivingTrustwith your attorney.Armedwith theknowledgethat thesurvivingspousecan,foranyreason,declinetochangetheinheritance instructionsof theexemption trust tomeetherchangedconditions,shecouldaskyourlawyertoinsertintoyourLivingTrustaprovisionthatgivessomeoneotherthanyou,thesurvivingspouse,thepowertomakethatchange:atrusted family member, a trusted friend, a professional trustee, or any otherpersonorentitythatcouldapproachthissituationandcircumstancesinamannermoreobjectivethanyou.

And, to combat the random urge to change your daughter’s share in adownwarddirection,yourLivingTrustcanprovidethattherewillbenochangetotheexemptiontrustthatcandepriveyourdaughterofthefullamountofhershareofherinheritancefromtheexemptiontrust.

CHAPTER12

DealingwithYourLivingTrustIfYouRemarryORTHEBATTLEROYAL:YOURSECONDSPOUSEVERSUSYOURFIRST

CHILDREN

Takeaquickmomenttorereadthesubtitleofthischapter.Doyoufeelthatmywordchoiceisabitpeculiar?Foranyonewhohasremarriedafterthedeathofaspouse,whohasbecomethenewwifeofarecentwidower,orwhohasinheriteda new stepparent, you will agree with my choice of words. Trust me; if youchoose to remarry and you later die before your second spouse, your LivingTrustwill result in a clash of the beneficiaries—abattle of your first childrenversusyoursecondspouse.

TheClashoftheInheritors

If you do not believe me, consider the following stories, which I witnessedfirsthandthroughoutmy20yearsasanattorney.

TheCaseoftheHomicideDetective

IrememberatimewhenIwasquestionedbyahomicidedetectivelookingintothe death in an automobile accident of a secondwife of one ofmy deceasedclients.Apparently, therewasahintoffoulplay,orwhyelsewouldthepolicehaveshownupatmyofficerequestingalookattheclient’sfile?

ThereasonforthescrutinywasthatIpreparedaLivingTrustforthedeceasedclientthatgaveeconomicsupporttohissecondwifefromhisLivingTrustassetsfor the rest of her life. The Living Trust also provided that upon the secondwife’sdeath, theLivingTrustassetswouldgotothedeceasedclient’schildrenfromhis firstmarriage (the first children).After thedetective leftmyoffice, I

heardthathegavethefirstchildrenalongandhardlook.Whiletheycertainlyhad the financialmotive to end her life prematurely, nothing tied them to theaccident.Butinmyheartofhearts,Ifeltthatsomethingsinisterhadbeenafoot.

TheCaseofNotWaiting

Iremembermeetingwithanotherdeceasedclient’sfirstchildrenafterhisdeath.Although they were stricken with emotions, I explained to them that theirfather’sLivingTrustsupportedhissecondwifefor therestofher lifeand thatthefirstchildrenwouldgettheleftoversuponherdeath.Oneofthefirstchildrenlookedatmeandsaid,“Iain’tgonnawait.”Idealwithalotofpeople,andIliketothinkIcantellwhensomeonemeanswhathesays.Withthechillinhisvoiceandhisicystare,thisguyseemeddeadlyserious.

Didhe actuallydo something to lessenhis longwait?Since thatmeeting, Inever had any dealings with those first children or the second wife. But,althoughIhaveneverseen theirnames innewspaperheadlines (“SecondWifeDies,FirstChildrenUnderSuspicion”),Ihavenodoubtthatthosefirstchildrencauseddistress to the secondwifewith frequent reminders that shewas livingtoolongtosuittheirtaste.

TheCaseofthe“AreYouOkay?”PhoneCalls

I remember thatafteroneclientdied,hissecondwife toldmeshewasgettingtwoorthreephonecallsaweekfromthefirstchildrentoseeifshewas“okay.”Asshesaidtome,“IcanhearthedisappointmentintheirvoiceswhenIpickupthephoneandsay‘Hello.’”

TheCaseoftheWastefulHouseGuest

I remember the second wife with the right to live in her deceased husband’shomefortherestofherlife.Shetoldmethefirstchildrenmadeherlifealivinghell with intermittent letters and calls saying, in essence, “You’re letting thehousefallintodisrepair.Thisisawasteofthefirstchildren’sfutureinheritance.Dosomething!”

TheCaseofaLawsuit

I remember the second husband who had been given the right to all incomegeneratedfromhisdeceasedwife’sLivingTrustassets.Naturally,heinvestedinsecuritiesthatwouldyieldthehighestamountofincome.Butthefirstchildren,whowouldreceivethoseassetsafterthesecondhusband’sdeath,wantedhimtoinvest ingrowth investments.So, theysuedhimformaximizing incomeat theexpenseofgrowth.

TheCaseoftheDisneyCruise

Justonemore.Beaflyonthewallforthisconversationthatwasrelatedtomebyonesecondwifeafterthedeathofherhusband:

Stepgrandson:Hey,Stepgrammy!Guesswhat?DaddyandMommyandme—we’reallgoingonaDisneycruisefortwoweeks!

SecondWife:Oh,that’smarvelous.Whenareyougoing?

Stepgrandson:Mommysayswe’reallgoingtogoassoonasyoudie!

DivideandConquer

Earlyoninmyestateplanningcareer,itseemedwiseandappropriatetocreateLivingTrust instructions that provided lifetime support for the second spouse.Upon his or her death, then theLivingTrust assetswould be dispersed to thefirst children. Inmymind, this planwas fair because the first childrenwouldnormally have to wait until the deaths of both parents before receiving theirinheritances.Waitinguntil thedeathof the secondspousewouldbe somewhatthesame.

After years of practicing, in conjunctionwith the changingmarital trends, Irealizedthatitisn’tthesame.Intheworldofelderlymenandwomenmarryingpeoplewhoarehalftheirage,Ibegantowonderhowoldfirstchildrenmightbewhenthesecondspousedies.Intheir70s?Intheir80s?Maybenotevenaliveatall.

Then,Ibegantoputmyselfinthefirstchildren’sshoes.HowwouldIfeelifIcould not get my inheritance until my life expectancy could be measured insingledigits?That’salongtimetowaittoenjoyyourinheritance.Notonlydofirstchildrenhavetowaittoinherit,butthefactorcausingthewaitisthefar-offdeathofapersonwhomaybenothingmoretothemthansomerandomstranger.

Ialsobegantoputmyselfinthesecondspouse’sshoes.HowwouldIfeelifmydeceasedhusband’schildrenwantedmedeadso that theycouldhavewhatthey think is theirmoney?Asonesecondwifesaid tome,“Idon’t talk tomyhusband’schildren,andtheydon’tcommunicatewithme.Butjustknowingthatthere are people out there who cannot wait for me die . . . it’s making myremainingyearssomiserable.”

Basedonthesethoughts,IchangedthewayIdealwiththesecondspouseintheLivingTrust.IdecidedthatIwouldadviseclients(andyou)toinsertaclauseinyourLivingTrustthatwouldenablethesecondspouseandthefirstchildrentodisassociate themselves fromoneanother forever.Afteryoudie, if theonlyconnectionbetweenyourfirstchildrenandyoursecondspouseisthemoneyandpropertyinyourLivingTrust,thenthatconnectionshouldbeterminated,andthepartiesshouldgotheirseparateways.

IusedtocallthistheJohnWayneapproachtoestateplanning,becauseJohnWaynedidn’tfoolaroundwhenitcametosolvingproblems.ButnowIcallittheColinPowellapproach,becauseduringGulfWarIIhesaidthatthewaytowinthebattleonthegroundinIraqwasto“cutoffandkill”theenemytroopsontheground. And that’s the solution in this family context—cut off and kill theeconomicconnectionbetweenyourfirstchildrenandyoursecondspouse.

As yourLivingTrust advisor, Iwarn you that if you remarry and you loveyour second spouse, you need to take steps to alleviate and perhaps eveneliminate thebattle that Ihavedescribed in this chapter.Thiswill require thatyou amend the inheritance instructions of the survivor’s trust portion of theLivingTrusttoincorporateoneormoreofthefollowingplanstoterminatetheeconomicconnectionbetweenyourfirstchildrenandyoursecondspouse.

Option1:Youcanchangeyoursurvivor’strust toleavealumpsumtoyour second spouse and a lump sum to your first children. With thismethod,bothpartiesreceiveanimmediateinheritance.

Option2:Youcanchangeyoursurvivor’strusttoleaveallofitsassetsto either the first children or the second spouse, but have an insurance

policythatleavestheotherpartywithroughlyequalbenefitsthatpayoutafteryourdeath.

Option3: If theassets includeyourhouse,youcan limit the timeyoursecondspousemayoccupythehouse.After theexpirationof that term,youcanrequire that thehousebesoldand theproceedsdividedamongallparties.Yoursecondspousecandowhateverheorshechoosestodowiththespouse’sportionofthesale,suchasdevelopinganestateforhisorherownchildren,orpossiblypurchasinganotherresidence.

Thefirstchildrenmaybeawarethatwiththis“sellanddivide”plan,thedollarthey receive today could, through appreciation and investment, be worth fivetimesmoreatyour second spouse’sdeath.However, your first childrenwouldratherhavethecertaintyofthatdollarintheirpocketstodaythanthepossibilityoffivedollarsafteryoursecondspouse’sdeathuntoldyearslater.It’scertaintyversusspeculation;soonerratherthanlater.

However, itmay be that the economics of your situation are not enough toprovideforterminationoftheeconomicconnectionbetweenyourfirstchildrenandsecondspouseafteryourdeath.Forexample,ifyoursurvivor’strustconsistsofonlyaportionofahouseandsomecashandbrokerageassets,andyouinsistthatyoursecondspousehavetherighttoliveinthehousefortherestofhisorher life,your firstchildren’s lumpsumwillnotbeenough to remove theedgethatcomeswiththewaitinggame.

If there are not enough assets to make everyone happy, there is only onesolution,which is:Hope for the best that all partieswill get along if you diebeforeyoursecondspouse.

Thisisnotafacetiousstatement.It’sasincerewishthatcommongroundcanbefoundtotheextent thatyoursecondspouse’slifewillnotbeinterruptedbyfirstchildrenwhowillbehardpressedtowaitfortheirshiptocomein,meaningthedeathofyoursecondspouse.TothatendIsuggestthatallparties—you,yourfirstchildren,andyoursecondspouse—meetwithyourlawyer,whowillexplaintheproblemofhavinginsufficientassetstosuccessfullyterminatetheeconomicconnectionbetweenyoursurvivingsecondspouseandyourfirstchildren.Inmyexperience,thereissomesalutaryeffectforthepartiestoknowwhattoexpectbeforehand,evenifitisasmallone.

CHAPTER13

SplittingtheLivingTrustAssetsAfterYourSpouseDies,PreparingYourSpouse’sEstateTaxReturn,andOtherTaxStuffThatYouWouldRatherJustIgnoreORASMUCHASYOU

WANTTO,DON’TSKIPTHISCHAPTER!TOPREVENTESTATETAXESAFTERYOURDEATH,YOUMUSTDEALWITHESTATETAXMATTERSAFTERYOURSPOUSE’SDEATH

The mere words estate tax may make you run screaming for the hills inboredom.Well,perhapsIshouldnotassumewhataccountsforyourrunningandscreaming. For me, it’s boredom. For you, it may be anger that comes fromhavingtodealwithtaxstuffafteryourspousehasdied.Forothers,perhapsitisfearoftheprospectofhavingtotanglewiththeInternalRevenueService(IRS)intheestatetaxarena,acompletelydifferentvenuethanthenormalincometaxareawithwhichyouhavesomefamiliarity.

TheestatetaxstuffisoneofthereasonsyouestablishedyourLivingTrustinthefirstplace.Eventhoughthereisusuallynoestatetaxdueonthedeathofthedeceasedspouse,therestillmaybeestatetaxstuffthatneedstobedonesothatlittle or no estate taxwill be duewhen the surviving spouse dies. Put anotherway:Youpaidforit.Youmightaswellbecomefamiliarwithwhatyoupaidfor.

WhatIstheEstateTax?

The estate tax is a federal tax on the after-death transfer of your assets andwealth to your Living Trust beneficiaries and the beneficiaries of your assetsoutside your Living Trust such as insurance policies, individual retirementaccounts (IRAs), “pay over on death” accounts, and so on. The estate tax issometimesreferred toas the“death tax,”which isquitemisleading,because itgivesonetheimpressionthatthereisataxondeath.Thegovernmentdoesnotmandatethatyoupaytaxesasaresultofyourdeath.Ifthatwerethecase,then

the government would be constantly reaping profits and be able to retire theinsanely high federal deficit, because thousands of people die in the UnitedStateseveryday.

Again,thisisataxonthetransferofassetsfromthedeadtotheliving.Ifthistransfertookplaceduringyourlifetime,thetaximposedonthattransferwouldbeagift tax.So, ifyou thinkyoucanescapeestate taxesby transferringwhatyouownbeforeyoudie,thinkagain.Ifyoucoulddothat,theneveryonewoulddothat,andtheIRSwouldnevergetitsshareonthetransferofyourmoneyandproperty.Thus, under current law, the IRSwill nail youwith a gift tax if youtransferassetsworthmorethan$1million.

Afterthedeathofyourspouse,therearetwoaspectsabouttheestatetaxinthecontextofyourLivingTrustthatyoumustknow.Why?Becausetendingtothesematters now—after the death of your spouse—will save your Living Trustbeneficiariesthousandsofdollarsinestatetaxesafteryourdeath.Inotherwords,theestatetaxtrainingyouputinnowwillpayoffafteryoudie.

Icanhearyourfootstepsnowasyouarerunningaway.AsIgrabyoubythecollartopreventyourescape(whichcausesyoutoruninplacelikeSnagglepussintheoldHanna-Barberacartoons),letmegiveyousomehelpfulperspective.Inmypractice,Ihavetoslogthroughwhatseemslikeaninterminableamountofestate tax treatises, updates, and periodicals that discuss the latest estate taxconceptsandTaxCourtcases.Theyaresodryandmonotonous that Iactuallyhave tosteelmyself just topick themoutofmymailbox.Butforyou,allyouhave to know is these two concepts that, once implemented, will have thepractical effect of savingmoney for your Living Trust beneficiaries. The twoestatetaxconceptsthatyouneedtoknoware:

1.Preparingyourspouse’sdeathinventory—thefederalestatetaxreturn.2. Allocating your spouse’s half of the Living Trust assets to a separatesubtrustcalledtheexemptiontrust.

Sogetbackhere,andlet’sbegin!

PreparingYourSpouse’sDeathInventory—theFederalEstateTaxReturn

When your spouse dies, youmay have to file your deceased spouse’s federal

estate tax return. This return is nothing like your income tax return. It’s acompletelydifferentanimal.Letmeputitthisway:Icouldnotpreparemyownincome tax return to save my life, but I have prepared over 350 estate taxreturns.

Theestatetaxreturndoesnotreportincomeearnedbyyouandyourspouse.Rather,theestatetaxreturnreportswhatyourspouseownedatthetimeofhisorher death. In essence, it is a death inventory—that is, a 40-page documentpreparedbyaLivingTrustattorneywhoisrelyingonyoutoprovidehimorherwiththevaluesofalltheassetsthatwereownedbyyourdeceasedspouse.

Inmymind,thedeathinventorypreparationistrulyanarduoustaskthatyourattorneyasksyoutododuringaparticularlyemotionaltime.Duringthegrievingprocess,youmaynotfeellikedoinganythingthatrequiresenergyandacumen.Butnow,ifyouarerequiredtofile theestate taxreturn,youhavetomaketheefforttofisharoundforinformationthatyourattorneyneedstofiletheestatetaxreturn.Youhavetohireanappraisertoobtainthevalueofyourrealestate.Youhave to contact your brokerage representative to get statements that show thevalueofthestocksandsecuritiesontheexactdateofdeath.Youhavetogotoyourbank togetbankstatementsshowingdate-of-deathbalances.Youhave tomakelistsofallthepersonalpropertyinyourhouse—clothes,furniture,jewelry,antiques—and have those items appraised. You have to call your insurancecompaniestofindoutthecashvaluesofthepolicies.Youhavetogetinyourcar,findparking,andmeetwithyourattorneyseveraltimes.

As you can see by this exhaustive list, compiling an inventory for yourdeceasedspouse’sestatetaxreturnisalotofwork.Moreover,thislistmustbecompiled relatively quickly. The IRS deadline to file the return iswithin ninemonthsafterthedeathofyourspouse,whichiscertainlynotalotoftimegiventhat youmaybe emotionally debilitated to thepointwhereyou cannot handledealingwithsuchbusinessmatters.Yourattorneycanobtainafilingextensionof six months, but it must be applied for within that nine-month period.However,Icantellyouthat the15-monthfilingdeadlinewillbehere(snapofthefingers)likethat.

But,asIhaveindicated,youmaynotberequiredtofiletheestatetaxreturn.Therearetwosituationsthatrequireyoutofilethereturn.Duringmydiscussionof these twosituations,pleasekeep inmind thata returnmayhave tobe filedevenifnoestatetaxisdue!

1.Youmust file the return if your deceased spouse’s half of all assets—whether or not in the Living Trust—exceed the present “exemptionamount.” For purposes of this section of this chapter, this is themaximum amount of assets the IRS says that your deceased spouse isallowed toownwithoutyou—thesurvivingspouse—beingobligated tofile an estate tax return. Under current law, the exemption amount in2008 is $2 million. In 2009, the exemption amount increases to $3.5million.In2010,thereisnoexemptionamount,becausethereis,forthisoneyearonly,noestate taxatall,sonoonewillbefilinganestate taxreturn. But in 2011, the estate tax return kicks back inwith a reducedexemptionamountof$1million.

2.Youmustfilethereturnifthereisanestatetaxdue.Anestatetaxwillbedue if (1) theassetsofyourdeceased spousepass topeopleother thanyou—thesurvivingspouse—and(2) theassetsofyourdeceasedspousepassing to people other than you—the surviving spouse—exceed theexemptionamount.

Why is therenoestate taxon the transferofany assets fromyourdeceasedspousetoyou, thesurvivingspouse?BecauseofanIRSrulecalledthemaritaldeduction. Thismeans that there is a dollar-for-dollar estate tax deduction foranytransferofassetsfromadeceasedspousetoasurvivingspouse.TheIRSisnotbeingnice.Itisjustwaitingtoimposeanestatetaxonthoseassetswhenyoudie.

AllocatingYourSpouse’sHalfoftheLivingTrustAssetstoaSeparateSubtrustCalledtheExemptionTrust

YourLivingTrust’sinheritanceinstructionsmayprovidethatonthedeathofthefirst spouse, his or her half of the assets in the Living Trust bucket will beallocatedtoaseparatesubtrust.Fornow,let’scallitthe“smallerbucket.”

Don’tworry—thesmallerbucketisnotdescribedinsomeotherdocumentthatyousignedatthetimeyouestablishedyourLivingTrust.InyourLivingTrust,thereisasectionthatdetailswhatcreatesthesmallerbucketafterthedeceasedspouse’sdeathanddiscusseshowitfunctions.

Basically,thissectionstatesthreefunctionsofthesmallerbucketduringyour

life:1.Youreceivetheincomefromthesmallerbucket,whichyoukeep,invest,andspendonanythingandinanywayyoudesire.

2.Youget to spend theprincipal from the smallerbucket foryourhealthandsupport,whichisusuallydefinedastheamountofassetsnecessaryandreasonabletoprovideyouwithacomfortablestandardofliving.

3.Yougettowheelanddealwiththesmallerbucketassets(buy,sell,trade,refinance,invest,borrowagainst—whatever)inanywayyouwish.

With all of your power and control over the assets in the smaller bucket, itappearsthatyouownthoseassets.That’swhatitsoundsliketome.However,inacompletebetrayalofyourconfidenceinmeandmyassertions,youare,infact,not the owner of the assets in the smaller bucket. Yes, you get the income,principal,andmanagerialpower—just likeanyownerofproperty.But therealownerisstillyourdeceasedspouse.

Inotherwords,yourdeceasedspouseistheowneroftheassetsinthesmallerbucket,andyouaremerelytheauthorizeduserofthoseassetsfortherestofyourlife.

Letmesaythismoresuccinctly.Forallpracticalpurposes,youaretheowneroftheassetsinthesmallerbucket.Butfromalegalperspective,yourdeceasedspouseistheownerofthoseassets.

Why engage in this charade? In one word—taxes. As your Living Trustadvisor,Idon’tnecessarilywantyoutobeconsideredtheowneroftheassetsinthesmallerbucket.Ifyouownthem,theIRSwillimposeanestatetaxonthemwhenyoudie.But if youdon’t own those assets, the IRScannot tax themonyour death—because you don’t own them!How’s that for circular reasoning?You cannot be taxed onwhat you don’t own. In legal parlance, this is called“reducingyourtaxableestate.”

TheRealNameoftheSmallerBucketIs...

In your Living Trust, the smaller bucket may be referred to by any one of anumber of names. I call it the “exemption trust” because the assets in thatsubtrustwillbeexemptfromestatetaxonyourdeath.AnotherreasonIcallittheexemptiontrustisbecausewhatitreallydoesispreservetheexemptionamount

ofyourdeceasedspouse.

Don’t let your eyes glaze over yet. Giveme a chance to explainwhat thismeans.

I alluded to the exemption amount earlier in this chapter in the context offiling your spouse’s estate tax return. In that section, I defined the exemptionamount as the maximum amount of assets the IRS says that your deceasedspouse isallowed toownwithoutyou—thesurvivingspouse—beingobligatedtofileanestatetaxreturn.Okay.ButnowImustgivethatdefinitionaslightlydifferentbentinordertohelpyouunderstandtheexemptiontrustforthissectiondealingwiththeallocationofyourdeceasedspouse’shalftotheexemptiontrust.

Forpurposesof this section, theexemptionamount is theamountofLivingTrustassetsyourdeceasedspousecanleavetothechildrentax-free.Theamountisdependentonwhenyourspousedies.Thehigher theexemptionamount, themoreyourdeceasedspousecanleavetoyourchildrenwithouttheimpositionofanestatetax.Forexample,ifyourspousediesintheyearthatIwritethisverysentence (2008), the exemption amount is $2 million. If your spouse dies in2009, the exemption amount is $3.5 million. In 2010, there is no exemptionamountbecause,forthefirsttimeinaverylongtime,thereisnoestatetax,butforoneyearonly. In2011, theestate tax isbackand theexemptionamount isfixedatapermanent$1million.

Whenyouallocateyourdeceasedspouse’shalfof theLivingTrustassets tothe exemption trust, you are transferring assets that are “painted” with yourdeceased spouse’s exemption amount. What is the effect? The assets in theexemptiontrustdonotbelongtoyou,andtheyarenotdistributedtothechildrenorotherLivingTrust beneficiaries. Instead, those assets stay in the exemptiontrustfortherestofyourlife,providingyouwithincomeandprincipalforyoursupport and health in the event that your half of the Living Trust assets isinsufficienttoprovideforthoseneeds.

Whenyou—thesurvivingspouse—die,theassetsintheexemptiontrustwillpasstothechildrenwithnoestatetaxwhatsoever.Ineffect,theexemptiontrusthas preserved the exemption amount of your deceased spouse while allowingyou,thesurvivingspouse,theabilitytousethoseassetsfortherestofyourlife.

Soonemoretime—withfeeling!Theexemptiontrustpreservesyourdeceasedspouse’srighttoleavehisorherhalfoftheLivingTrustassetstothechildren,orotherLivingTrustbeneficiaries,freeofestatetax.

Hereisanotherbenefitofhavingassetsintheexemptiontrust.Ifthoseassetsappreciate,theappreciationwillalsopasstoyourchildrentax-free.Forexample,afteryourspouse’sdeath,youallocate$250,000ofstockstotheexemptiontrust.Youarethegreatestinvestorofmoneytheworldhaseverseen—WarrenBuffettis nothing compared to you.You invest that $250,000 to the pointwhere it isworth $5billiononyour death.Guesswhat? If the root of the tree is tax-free($250,000), the fruit of the tree is tax-free ($5 billion). In other words, thechildrenwon’thavetopayanytaxesonthat$5billion!

TheMagicTrick

AsyourLivingTrustadvisor, Imust say that theseare reallynifty tricks.Theexemption trust will, likemagic, prevent your deceased spouse’s share of theLivingTrustassets,anditsappreciation,frombeingestatetaxedonyourdeath.But, likeanymagical illusion, there is someeffort themagicianmustmake inorderforittoworkandlooksoeasy.

Whatafabulousanalogy!Youarethemagicianwhomustengageinanumberofstepsinordertoachievetheillusion(estatetaxavoidance)thatisthegoalofthe trick (the exemption trust). And if you, the magician, do not make therequiredeffort, the trick (estate tax avoidance)will notwork, andyouwill bebooed(taxed)bytheaudience(theIRS).(Thisisgoodstuff.IamfinallyusingthewritingskillsanddevicesIlearnedasanEnglishliteraturemajoratUCLA.)

So,whatistheeffortyouwillhavetomakeforthetricktowork?It’sthekindofeffort thatgivestheIRSthedistinctimpressionthattheexemptiontrust isaseparateandviableentity.Ifthetrickworks,theIRSwillsaythattheexemptiontrustassetsarenotownedbyyouand,thus,arenotpartofyourtaxableestateonyourdeath.

Ifthetrickdoesnotwork,thentheIRSwill“piercetheveilofseparateness”andwillproclaimthatyou,andnotyourdeceasedspouse,aretheowneroftheexemptiontrustassetsand,therefore,thoseassetsarepartofyourtaxableestateonyourdeath.

AsyourLivingTrustadvisor,Iamheretotellyouhowtoperformthismagictrick.Allyouhavetodoisfollowsevensteps.

1.Youwillneedtofileaseparateincometaxreturneachyearfortheexemptiontrustiftheassetsintheexemptiontrustgenerateincome(e.g.,investmentrealestate,brokerageassets,certificatesofdeposit).Theexemptiontrust,likeanycorporationorotherbusinessentity,fortaxpurposesisconsideredaseparateperson.Andlikeanyperson,itfilesitsownincometaxreturns...fortherestofitslife.

Don’t allow this income tax concept to confuseyou about the estatetaxtrainingyouarereceiving.Forthemostpart,andforthepurposesofthisbook,incometaxhasnothingtodowithestatetax.

Also,youmaybesomewhatconfusedbymystatementthatyouneedto file exemption trust income tax returns because of my previousstatement that theexemption trust is tax-free.Don’tbe.Theexemptiontrustistax-free.Whenyoudie,theassetsintheexemptiontrustwillpassto your Living Trust beneficiaries without any estate tax. But, it’s notquitethefreelunchyouwanted.Duringyourlifetime,ifthoseexemptiontrustassetsgenerateincome,theIRSstillwantstoimposeanincometaxonthatincome.Thatiswhyyouwillneedtofileaseparateincometaxreturnfortheexemptiontrustandpayincometax.

2.Allexemptiontrustassetsmustbevestedinthenameoftheexemptiontrust.Thismeansyouhavetoretitlethebankaccountsandbrokerageaccountsthatyouallocatetotheexemptiontrust.Ifyouaretransferringalloraportionofrealestatetotheexemptiontrust,thedeedtothatpropertymustreflectthatnewownership.

3.Allincomegeneratedbyexemptiontrustassetscannotbeallowedtositintheexemptiontrustaccounts.Rather,theincomemustbetakenoutofthoseaccountsandtransferredtoyouraccounts.Why?Becauseeventhoughtheexemptiontrustassets,andtheirappreciation,areexemptfromestatetaxonyourdeath,theincomefromthoseassetsisnotsoexempt.Iftheincomeisallowedtostayintheexemptiontrustaccounts,somebody(yourafter-deathagent)willhavetogothroughtonsofstatementstore-createaseparationoftaxableincomeandnontaxableappreciation.Notafunprospect.Asaresult,youhavetoarrangewithyourbankorbrokerageofficertohaveallincomeanddividendsfromtheexemptiontrustautomaticallytransferredtoyouraccounts.

4.Youhavetotraceexemptiontrustassetsfromoneformtothenext.Inotherwords,youhavetokeeptheexemptiontrustassetsinthenameof

theexemptiontrustatalltimes—nomatterwhatformthoseassetssubsequentlytake.

Forexample, sayyouallocateyourdeceasedspouse’sone-half shareofyourhometotheexemptiontrust.Yousellthehomefor$300,000andputtheproceedsinthebank.Youhavetoopenuptwoaccounts—onefor$150,000inthenameoftheexemptiontrust,andtheotherinyourname(orthenameofyourLivingTrust).Ifyouthenapplythe$150,000intheexemptiontrustaccounttowardthepurchaseofsecurities,thesecuritiesmustbepurchasedinthenameoftheexemptiontrust.Youcanwheelanddealallyouwant—butyouhavetomaintaintheexemptiontruststatusofthenewassets.

5.Youcannotgiveawayexemptiontrustassets.Sure,youcanwheelanddealwiththemasoftenasyouwant,andyoucanusethemforyourhealthandsupport(definedastheamountnecessarytomaintainyourcomfortablestandardofliving),butyoucannotmakegiftsofthem.

Forexample,sayyoumeetthepersonyoudesireasyournextspouse.You are smittenwith this person to the extent that, to showyour love,youwishtogivehimorheralltheassetsyouown.Certainly,noonecanlegally stop you from foolishly giving away your share of the LivingTrust assets. But, if your generosity includes dipping into and givingawayaportionoftheexemptiontrustassets,theentiretax-freestatusofthe exemption trust is seriously jeopardized. If you give any of themaway, the IRSwill say that you exercised toomuch control over thoseassetsand,asaresult,willdeemyoutobetheownerofthoseassets.Andifyouownthem,theywillbetaxedonyourdeath.

6.Youcannotusetheexemptiontrustassetsforanythingotherthanyoursupportorhealth.Thisishuge.Ifyouarecaughtusingexemptiontrustassetsforanypurposeotherthanyoursupportorhealth,theIRSwilltakeawaytheexemptiontrust’stax-freestatus.

What is considered a violation of this standard for invasion ofexemption trust principal?Look again at the definition of support—theprovision of funds sufficient to maintain your comfortable standard ofliving.Whatmakesyoucomfortable?It’saverysubjectivestandard,butit is still subject toastandardof reasonableness. Is it reasonable touseprincipal for food? Of course. But is flying to Thailand on amonthly

basis for some amazingly authentic kang ka ree chicken a reasonableexpenditure?Clearlynot.

The IRS does not give any guidelines as to what constitutes areasonable expenditure of exemption trust assets for support. It definessupportonacase-by-casebasis.IsupposetheonlyguidanceIcangiveyou on how to recognize an infraction of this standard is this:Does itpassthesmelltest?Ifanexpenditurelookswrong,andyouharbordoubtaboutwhetheritiswrong,itisprobablywrong.

7.YoucannotuseexemptiontrustassetsforyoursupportorhealthuntilyouhaveexhaustedyourownLivingTrustassets.YourshareoftheLivingTrustassetsisdeemedtobepartofanothersubtrustdescribedandcreatedbyyourLivingTrust,calledthe“survivor’strust.”

TheCompletePicture

This chapterhas focusedonlyonyourdeceased spouse’shalf,whichyouwillallocatetotheexemptiontrusttomakeitexemptfromtheestatetax.ButtogiveyouthecompletepictureofwhathappenstoyourLivingTrustassetswhenyourspouse dies, I need to discuss the other “shoe”—the survivor’s trust,which isyourhalfoftheLivingTrustassets.

When your deceased spouse’s half of the Living Trust assets goes to theexemptiontrust,yourhalfisautomaticallyconsideredpartofthesurvivor’strust.The survivor’s trust contains your assets—your half. They are owned by you.Yougetincome,principal,managerialauthoritytowheelanddeal...whateveryou want. Like the exemption trust, the survivor’s trust is also listed in theprovisionsofyourLivingTrust in thesectiondealingwithwhathappensuponthedeathofonespouse.

Becauseyouownthesurvivor’strustassets,theyareincludedinyourtaxableestate on your death. But, if your survivor’s trust assets do not exceed theexemptionamountthatexistsinlawatthetimeofyourdeath,therewillbenoestatetaxonthoseassets.Sincetheexemptiontrustisnottaxableonyourdeath,andsinceyoursurvivor’strustis taxableonyourdeath,allof theexpendituresforyoursupportandhealthshouldbetakenfromthetaxablesurvivor’strust.Ifyourunoutofsurvivor’s trustassets, thenat thatpoint,andonlyat thatpoint,

you can then resort to exemption trust assets to provide for your support andhealth.

Whew!Thosesevenstepsforexemptiontrustvalidityandeffectivenesssoundlikealotofwork.Well,noonesaidthismagictrickwouldbeeasy.But,asIsaytomyclients,onceit’sdone,it’sdone.Andifyouhavedonethejobright,youwillsaveyourfamilyperhapstensofthousands—maybehundredsofthousands—ofdollarsinestatetaxesonyourdeath.

TheEmergencyParagraph

Hanginthere.Iamalmostdoneabouttheexemptiontrust.Youhaveprobablybeentoinsuranceseminarsmoreexcitingthanthis.

It is entirely possible that your Living Trust does not have provisions thatcreateanexemptiontrustupononespouse’sdeath.Ifthisisthecase,thenalltheassetsinyourLivingTrust—yourdeceasedspouse’shalfandyourhalf—willbepart of your taxable estate on your death. As a result, you have lost anopportunitytopreventyourLivingTrustassetsfrombeingdepletedbytheestatetax.Butdon’tpanicjustyet.Iamheretomakesurethatdoesn’thappen.

Welcome to the emergency paragraph. If your Living Trust does not haveexemptiontrustprovisions,youcanstillpreventyourdeceasedspouse’shalfofthe Living Trust assets from being counted in your taxable estate with anemergencyprocedurecalleda“disclaimer.”However,therulesofthedisclaimerprocessare,inmyopinion,evenmoreonerousthantherulesaboutmaintainingan exemption trust. Perhaps the cure isworse than the disease.Butwhat elseshouldyouexpectinsuchalast-resortmethodofpreventingyourLivingTrustassetsfrombeingtaxedonyourdeath?

Inessence,thedisclaimerisadocumentthatsaysthatyoudonotwantyourdeceasedspouse’shalfof theLivingTrustassets.Remember,youdonotwantthembecause ifyouget them,andyoudonotspend themprior toyourdeath,they will be included in your taxable estate upon your death. Hence, thedisclaimerpreventsyoufromgettingthem.

That’sjustasbadasitsounds.Ifyoudraftandsignthisdisclaimer,youdonotgettheassetsyoudisclaim.Andunliketheexemptiontrustassets,youdonotgetany use or authority over the disclaimed assets.No income.No principal.No

wheelingordealing.Instead,thedisclaimedassetsgotootherpeople.Who?Theonesyouandyourdeceasedspousenamedas thebackupbeneficiaries inyourLivingTrust,suchasyourchildrenandyoursiblings.

Thedisclaimermustbesignedwithinninemonthsofyourspouse’sdeath.Ifyoudon’tmakethedeadline,thedisclaimerwillbeinvalid.

Furthermore, you cannot validly disclaim any asset of which you haveaccepted thebenefitsprior to thedisclaimer. Inotherwords, afteryour spousedies,ifyougainaccesstoanyportionoftheassetsinanyLivingTrustbankorbrokerage account, you disqualify that entire account from being part of thedisclaimerprocess.Harsh,buttrue!

Forexample, let’s say thatafteryourspousediedyouwent to thebankandwithdrew some money from the Living Trust account to pay for your newmembership at Match.com. That entire account is rendered ineligible fordisclaimingbecauseyouusedaportionofthataccount.

You will notice that I explained the disclaimer using examples involvingfinancialassets.Intentionallyso.OneoftherarebreaksgivenbytheIRSintheestate tax arena is that you can disclaim your deceased spouse’s half of theLivingTrust real estate (like thehome)withoutyouhaving to skedaddle fromthehome.Youcanresideinthehouseanddisclaimhalfofthathomebothatthesametime.

PuttingAllofThisEstateTaxStuffTogether

AlthoughIhavepresentedyouwithanoverwhelmingamountofinformationinthischapter,theestatetaxessentiallyboilsdowntothefollowing.

TheFederalEstateTaxReturn

Ifyourdeceasedspouse’shalfofthefamilywealth(whetherornotintheLivingTrust) exceeds the exemption amount, you will need to run around and getinformationforyourattorneysoheorshecanfileanestatetaxreturn.

Anestatetaxreturnmustbefiledevenifnoestatetaxisdue.Thereasonwhynoestatetaxisdueisbecause(1)yourdeceasedspouse’shalfofeverythingwas

allocated to an exemption trust, and/or (2) your deceased spouse’s half wasallocatedtoyou,thesurvivingspouse,ortoamaritaltrustforthebenefitofyou,thesurvivingspouse.

AstheestatetaxstuffrelatestotheLivingTrust,thisisallyoureallyneedtoknow...fornow!JustwaituntiltheIRSactuallyimposesanestatetax.Whenisthat?Whenyoudie!Ifyoucannotwaitforthisothershoetodrop,jumpaheadtoChapter22,whichdiscussesestatetaxstuffthattakesplaceafteryourdeath.

AllocationofYourDeceasedSpouse’sHalftotheExemptionTrust

Your Living Trust may contain provisions that, after your spouse’s death,establishtwosubtrusts:theexemptiontrustandthesurvivor’strust.

Themainpurposeoftheexemptiontrustistopreserveyourdeceasedspouse’sexemptionamount,whichistheamountofassetsestablishedbylawthatcangotoyourLivingTrustbeneficiarieswithouttheimpositionofestatetax.Whiletheassets in the exemption trust are used for the benefit of you—the survivingspouse—those assets that remain in the exemption trust on your deathwill bedistributedtoyourLivingTrustbeneficiarieswithoutanyestatetax.Moreover,theappreciationontheexemptiontrustassetswillalsobetax-free.

But there is a catch to achieving the estate-tax-free status of the exemptiontrust.Actually,therearesevencatches,becausetherearesevenformalitiesinthemaintenanceoftheexemptiontrustthatmustbefollowed.Ifthoserequirementsarenotmet,thepossibilityloomsthattheIRSwilldisregardtheexemptiontrustandconsiderthoseassetstobeincludedinyourtaxableestateonyourdeath.

Theassetsthatarenotallocatedtotheexemptiontrustareconsideredtobeinthesurvivor’strust.Whereastheexemptiontrustassets,forestatetaxpurposes,belongtoyourdeceasedspouse,youaretheownerofthesurvivor’strustassets,and,asaresult,theyareincludedinyourtaxableestateonyourdeath.

THEFOURTHQUARTER

DYINGWITHYOURLIVINGTRUST

It’s thestartof theFourthQuarterof theBigGame.Unfortunately, thatmeansthat you and your spouse or co-trustee are no longer participants in the BigGame.Theplayingfield is InheritanceArena.ThecombatantsareyourLivingTrustbeneficiaries.Theobjectof thegame is thesmooth flowofLivingTrustassets from one generation to the next.What kind of gamewill it be? If youremember the training you receive in this Fourth Quarter, the match will gosmoothly.But, ifyou fail todoyour reps, itwilldeteriorate intoanorganizedriot.

Sowhatdoesthismeanforyou?Sincebothyouandyourspousearedeadandyourinheritanceinstructionsaresetinstone,notalot.But,throughthemagicofabsurdistfiction,IhaveinventedatimemachinethatwilltransportyoubacktowhenyouandyourspousewerealiveandsittinginyourLivingTrustlawyer’soffice. Armed with the chapters in this section that deal with many harmfulscenarios that could befall your children in the inheritance arena, youwill beable to bring to your lawyer’s attention a particular problem that is ofconsequence to you. From there, you can incorporate special provisions intoyourLivingTrustthatwillpreventthesescenariosfromrearingtheiruglyheadsintheinheritancearenaafterbothyouandyourspousearedead.

Ninety-fivepercentofthesolutiontoanyproblemisrecognizingtheproblemin the first place. This takes on a new sense of urgency when you strive toresolve the most common problems that arise in the inheritance arena. Bylookingat theseproblems,youwillhelpkeeppeace inyour familyandshieldyour LivingTrust assets from risk of loss once they are in the hands of yourchildren.

Afterall,youdidnotworkyourentirelifejustsothefruitsofallyourlaborscouldpasssofarafieldfromyourfamilybloodlineorcausefamilydisputes.

CHAPTER14

DistributionofYourLivingTrustAfterBothYouandYourSpouseAreDeadORTHEINHERITANCEARENAISNOTFOR

THEFAINTHEARTED

This will sound so obvious that it should not need saying. But since I amchargingyouforeverywordyoureadinthisbook,Iamgoingtosayitanyway:When you die and both you and your spouse are gone, the Living Trust nolongerservestobenefityou.Younolongergettheincomeorprincipal.Youareno longer in charge of the Living Trust assets, whether it’s your half, yourdeceasedspouse’shalf,theexemptiontrustassets,orthesurvivor’strustassets.Youarenolongerthewheeler-dealerofLivingTrustassets.Youarenolongerthe surviving lifetimeagent.Youno longerhave standing to sueyour lifetimeagentifheorshescrewsupthemanagementoftheassets.

While itmayseemthatyourLivingTrust inessencediedwhenyoudied, itdoes just theopposite—itactuallysprings to lifewhenyoubothpassaway. Infact,yourLivingTrust liveson tobecomeoneof the last lessonsyou leave toyour children and other heirs. It is the lesson of passing on your lifetime ofaccumulations—your house, brokerage assets, businesses, bank accounts,personalpossessions,pedigreeddogsandcats—totheminawaythatpreservesfamilyharmonyintheinheritancearena.

TheGrimReality

Thedeathsofbothyouandyourspousespark the inheritance instructions thatare stated in your Living Trust into action. These instructions are now set instone. No more revocations. No more amendments. This is it. Your deathbecomes the time when we see if the inheritance instructions in your LivingTrustconstituteagoodinheritanceplan—orabadone.

Don’t panic—if you have been implementingmy advice thus far into your

LivingTrust,andifyouhavetakentoheartthetrainingyou’vereceivedthusfar,then I am sure you have developed a good inheritance plan.However, if youhavebeenignoringmyadvice,someofthefollowingscenariosmayariseafteryourdeath:

• Your daughter, who loves her husband, puts his name on her inheritedassets.Asaresult,yourdaughterlosesallofherinheritanceorone-halfofherassetstoyourson-in-lawafterhefilesfordivorce.

•Yourfinanciallyoverextendedsonloseshisinheritancetohisbankruptcycreditors.

•Yourcombativesonengagesinalegalbattlewithhissiblingsoversomedeminimis aspectof thepostdeathLivingTrust administration to evensomepersonalscore.

•Yourdaughtermismanageshershareoftheinheritanceintotheground.•Yourcompulsivegamblersonliquidateshissharesohecanputitallononespinonthegreendouble-zeroattheroulettetableinLasVegas.

•Theboardofdirectorsoftheoff-brandcharityyounamedasabeneficiaryin your Living Trust uses its gift to buy a Cadillac for each boardmember.

•Yourflower-childdaughterhandsoverherentiresharetothecrazycultinSantaCruzinwhichshefinallyfindsherself.

•One of your sons demands that his siblings give him a portion of theirsharesoftheLivingTrustassetsbecauseheperceives,whetherjustifiedornot,thathedidnotreceiveanequalshare.

•Yournormalson,whoholdsandmanagesyourproblemdaughter’sshare,is incessantlybombardedwithdemandsfromyourdaughter togivehermoney.

ThesearebutafewofthescenariosthatIhaveseenafterbothspousesdieandthe inheritance plan comes to life—not quite the picnic you envisioned of thesmoothtransitionofwealthfromonegenerationtothenext.Youmaythinkyourchildren,daughters-in-law,sons-in-law,andgrandchildrenareperfect.Andyouknow, maybe they are! But, when it comes to dividing the inheritance, andhandlingandmanagingthewindfall,youdonotreallyknowyourchildren.

Whythisdoom-and-gloomprojectionofthepictureofyourfamilyafteryoudie?Becauseafterdealingwith thechildrenofdeceasedclients for20years, Icantellyouwithallconfidencethateveninthemostperfectoffamilieswhereeveryone . . .everyone . . . loves each other, there is no family loyalty in the

inheritancearena.Nottoyou,theirdeceasedparents,andnotamongthemselves,your children. Why? Because in the inheritance arena, your children are nolongeryourchildren,andtheyarenotsiblings.Theyaresimplypeopledividingandhandlingmoney.Familyloyaltygoesoutthewindow,andit’sawholenewballgame.

Moneydoesfunnythingstopeople.It’sasifaspecialDNA—aninheritancegene deeply recessed in the human body—is activatedwhen an inheritance isdivided.Thewayapersonperceives,acts,talks,walks,smells,andthinkscanallchangedramaticallywhenimmersedintheinheritancearena.

If you have ever shared an inheritance with a sibling, or lent money to afamilymember,orgoneintobusinesswithasibling,youmayhaveexperienceda taste ofwhat I am talking about.Youwanted your end, your fair share, thebenefitofyourbargain.Ifwhatwassupposedtocometoyoudidnot,youtooktheappropriate remedialmeasures.Whatwere those steps?Didyou screamatyour familymember toownup to thedeal?Didyouhirea lawyer to threatenlitigation?Didyoutakeyourfamilymembertocourt?Didyougetotherfamilymembers involved to bring pressure on the deadbeat? Whatever those stepswere,youdidnotletthefamilyrelationshipstandintheway.Youdidwhatyouneededtodoinordertogetyours.

Lawyerslikemyselfdon’tlearnabouttheinheritancearenainlawschool.Wearenotschooledinfamilydynamics,nordowelearnabouthowhumannatureresponds to the death of a familymember and how the children behavewhenthey divide andmanage the familymoney. Therefore, we do not know if theinheritance instructions we draft in our clients’ Living Trusts will, oodles ofyearslater,resultinharmonyorupheavalbetweentheirchildren.Theonlywaywe learn about what makes an inheritance plan a good one or a bad one isthroughon-the-jobtrainingofseeingwhathappenswhenclientsdie.

Haveyouheardtheterm“MondayMorningQuarterback”?Thisisafootballplayerwho,onMondaymorning, reviewshisSundayperformance andcomesup with all kinds of excuses for his team’s loss which usually start with “Icoulda” or “I shoulda” or “I woulda.”Well, we Living Trust lawyers are theultimateMondayMorningQuarterbacks.When clients die and the inheritanceinstructions come to life, and we witness chaos and conflict erupt over thedivisionoftheinheritance,orseetheinheritancerapidlydissipated,orlearnthattheinheritancewasusedtofueldestructivevices,wecangaugewhatadvicewe

gave or provisions we wrote that directly or indirectly resulted in thosescenarios.We then bring those experiences to new clients to ensure that theirLivingTrustsdonotwindupascautionarytalesfortheirsuccessivegenerations.In other words, when we see Living Trusts go bad after the death of bothspouses,it’sourturntosay“Icoulda”or“Ishoulda”or“Iwoulda,”andthenwelearnfromthosemistakes.

BeatingtheOdds

Rest assured, as your Living Trust advisor, I have provided you and willcontinuetoprovideyouwithvariouswaystoensurethatyoudonotbecomeaMondaymorning quarterback.After all, once you pass away, there is nothingyoucando to rectify theproblemsyoumightcausebecauseyoudidnot thinkabout all of the possible scenarios that could happen after you and your co-trustee die. Having seen the worst-case scenarios throughout my 20 years ofpractice,Icanassureyouthat ifyoutakethepracticaladvicethatIoffer, thenyouwill effectively and peacefully distribute your Living Trust and avoid theawfulsituationsthatIhavewitnessedovertheyears.

CHAPTER15

Don’tIntentionallyLeaveYourChildrenUnequalInheritancesORSOWHATIFONENEEDSITMORETHANTHEOTHER?

IhavedemonstratedtoyouthroughoutthisbookthatIamamasterofstatingtheobvious.Suchmasterywillbequiteevidentinthischapter.Letmestartoffwithtwofactsthatyoualreadyknowaboutleavingyourmoneyandproperty:

1. Your money and property are your money and property. You can dowhatever you want with them during your lifetime, and you have theunfetteredauthoritytodecidewhoshallreceivethemafteryourdeath.

2. There is no law in theUnited States that requires you to leave any ofyourassetstoyourchildren.

Havingmadetheseboldandunequivocalassertions,itis,nonetheless,highlylikelyyouwillnameyourchildreninyourLivingTrustasyourbeneficiaries.Ofcourse, if you have no children, or if you have cut your children out of theinheritance,youwillnotbecaughtup in this sweepinggeneralization.But forthepurposesofthischapter,youareinthevastmajorityoffairlyconventionalpeoplewithchildrenwhowillbethebeneficiariesofyourLivingTrustassets.

WhenitcomestoleavingyourLivingTrustassets toyourchildren, thebestadvice that I can offer you is to leave them each an equal inheritance. Eventhoughyoucandivideyourassetsamongyourchildrenasyouwish,thegoalofpreserving family harmony in the inheritance arena, in mymind, trumps thatparticularexerciseoffreewill.IcanguaranteediscordandconflictamongyourchildrenifyoutreatthemdifferentlyinyourLivingTrust.

That’s the long and short of it. If you care about your children and theirrelationships with each other, do not leave them unequal inheritances. That’sprettysimplestuff.

ButIt’sNotSoSimple

If the answer is that simple, you may be wondering why I haven’t alreadyconcluded this chapter. Even though I am certain you agree with this advice,there is a significant possibility youmay disregard it and tell your lawyer toleavemoreLivingTrustassetstoonechildandlesstoothersbecauseyou,likemost of my clients, may believe that your Living Trust should factor in thediffering financial needs of your children. You may feel that your morefinancially successful child needs yourmoney less than the childwith greaterfinancial requirements,andyouwant touseyourLivingTrust tocreateequitybetweenthem.

Youdonothavetheexperienceofseeingwhathappenswhenparentsdieandthis unequal inheritance plan comes to life. If you did, you would seriouslyreconsideranyplantorenderwhatyouconsidertobeeconomicjustice.Letmetell you about one such occasion, which I have seen repeated in one form oranotherduringmy20-yearpractice.

Afterthedeathofthesecondparent,thechildrenmetatmyofficeforadviceon the administration of their parents’ Living Trust (which was prepared byanother attorney). Iwas surprised to learn that the childrenhadno ideaof thetermsoftheLivingTrust,becauseusuallythechildrenhavealreadytornthroughittolearnwhattheyreceive.

Likeasceneoutofamovie,Ireadtheinheritanceinstructionstothechildren.This was the first time the successful businessman son discovered that hisparents had left him a one-third share of the Living Trust assets, with hisstruggling schoolteacher sister receiving a two-thirds share. The Living Trustcontainedanexplanationfortheunequaltreatment,whichwas,inanutshell,thatthe parents thought that their son did not need the money as much as theirdaughterdid.

Thesonbecameapoplecticwhenheheardthisnews,andthesceneturnedintoquite a frenzy,with four people—me, his sister, hiswife, andmy secretary—tryingtogethimtocalmdown.Ipickeduptheglassofwateronmydeskandpreparedtothrowitathim.Finally,hecalmeddown(withoutthedousing)andIwasabletogleanthesewordsfromhim:

“You just don’t get what this has done to me. I worked in high school. Iworkedtogetmoneytogotocollege.Iputmyselfthroughcollege.Ibustedmybuttatanentry-levelpositioninthecompany.Iworkedmybuttofftobecomevicepresidentofthecompany.Iamarespectedperson.Iamself-made.Imade

myparentsproud.Ibroughthonortomyparents.Andwhatdidmyparentsdo?They punished my success and rewarded my dingbat sister’s failure!Backstabbers!Backstabbersmyparentsare!”

Fromtheparents’perspective,theythoughttheyweredoingjustice.Buttheyneglected to solicit the opinion of their successful son.Maybe they purposelylefthimoutoftheloopbecausetheyknewhowvituperativehisreactionwouldbeandwantedtoavoidthatwholescene.Onethingisforcertain,though;theyleftthemoppinguptotheirsonanddaughterandtheirlawyer(me).

Inanyevent,thelastIheard,thesonanddaughter,whoIunderstoodhadbeenveryclose,hadceasedtalkingtoeachother.Usingmybestbedsidepsychology,thesonapparentlytransferredtheblameheassignedtohisparentstohissister.Since they were backstabbers, his sister, who played no part in the parents’decisiontoleavehermore,wasabackstabberaswell.

Touchy-FeelyAdvice:TalktoYourRicherChildBeforeYouLeaveHimLess

IfyouareofsimilarmindtoleavelessofyourLivingTrustassetstoyourmorefinanciallysuccessfulchild,Irecommendthatyoutellthatchildyourplan.Youmaybesurprisedatthatchild’sresponse.Perhapsyoursuccessfulchildwillbeinagreementwithyourplantoleavehimorherless.Ifso,thenalliswell.

However, really examine your successful child’s response to see if anyagreement is genuine, because the childmaybe telling youwhat youwant tohearinordertonotappeargreedy.Listentothetoneofvoice.Isitfacetiousorsarcastic?Lookatbodylanguage.Arehisshouldersslumped?Didsheneedtositdownafteryougaveherthebignews?Ishegivingyouabeaugestewherehegladlyofferstomakethesacrificebutsecretlyhopesthatyoudonottakehimuponhisoffer?Itmaybeatoughread,butit’sareadyoumustmake.Remember,yourgoalistopreserveyourchildren’srelationshipsintheinheritancearena.Ifyou determine that your plan to punish your child’s success will make himresentfulofyouandhissiblings,abandonthatplanandleaveyourLivingTrustassetstoyourchildrenequally.

Quite often, however, you do not have to work so hard to make thatdetermination.Yoursuccessfulchildmayhavenoproblemtellingyouwhatshe

really thinks of your plan to leave her less.This happened inmyown family.Yes,we lawyers are not immune from human nature in the inheritance arena.Quitecontrarytopopularopinion,lawyersarepeople,too.

Whenmythen-wife’sparentswantedaLivingTrust,theycalledme,saying,“Jeff,it’sgoodtohaveaLivingTrustlawyerinthefamily!Nowgetoverheresowecan tell youwhatwewant.”Ultimately, I preparedaLivingTrust forBenand Florence in which they left all of their assets, which consisted of only asmallhouseandsomecash,toalloftheireightchildreninequalshares.

WhenFlorencedied,IwassummonedtoBen’shouse,whereheinstructedmetoprepareanamendmenttohisLivingTrusttocutoutoneofhissons,Craig.AsBensaid,“Craigdoesnotneedthemoney.Everyoneelseneedsit.Everyoneelsecansplithisshare.”

Ben was certainly correct. Craig lives an upscale life, and he made it allhimself with no leg up from anyone. He has a fabulous home in Scottsdale,Arizona.Heisapartnerinoneofthiscountry’slargestaccountingfirms.Hehasfirst-rateseatsforalmosteverycollegeandprosportseventinPhoenix.OntheSundayafterhisdaughter’sbatmitzvah,hetooktheentireextendedfamilytoaPhoenix Cardinals game at ASU Stadium. Craig is an ardent follower of allArizonaStateUniversitysports.IfASUhadatiddlywinksteam,hewouldshowupandcheeriton.ImissCraigandhiswifeandchildren.Divorcesucks.Whenadivorceisimposedonyou,youcanloseanentirefamily.

ButIdigress.Backtothestory.ItoldBenaboutthedestructiveconsequencesof the “punishing success/rewarding failure” plan that I had witnessed in mypractice,buthewasnottobeswayed.So,ItoldBentwothings.

First, anamendmentcuttingoutCraigwould increase theshare tomy then-wife, which, in turn, would result in Craig perceivingme as an opportunisticpieceofcrap.

Bensaid,“Thatwon’thappen.Craigknowsyouarenotlikethat.Ifyouwereinterestedinmakingmoneythatway,thenyouwouldbemakingmoreandmydaughterwouldn’thavetowork.”

Okay.Ithensaidmysecondpiece.

BenshouldtalktoCraigjusttoseewhathisreactionwouldbe.Tothat,Benresponded,“Craigwon’tcare.IthinkIknowhimbetterthanyou.I’mnotgoingtomakethatcall.”

So,IaskedBenifIcouldcallCraigtogivehimthebignews.Bengavemethego-ahead,andIwenthometomakethatcall.

MytelephonecallwithCraiglastedallofthreeminutes.Thefirstminutewaspleasantries.Forthenextminuteand55seconds,Iengagedinanuninterruptedmonologue inwhich I described the Living Trust, Ben’s power to change theinheritance instructions after Florence’s death, andBen’s plan to change thoseinstructions to cut Craig out. The remaining five seconds consisted of Craigsayingtome,“I’lltalktoBen.”

Afewminutes later, Igotacall fromBen,whosaid,“Just leave theLivingTrustasitis.”IneveraskedCraigaboutthecontentsofhisphoneconversationwithBen.Butyoudon’thavetobeageniustosurmisethatCraigtoldhisfatherwhathereallythoughtoftheproposedchangeintheLivingTrust.

IdonotjudgeCraig’sreactiontotheplantoleavehimlesssimplybecausehisfatherperceivedhedidnotneedasmuchofaninheritanceashissiblings.Nordo I cast aspersion on the son whom I almost drenched or any of the othersuccessfulchildrenwholetmeknow,inonewayoranother,howslightedtheyfelt when they learned that their parents had punished their success. This issimplyhumannaturewhenfacedwithsuchcircumstances.Iwouldprobablyfeelthesamewayifmyparentsleftmeless.Howwouldyoufeel?

Then again, youmay not care about how leaving your children an unequalinheritancebasedonneedwillaffect their relationshipswitheachother . . .orhow itwill impact on theirmemory of you. I havemany clientswho profess“Afterme,whocares?”andthenproceedtodoittheirway.

Oneofmyfavoriteclientquipscamefromsuchagentlemanwhowashell-bent on leaving almost nothing to his very successful daughter. My fatherexplained to him the adverse impact this plan would have on his children’ssibling relationships, but to him, consequences be damned. Finally,my fathersaidtohiminanexasperatedandsarcastictone,“Whenyoudie,yourdaughterwill s—onyourgrave.”Theclientcalmly responded,“ThenI’ll tellyouwhat,Mr.Condon.Iwilljustbeburiedatsea.”

CHAPTER16

TheAccidentalUnequalInheritanceORIFYOUTHINKYOUHAVETREATEDYOURCHILDRENEQUALLYBYLEAVINGTHEMEQUALINHERITANCES,IHAVESOMENEWSFOR

YOU!

You have three children. Your Living Trust leaves all of the assets to themequally.Withthepreservationoffamilyharmonyintheinheritancearenabeingdependent on equal treatment of your children in yourLivingTrust, youhavedoneyourjob.Itdoesn’tgetmoreequalthanone-thirdapiece.

However,fromyourchildren’sperspective,youhavenottreatedthemequallyinyourLivingTrustifyoumadeunequalgiftstothemduringyourlife.

Iknowthisdoesnotmakesense,because,fromyourviewpoint,thegiftsyoumaketoyourchildrenduringyourlifehavenothingtodowiththeinheritancestheyreceiveafteryourdeath.Andyouarecorrect.Byallobjectivestandards,themoneyyougivetoyourchildrenhasnodirectconnectiontoorcorrelationwiththebequestsyouleavetoyourchildren.

Intheinheritancearena,though,objectivitybecomessecondarytoperception,whether or not the matters perceived are real or imagined, or reasonable orunreasonable.Andasunreasonableasitmayseem,yourchildrenwillperceiveaconnectionbetweenlifetimegiftsandLivingTrustbequests.

Whenyoumakeagifttoachild,youarenotkeepingascorecard.Yousimplyhelpachildwhoneedsfinancialhelp.Awedding.Acar.Collegetuition.Adownpayment on a house. Seed money for a new business. A medical payment.Whatever. But there are people out therewho are keeping a scorecard—yourchildren.

Yourchildrenwillnot tellyou theyhavekeptmentalscoreof lifetimegifts,because they do notwant to come across as selfish or greedy.When you andyourspousearebothgone,iftheFinalScorecardisnotroughlyatieamongallthe children, the childwith the short endof the stickmayput pressureon the

children who received more to pony up with a portion of their shares of theinheritance to equalize. Will those children concede a portion of their equalsharesoftheinheritancetopreservefamilyharmony?

Letmeanswerthatquestionwithanotherquestion:Wouldyou?

TheFamilyScorecard

My first brushwith this concept cameduring ameeting inmyofficewith thefour children—three sons andonedaughter—after their last parentdied.TheirLivingTrustleftalloftheassetsequallytoeachchild.Atsomepointduringthatmeeting, their daughter produced a computer printout of the significant giftstheirparentshadmadetothem:$10,000foronechild’swedding;$7,500foronechild’scare;$25,000attorneyfeesforonechild’sdivorce;andsoon.Mymouthwentagapeatthedetailedrecollectionoftheseexpenses.

Afterthisrecitationofexpenditures,thedaughterannouncedthataftertallyingallthegifts,shehadreceivedtheleastamountbyabout$125,000.

The daughter turned tome and asked if I had advised her parents to factortheselifetimegiftsindeterminingwhethertheirinheritancewastrulyequalforeach child. I admitted I had not given that advice because I did not see theconnection.Giftsaregifts.Inheritancesareinheritances.

Butthedaughtersaidsomethingtomethatprofoundlychangedmythinkingin that respect: “Mr. Condon, I don’t think your firm did a good job on myparents’LivingTrust.Myparentswereveryfairpeople,butthedisparityofthegifts to their children is significant. Had this disparity been brought to theirattention, I am certain they would have taken steps in their Living Trust toequalize those gifts. But it wasn’t brought to their attention, was it? So theopportunitytheyhadtoequalizefellbythewayside.”

Thiswomanspokethetruth.Asaninheritanceplanningattorney,oneofmychieffunctionsistocreateaLivingTrustthatdoesnotcauseharmtoaclient’sfamily. This function cannot be achieved unless attention is cast on mattersoutsidetheLivingTrustthatmattertothechildren.Ifunequallifetimegiftsareimportant to the children—and they absolutely are—those matters becomerelevanttotheLivingTrust.

Welive...welearn.Now,wheneverImeetwithanewclient,Ialwaysbringup thesubjectof lifetimegifts.Butunfortunatelyfor thedaughter, thison-the-job training came too late.DadandMomweredead, and theonly solution toequalize the unequal lifetime gifts was an agreement by all the children toapportiontheinheritanceinamannerotherthanequal.Imeeklysuggestedthiscourseofactiontothethreesons,buttheironlyresponsewastosilentlynoticethedecorinmyoffice.

Thedaughtermadeonelastshotinanattempttogethersiblingstogiveheraportionoftheirsharestoequalizethelifetimegifts.Shestoodupandaddressedherbrothers: “Guys, ifMr.Condonhaddonehis job correctly,DadandMomwould have equalized. You know this. I know this.We are a family. So as afamily, we should do what our parents would have done if Mr. Condon hadbrought it to their attention in the first place. Just giveme a portion of yoursharestomakemewhole.”

Silence.

“Ifyouwon’tdothisforme,doitforMomandDad.”

More silence. I could almost hear the crickets chirping. Personally, I wasmovedbythatlittlespeechandIwouldhavetossedsomepartofmyshareherway.Butherbrothersjustdidnotsayanything,andtheroomgrewicycold.Oneofthebrothersfinallysaid,“Let’sdiscussthislater.”Withallthathadtranspiredin my office, it was obvious to everyone that there was no substance to thatstatement. It was just something to say to break the silence and placate thedaughter.

What I know of the family today is that they did not equalize, and thedaughter,onceclosewithherbrothers,hasnomeaningfulcontactwiththem.

YouLive,YouLearn

Inretrospect,IshouldhaveaskedDadandMomwhethertheymadeanyearlierlifetime gifts to their children, determined the extent of the disparity of thosegifts,anddiscussedsolutionsthatcouldbeincorporatedintheirLivingTrusttoequalizeamongtheirchildren,whichcouldhaveincludedthefollowing:

•IntheLivingTrust,DadandMomprovidethatanextraamountgoesto

thechildrenwhoreceivedlessinlifetimegifts,andthatalltheirchildrenreceivetherestoftheLivingTrustassetsinequalshares.

•During their lives,DadandMomarrange for thechildrenwho receivedless in lifetimegifts toowna life insurancepolicyon the joint livesofDadandMominanamountequal to thedisparity.Then, in theLivingTrust, Dad and Mom provide that all Living Trust assets go to theirchildreninequalshares.

•DuringDad’s andMom’s lifetimes, they give cash to the childrenwhoreceived less in lifetime gifts in an amount needed to bring roughequalizationofalllifetimegiftsamongthechildren.Then,intheLivingTrust,allassetsarelefttothefourchildreninequalshares.

NowthatIhaveraisedyourawarenessofthisproblem,youshouldtellyourattorneyaboutitandincorporatetheappropriatesolutioninyourLivingTrust... but only if you care.Youmay be the type of personwho, likemany ofmyclients,thinkstheirchildrenareluckytogetanythingduringtheirlivesoraftertheirdeaths.Asoneclientsaidtome,“Mr.Condon,whatplanetdidyoucomefrom?Mykidsshouldbebowingtomeingratitudeonadailybasisforallthethings I’ve paid for them.Andnowyou think I should care that theywill getmadafterIdiebecauseIgavemoretosomeandlesstoothers?Iftheybecomethatungrateful,theycangoscrewthemselves.”

Ifthisclientspeaksforyou,thenfine.Thereisnolawthatsaysyouneedtocare about creating equity among your children. However, based on the vastnumberoftimesIhaveraisedthisissuewithclientsduringmy20-yearpractice,this“Idon’tcare”viewpointisinthevastminority.Indeed,wheneverIpointoutthe insurmountable chasm of conflict that unequal lifetime gifts create amongchildrenintheinheritancearena,thetypicalreactionis,“Ineverreallythoughtaboutthatbefore.Let’sexplorethisfurther.”

However,evenwhenwegoexploring,itsometimesappearsthatnosolutionexiststoequalizelifetimegifts.Thisistypifiedbyaparentwhomakesagifttoachildthatthechildusestopurchaseanassetthatappreciatessubstantiallybythetimeoftheparent’sdeath.Theparent’sotherchildwantsequalization.Butwhatamount will satisfy the other child? Not an amount equal to the value of theoriginal gift, but an amount equal to the value of the appreciated asset!Unreasonable,buttrue!

Examples of this scenario abound. In one situation, my clients had two

children,asonandadaughter.Theytoldmethatabout20yearsbefore,theyhadgiventheirson$50,000topurchaseahomeforhimandhiswife.WhenIgavethem the routine about how unequal lifetime gifts can adversely impact theirchildren’ssiblingrelationship,thehusbandliterallysaid,likeclockwork,“Gee,Inever really thought about that before.” Eventually, they agreed to leave theirdaughter$50,000“off the top”withboth their children splittingall theirotherLivingTrustassetsequally.

Sofar,sogood.

Tenyearslater,bothclientsdiedandtheirsonanddaughtercametomyofficeforadviceontheadministrationoftheirparents’LivingTrust.AllwaswelluntilI said, “I just want to make sure you know that the daughter gets an extra$50,000fromtheLivingTrust.Iadvisedthemtoputthatprovisionintomakesure that she has the same amount that your parents gave to the son 20 yearsago.”

I remember how puffed up I was when I made that statement. I was veryimpressedwithmyself that I, likesomesuperhero,hadcome to theaidof thisfamily by resolving an otherwise elusive issue that could have insidiouslydestroyedthatfamilyhaditnotbeenrecognized...byme!

Butthatballoonofpompositywasburstbythedaughter,whenshesaidtome:“Mr. Condon, what the hell were you thinking?My getting an extra $50,000doesn’tcomeclosetomakingitfair.Mybrothertookthat$50,000andusedittobuya$250,000home.That’sone-fifthofthepurchaseprice.Twentyyearslater,hishomeisworth$750,000.Thatgiftof$50,000isnowworth$150,000.Ifyouhadreallythoughtitthroughwithmyparentscorrectly,youwouldhaveadvisedthemthatIshouldgetanextra$150,000.”

Onceagain, I stoodcorrected.Or rather, I sat there red-facedandcorrected.Givingthedaughter$50,00020yearslaterwasnotequalization.Ifthedaughterhadalsoreceived$50,00020yearsbefore,shetoomighthavehadappreciatedequityof$150,000.

Thedaughterattemptedtoprevailuponherbrotherthewisdomofgivingup$100,000ofhisinheritancetohertoincreaseherspecificbequestto$150,000.Youcanimaginewhatherbrothersaidtoherashegesticulatedtohissisterwithhismiddlefinger.Thatwastheendofaformerlyclosesiblingrelationship.

Thereisusuallynodifficultyinequalizingrelativelysmallgiftsthatareused

to fulfill a temporary need—wedding, medical emergency, automobile repair,attorneybills,andthelike.However,equalizinggifts thatareusedtopurchaseappreciatingassets is a completelydifferent animal.Asmy fatherused to say,noteveryproblemhasasolution.

AnEasierPilltoSwallow

Of course, you can resolve a disparity in lifetime gifts by leaving an extraamountofLivingTrustassetstoyour“less-gifted”child.But,ifyouarenotrichenoughandthedisparityissignificant,itwillbehardtostomachthatattemptatequalization.Infact, Icannotrecallanyclientwhohasbeenwillingto leaveasubstantialsumtoa“less-gifted”childtoequalizethesignificantdisparitythatresults when lifetime gifts are used to purchase assets that become highlyappreciated.

In my mind, the only viable solution to this problem is the use of lifeinsurance.That is,youarrange foryour“less-gifted”child toown, andbe thebeneficiaryof, an insurancepolicyonyour life in theamountof thedisparity.Whenyoudie,thatchildreceivesthedeathbenefit,whichwillnotbereducedbyanytax.FormanyofmyclientsincircumstancessimilartothesonanddaughterIhavediscussedinthisexample,equalizationthroughlifeinsurancehasbeenaneasier pill to swallow than simply anoutright bequest of extra funds from theLivingTrust to the “less-gifted” child.But for this son and daughter, no suchsolutionwasofferedbecausethelawyerwhoadvisedtheirparents(me)didnotrecognizetheproblem.

SeparatebutUnequal

Doyou feel depressed?Have you had enough of the tales of spoiled childrenwhoyoumayfeelhavenorighttosquawkoverunequallifetimegifts?Haveyouhad your fill of how your Living Trust can unintentionally create a chasm ofconflictbetweenyourchildren?Toobad.Ineedtomakeyouawareofonemorecommon scenario in the inheritance arena that can effectively kill therelationshipbetweenyourchildren.

And once again, it involves an inheritance that you thoughtwas equal, butultimatelyturnsoutnottobe.

Oneofmyclientshadtwosonsandtwoapartmentbuildingsofapproximatelythesamevalue. Iadvisedmyclient to leave thebuildings tohersons inequalshares.Butmy client informedme that her sons never really got along and itwouldbeagoodthingforthemnottoco-owneachproperty.Thatsoundedgoodto me. Each would receive a roughly equal inheritance, and each would notrequire the involvement of the other in the management of their respectivebuildings.

IdraftedaLivingTrustthatleftBuildingOnetoonesonandBuildingTwototheother.Atthetimeofmyclient’sdeath,bothpropertieswereofapproximateequal value, and both sonswere relatively happywith the allocationmade bytheirmother’sLivingTrust.

The peace did not last long.Within a few years after theirmother’s death,BuildingOnehadescalatedinvaluewhilethevalueofBuildingTworemainedflat.Priortothisdevelopment,thebrothershadarelationshipthatwas,atbest,lukewarmforthesakeoftheirrespectivechildren.Afterthedisparityoccurred,itwasall-outwarbetweenthem.EventhoughthebrotherwithBuildingOnehadno influence on the inheritance plan, the poorer brother with Building Twotransferredhisangertohisricherbrother.Today,thechildrenofbothbrothersdonotreallyknoweachother,eventhoughtheylivewithinblocksofeachother.

Theroadtohellispavedwithgoodintentions.Whatstartedoffasmyclient’sgoodintentresultedinintensejealousy.Theensuingbattlewasthelastthingmyclientwantedforherchildren.

Take a lesson from this cautionary tale.Do not leave separate properties toseparate children in yourLivingTrust. The economic circumstances that arisefollowingyourdeathcoulddrivetheirvaluesupordown,leavingyourchildrenwith unequal inheritances, which will add nothing but conflict to their lives.Instead,leaveyourpropertiestoyourchildreninequalsharessotheywillsharetheupswingsanddownswingsofeachpropertyequally.

CHAPTER17

Don’tMakeaChildWhoOwesYouMoneyaDebtortoYourOtherChildrenORANUNFORGIVENANDUNPAIDLOANTO

ACHILDCANWREAKHAVOCAFTERYOURDEATH

Ifyouarelikemostofmyclients,youhavelent—oryouwill lend—moneytooneofyourchildren.Afterall, it isverynice tohelpyourchildren financiallywhen theyneedmoney tobetter their livesbygoing to school, starting anewbusiness,orbuyingahome.Ispeakfromexperience,becauseifmyparentshadnotlentmemoneyforlawschool,youwouldnothavethepleasureofhavingmeasyourLivingTrustadvisor.

Inmostcases,however,a loan toachildbecomesagift to thatchild.Deepdown,youknowthis.Whydoyouknowthis?Becauseeverytimeyouraisethesubject of repaymentwith your debtor child, you receive a convenient excusewhyheorshecannotcomeupwithanymoney.

•“Ihadabadmonthattheoffice.”•“Thekids’orthodontistbillscamein.”•“Weneededtogoonvacation.”(“Needed”?)•“Iwillhaveitforsurenextmonth.”•“IfIpayyou,Iwon’thaveenoughlefttobuygroceries,andIdon’tthinkyouwantyourgrandchildrentostarve.”

Then again, your debtor child might be the kind of person who has noproblem tellingyouhow it really is. Iwillnever forgetone family inheritancemeetingwithmyclientsandtheirthreesons.Myclientshadlent$25,000tooneof their sons tohelphimdigoutof a financialholehehadcreated.Theyhadtheirsonsignapromissorynotethatevidencedhispromisetopaythemback.

Duringthatmeeting,Ipresentedthenotetothedebtorsonandremindedhimthathisparentsfullyexpectedrepaymentof the loan.Theson leanedcloser tomeandsaid,“That’snotgoingtohappen.Idon’thaveit.Imayneverhaveit.”Withthat,thedebtorsongotupfromthetable,walkedtotheofficedoor,puthis

handonthedoorknob,openedthedoor,turnedtous,andsaidwithallthedramahecouldmuster,“Youwantyourmoney?Sueme!”

Are you going to sue your debtor child and become your child’s judgmentcreditor?Afteryoudiscoverthelongroadtoattainthatstatus,youmaynot.Tobeajudgmentcreditor,youhavetohirealawyer;fileacomplaint;propoundandrespond to discovery requests (depositions, written questions); proceedwith atrial;andwinattrial.Atthatpoint,youhavetocollectontheamountthejudgeawards you, which involvesmore demands for payment andmore lawyering.Ultimately,ifyouarenotpaid,youcanforcethesaleofyourchild’shouseandgettheorderedamountfromthesaleproceeds.

Aside from the fact that this processmay take two to three years, can youactuallyseeyourselfforeclosingonthehouseinwhichyourgrandchildrenlive?If you value your relationshipwith your children and grandchildren, youwillnot.

WhatElseCanYouDotoGetYourMoneyBack?

However,maybeyouarelikeoneclientwhowantedtosuehisdaughter-in-law.He lentmoney to his daughter-in-law to purchase a business, a boutique in acutesypartofLosAngelescalledLarchmontwherethepatronsparkdiagonallyto thecurb.Thebusinesswentbelly-upbecauseshedidnot treat it likea truebusiness.Forher,itwasanexpensivehobby.

Nonetheless,myclientwasof themindthatadealwasadeal.(Actually,hebelieved his daughter-in-law had snookered him from the beginning with hersincere-soundingpromises to return the seedmoney tohim.)Hepressuredhissontogethiswifetopayhimback.Dayspassedwithoutanyrepayment.Therewascomplete silence from thedebtor camp,whichgnawedatmyclient tonoend.Ultimately,hecametomyoffice tohiremetowrite threateningletters tohisdaughter-in-law.

Knowingthatsuchletterswoulddestroythatfamily,Icameupwithadvicetohelpresolvethematter.IhadpreviouslyestablishedaLivingTrustforthatclientinwhichhis threechildrenwere left equal inheritances. I advised thathe treattheloantothedaughter-in-lawasanadvanceontheinheritanceofherhusband,theclient’sson.

Theclientadoptedthisadvice,andIpreparedanamendmentthatreducedtheshare of the Living Trust assets thatwould be distributed to the son after theclient’sdeath, and increased the shares toeachof theother twochildren inanamount equal to the reduction.With this solution, the client’s tensionover theunpaidloanwasalleviatedandhedroppedhisthreatsoflitigation.

Isavedthefamilyrelationship.Butenoughpattingmyselfontheback.Let’sgetback to themainpoint.Whetheryourdebtor childgivesyoua transparentexcuseoraboldstatement,thefactremainsthattheloanyoumadetoyourchildis not being repaid. And nonpayment of the loan will adversely impact yourrelationshipwith that childduringyour lifetime. Ifyou insiston repayment inthefaceofadebtorchildwhojustcannot—orwillnot—payyouback,youwillnolongerhaveameaningfulrelationshipwiththatchildbecause,tohimorher,itbecomestooawkwardtovisityou,callyou,oreventakeyourcalls.

Yes,youwantyourmoney,butyournonpayingdebtorchilddreadseventheprospectofyoumentioningrepayment.Ifyouinsistonrepayment,youwillloseanysubstantivecontactwiththatchild,andyourgrandchildrenfromthatchildaswell.Inotherwords,whenyoulentmoneytoyourchildinthefirstplace,youmayhaveimaginedthatyoumightnotgetpaidback;butdidyoueverthinkitwouldleadtonotseeingyourgrandchildren?

Sowhatdoyoudo?Quitesimply,stopaskingyourdebtorchildaboutwhenpayment will be forthcoming. Forget about being repaid. In my mind, yourrelationship with your child vastly outweighs your need for repayment. Ofcourse,ifyoudonotcarehowtheloanaffectsyourparent-childbond,youwilldisregard this advice. As my high school English teacher once said whendescribing the differences we occasionally had with one another: That’s whatmakesahorserace.

Youmayalsodismissmyadviceofforgettingthe loanifyouarerelyingonthose funds for your support. Fine. Go after it. But in your quest to get themoneyback,youwillbemetwithbusybodiesbuttingintoyourprivatebusiness,waggingtheirfingers,andsayingtoyouwithaself-righteoustone,“Whatwereyouthinkingwhenyoumadetheloan?Ifyoucouldn’taffordtolosethemoney,you shouldn’t have made the loan!” But truthfully, you should not have towithstandsuchadmonishment.Youareaparent.Helpingyourchildiswhatyoudo. It’s instinctive. It’s hard to sayno to a childwho trulyneeds the financialassist.

Okay. Let’s say you take my advice and stop mentioning the loan to yourdebtor son. He starts coming around again with his kids, and you consideryourselfluckytohavedodgedabulletthatpotentiallycouldhaveharmedyourrelationshipwithyourchild.Goodforyou.

However,Imustmakeyouawarethatnotmentioningtheloanisnotforgivingtheloan.Whenyouforgivealoan,youarecancelingitandsaying,inessence,the debtor does not have to pay you back. There is a tax consequence toforgiving a loan, which is that the amount of the loan you have forgiven isconsideredtaxableincometothedebtor,andthedebtorwillhavetoincludethatamountasincomeonhisnextincometaxreturn.

Nonetheless, if you are planning to stopmentioning the loan, youmight aswellforgivetheloan,becauseyouwillnotbepaidineitherevent.Althoughtheforgiven amount is taxable income to your debtor child, Iwould rather a fewextraincometaxdollarsbepaidthanseewhathappenstoyourfamilyifyoudiewithanunforgivenloaninyourmixofLivingTrustassets.Therefore,makesurethatyousentthemessage,loud,clear,andinwriting,thatyouconsidertheloanforgiven.

ConsequencesoftheUnforgivenLoan

Ifyoudonotforgivetheloanandyoudiewithachildowingyoumoney, thatloan isanassetofyourestate. It isaLivingTrustasset. It isdividedbetweenyourchildrenjustasyourhome,stocks,personalproperty,andcasharedivided.The result is the somewhat absurd proposition that your debtor child ends upbeing a creditor to himself onhis equal share of theunpaid loan.Yourdebtorchildmaybeaniceguy,butheisnotgoingtogothroughthemotionsofpayinghimselfback.

However,guesswhodoeswant tobepaid?Yourotherchildren!Yourotherchildrenarenowcreditorstotheirdebtorsibling.Bynotforgivingtheloan,youhave inadvertentlycreatedamoney relationshipbetweenyourchildren. It’snolongerjustabloodconnection,butabloodandmoneyconnection.

Yourcreditorchildrenmaylovetheirdebtorsibling,butnottothepointwhereit’sgoing tocost themmoney.After thedustof administrationofyourLivingTrusthasbeensettled,yourotherchildrenwill inform theirdebtor sibling that

the loan exists and they expect repayment of their shares. If payment is notmade, they will casually remind him about the loan on occasions when theyhappentogettogether.Ifpaymentstillproveselusive,thencomesthepepperingof gentle reminders through phone calls and letters. If that fails to triggerpayment,perhapslitigationwillbethenextstep.

Putasidetheissueofwhetherpaymentisforthcoming.Instead,focusontheharmthisunpaidandunforgivenloanhascausedtothefamilyrelationship.Theyarenolongersiblings.Theyarelitigants.

I will never forget the words spoken by one daughter as she berated herbrother in my office after the deaths of their parents. She told him in nouncertaintermsthatsheexpectedtoreceivefromherbrotherherone-halfshareof the $50,000 loan owed by him to their parents under a promissory note hesignedabout25yearsearlier.

Thebrotherdidhisbesttowardoffhissister’sentreatiesforpayment.Hesaidthathisparentshadforgiventheloan,buthissisterpointedoutthattherewasnoevidencetobackhimup.Thesisteradded,“IfDadandMomhadforgiventheloan,theywouldhaverippedupthenote.Buthereitis!It’salittledusty,butit’sright in front of you.” I noted that as she made this statement, she slid thepromissorynoteonmydeskdirectlyinfrontofherbrother.

Thedaughterwasright.Aclaimbythedebtorchildthataloanwasforgivenbyparents’ inaction,orbythesimplelapseof time,meanslittle tothecreditorchildwhojustwantshershareoftheoutstandingobligation.

After thedaughterhadkindlypointedout thatherbrother’spromissorynotewas right in front of him, he snapped and yelled, “Forget it! The statute oflimitationshasrunout.It’sover.Youwillnevergetacourttoenforcethatnote!”Thesistercalmlyresponded,“We’renottalkingcourtroomjustice.Thisisfamilyjustice.Youborrowedthemoney.Youhaduseofthatmoneyfor25years.IfIhad received $50,000 25 years ago, it would be worth something more than$50,000,butIdidn’t.AndthereisnothingtoshowthatDadandMomforgavethisnote.”

Thesonstormedoutoftheoffice,andthesiblingsneverspoketoeachotheragain. In no way is this scenario an isolated incident, as I have seen similarexchanges take place between debtor and creditor children over the issue ofunforgiven loans, although not every situation ends with someone stormingthroughthedoor.

ResolvingtheFamilyFalloutoverthe“Forgiven”LoanThatWasn’tReallyForgiven

Nowthat Ihavemadeyouawareof theharmthatcancometo families in theinheritance arena over the issue of unpaid loans, what should you do toamelioratethatharm?Hereareafewsimplesolutions.

•Forgivetheloanyoumadetoyourdebtorchildduringyourlifetimewithawrittenstatementofforgiveness,andgiveeachofyourotherchildrenanamountequaltotheforgivenloan.

•Forgivetheloanyoumadetoyourdebtorchildduringyourlifetimewithawrittenstatementofforgiveness.Then,arrangeforyourotherchildrentobetheownersandbeneficiariesofaninsurancepolicythatwill,whenbothyouandyourspousearedead,paytoeachofthemanamountequaltotheforgivenloan.

•InyourLivingTrust,providethattheunpaidbalanceoftheloantoyourdebtorchildisforgivenandleaveeachofyourotherchildrenanamountequaltothatunpaidbalance.

•Ifyoudonothavesufficientassetstogive(duringyourlifetime)orleave(afteryourdeath)anequivalentamounttoyourotherchildren,thenengageinthe“That’sLifeintheBigCity”plan,whichis:

First,forgivetheloanyoumadetoyourdebtorchildduringyourlifetimewithawrittenstatementofforgiveness.

Second, at some point conduct a family inheritance meetingwhere you announce that you are unable (or, if applicable,unwilling)toequalizewithyourotherchildren.

Third, sitbackand listen toyourotherchildren regaleyouwiththeiropinionsastohowunfairthattreatmentis.

Fourth,andfinally,tellthemthatyouwouldrathertheybeangrywithyounowthanallowtheunpaidloanissuetofesterafteryourdeath in the inheritance arena to destroy their relationshipwithoneanother.

CHAPTER18

DoNotLeaveYourChildanOutrightInheritanceORI’MNOTKIDDING!DON’TLEAVEYOURCHILDANOUTRIGHT

INHERITANCE

Yourchildrendonotwantyoutoreadthischapter,becauseittalksaboutputtingcontrolsontheirinheritance.Idon’tblamethem.Noonewantstobelimitedinhowtheymanageandspendtheirownmoney.Youwouldn’twantsuchcontrolimposedonyou.Icertainlywouldn’twantmyparentstorestricttheuseofmyinheritance.

Nonetheless,asyourLivingTrustcoach,Iaminstructing—nay,demanding—that you never leave any child an outright inheritance of your Living Trustassets. Iknowthatyouhavenoticedsuchsweepinggeneralizations throughoutthisbook,butyouhaveneverbeforeheardmeuse thewordnever.But that’show adamant I am about this point, which I will make again, this time withcapitals, bold type, and an exclamation point: NEVER LEAVE ANY OFYOURCHILDRENANOUTRIGHTINHERITANCE!

Thereasonthatyoudonotwanttoleaveyourchildrenanoutrightinheritanceis this: If you leave your children an outright inheritance, the money andpropertyinyourLivingTrust—thefamilymoneythattookyoualifetimeofhardworktoacquire—willbelosttotheproblemsyourchildrenfaceintheirlives.

Whatkindofproblems? Iceased longagobeingsurprisedat thenumberofproblems your children have, or will have, that pose a risk of loss to theirinheritance:

•Divorce.•Remarriage.•Addiction.•Bankruptcy.•Incometaxtrouble.•Creditors.

•Financialimmaturity.•Squandering.•Mismanagement.•Malpracticeclaims.•Psychologicalillness.•Incompetency.•Eccentricity.•Incapacity.•Compulsorytithingtocharity.•Contributiontocrazycult.•Shrewish/naggingspouses.•Medicalbills.•Andmanymore.

Here’s the deal.When you and your spouse are dead and your after-deathagent transfers your Living Trust assets to your children, your money andpropertyarenolongeryourmoneyandproperty.Theyareyourchildren’smoneyandproperty,andtheybecomesubjecttothewindsofyourchildren’sfates.

Youdidnotwork40or50yearssothatall thatyouhavebeenblessedwithends upwith your son’s bankruptcy trustee, your daughter’s ex-husband, yourson’sdrugdealer,oryourdaughter’sjudgmentcreditors.Thatwouldkillyou...eventhoughyouarealreadydead.No,youwanttobecertainthatyourlifetime’saccumulationsultimatelyendupwithyourgrandchildren.

I’m not one to presume how you feel about your grandchildren, but I amgoingtodosoanyway.Iamtreatingyoujustlikethejudgeinmydivorcewhosaidtome,inessence,“Mr.Condon,I’mnotholdingyoutoahigherstandardofknowledge simply because you are an attorneywho should knowbetter, but Iam.”

Yourgrandchildrenarethelightsofyourlife.Youlikeyourchildren,butyoulove your grandchildren. You may see your grandchildren every day,intermittently,notasmuchasyou’dlike,ornever.Theymaybegoldentoyou,or a royal pain in your butt.Whatever the feeling, you cannot deny that youquietlytakesomepride—amodicumoralot—thatthey’llwalktheearthforyoulongafteryou’reintheearth.Yourbloodlinecontinueswiththem,andyouwantyourassetstocontinuewiththemaswell.

Iknowthissoundslikethesickly-sweetromanticmusingsofaformerUCLA

Englishliteraturemajor(classof1983—goBruins!),whichmaycompletelyturnyouoff.However,thisishowthevastmajorityofmyclientsfeelaboutleavingtheir Living Trust assets. They, and by extension, you, want the Living Trustassetstoultimatelyendupwiththeultimatedividendsofyourlife.Ialmostdareyou not to think about your grandchildrenwhen putting together your LivingTrust.

But your grandchildrenwill not receiveyourLivingTrust assets if they arediverted from your bloodline because of some problem that arose in yourchildren’slives,whichisthepointofthisreallyhugechapter.

Sowhatisthesolutiontothissignificantissueintheinheritancearena?Youcannot leave your children their inheritance outright. Instead, you have toincorporate protection into your Living Trust to shield their inheritance fromtheir problems. Haven’t you taken steps to protect your money and propertyduringyour lifetime?Nowyouneed to thinkabout takingmeasures toprotectyour money and property once it’s in the hands of your children, withoutunnecessarilylimitingtheiruseofthoseassets.

TheprotectionIamtalkingaboutistheprotectiontrust,atermthatmyfatherand I coined that swept the nation for about 12 minutes when our firstinheritanceplanningbookwaspublishedwaybackin1996.Theconceptoftheprotection trust can best be conveyed with this very clever analogy usingmedievalterminology.

Yourchildren’sinheritanceistheCastle.TheycanliveintheCastle.TheycanselltheCastleandbuyanewCastle.TheycanprettymuchdowhattheywantinandwiththeCastle.

Your children’s problems are theStormtroopers.TheStormtrooperswant toburstinandtakeovertheCastle.

TheProtectionTrust is themoat surrounding theCastle.Themoat preventsthe Stormtroopers from overrunning theCastle so your children still have theCastletouseandenjoyfortherestoftheirlives.

When your children die, the Castle will be delivered—intact—to yourgrandchildren.

There are several types of protection trusts. There are those that offermaximumprotectionandcompletelycontrolyourchild’sinheritance,andthosethat provide minimum protection and allow your child unfettered access and

management.ThetypeyoushoulduseinyourLivingTrustdependsonthekindofproblemyourchildhasnow,ormayhave in the future, thatposesa riskoflosstotheinheritance.

Forexample,andcontinuingwiththeCastleanalogy,iftheStormtoopersareyourdaughter’salcoholismordrugaddiction,itisalockthattheCastlewillbeoverrun. It’sguaranteed.Asyourchildrenpeer through thewindows, theycansee the Stormtroopers waiting and hovering, ready to storm the place at anymoment.That’swhatStormtroopersdo—theystorm.So, themoatyoubuild isgoingtobeseriouslywideenoughtoensurethattheStormtroopersnever,evergetoverthedrawbridgetoransacktheCastle.

But, what if your daughter is a normal person with no substance abuseproblem? In that case, your children do not see any Stormtrooperswhen theylook outside the Castle. They’re not there. They don’t exist. Yet, there is theconcern that, someday, theymay showup anddo theirwaiting, hovering, andstormingthing.TheyarePossibleStormtroopers:thepossibilitythatyourLivingTrustassetswillendupoutofyourbloodlinebecauseyourdaughter’sexcellentmarriagemayonedayturnintoaheateddivorcewhereeveryissueisbattle;thepossibility that your now-responsible daughtermay turn out to be a ne’er-do-wellwhoseonlyjobinlifeiswaitingforyoutodiesoshecaninherit.Insuchcases,theexpenseandhassleofbuildingawidemoattoprotecttheCastlefrompossible Stormtroopers seems extreme and unnecessary when a smaller moatmaysufficetodothejob.

Enoughofthismedievalanalogy.MychildrenarefondofsayingthatIoftentake something that I find clever or amusing and run it into the ground withoveruse.Thepointis,therearemanytypesofprotectiontrusts,andtheoneyouuseisabsolutelydependentonthetypeofproblemyouareprotectingagainst.Icansummarizetheminfourcategories,startingwiththetypethatoffersonlytheleastprotectionandprogressingtotheonethatguaranteesprotection.

CategoryOne:TheProtectionTrustThatOffersOnlyaHopeofProtection—theTransparentTrust

I call this protection trust “transparent” because the protection it offers is,theoretically,zero.Infact,it’slikenothavinganyprotectiontrustatall.

This ishowtheTransparentTrustworks.YourLivingTrust, in thepart thatsayswhogetswhat,shouldstatethatwhenyouandyourspousearebothdead,theLivingTrustassetswillpourintoanothertrust.Thistrustisnotestablishedby some separate document that exists outside your Living Trust. It is a trustwithinyourLivingTrust—abucketwithinyourbucket.

ThebucketthatreceivestheLivingTrustassetsistheTransparentTrust.TheTransparentTrust is likeyourLivingTrust.Itstateswhogetstheincomefromtheassetsthatarepouredintoit,whogetstheprincipal,whentheprincipalcanbedipped intoand forwhatpurpose,whocanwheel anddealwith theassets,who gets the assets when the beneficiary dies, and so on. Except . . . theTransparentTrust is not for you; rather, it is for your children. Stated anotherway, theTransparentTrustbecomesaLivingTrust foryourchild’s inheritancethat shall be held, managed, and distributed for the benefit of your child inaccordancewiththeinstructionssetforthintheTransparentTrust.

Sohowliberalaretheseinstructions?Veryliberal.YouwillnowseewhywecallittheTransparentTrust.

Who gets the income from the assets generated by the Transparent Trust?Yourchild.

WhogetstheprincipaloftheassetsintheTransparentTrust?Yourchild.

Who is the trustee—the manager, the wheeler-dealer—of the TransparentTrust?Yourchild.

Forwhatpurposemaythetrustee(yourchild)dipintotheprincipal?Foranypurpose whatsoever: support, health, education, maintenance, comfort,entertainment,travel—younameit.

Whenmay the trustee (your child) dip into the principal of theTransparentTrust?Anytime,anyday,anyseason.

WhogetstheunusedprincipaloftheTransparentTrustwhenyourchilddies?Anyonewhomyourchildselects;butifnoselectionismade,thentohisorherchildren(yourgrandchildren).

Arethereanylimitationsonhowthetrustee(yourchild)canwheelanddealwith theassets?No.Sell them.Manage them.Exchange them.Throw them inthestreet.

Is there any restriction on your child from giving any of the assets of the

TransparentTrusttoanypersonatall?No.Yourchildcangiveawaytheassetsto,ifheorshewants,thenextpersonheorsheseeswalkingdownthesidewalk.

Don’t these instructions sound familiar? They should, because they are thesame type of extremely liberal instructions found in your LivingTrust,whichspeak to your ability to spend and manage your assets any way you see fit.RememberwhenIsaidtheLivingTrustisyou...youaretheLivingTrust?Thesame can be said for the Transparent Trust for your child. Your child is theTransparentTrust...theTransparentTrustisyourchild.

TheTransparentTrustisasclosetooutrightownershipasownershipcanbe.In fact, it is just like outright ownership.Okay, but nowyour big question is:Whatgoodisit?

Funnyyoushouldask.EventhoughtheTransparentTrust is likenothavingany trust it all, I advise my clients on a daily basis to incorporate it in theirLivingTrusts,becauseitaccomplishesfiveimportantgoals.

1.Onyourchild’sdeath,theTransparentTrustassetswillautomaticallygotoyourgrandchildrenwithoutprobate(ifyourchildhasnotdoneanythingtochangetheinheritanceinstructions).

2.Leavingyourassetstoyourchild’sTransparentTrustservesasaconstantreminderofyourwishtokeepthefamilyassetsinthefamily,andnotcommingledinthejointassetsofyourchildandhisorherspouse.

3.TheTransparentTrustprovidesyourchildwithanexcusetosaynotoaspousewhoinsiststhattheinheritancebeplacedintheirjointnames.(Yourdaughter-in-law:“Honey,ifyouloveme,you’llputyourinheritedpropertyinourjointaccount.”Yourson:“Gee,honey,Iwoulddoitinasecond,butIcan’tbecausemyparentsleftitintrustforthegrandchildren.”)

4.TheTransparentTrustbecomesaLivingTrustforyourchild’sinheritedseparateproperty.Asaresult,youhavesavedyourchildtheexpenseandhassleofhiringanattorneytoestablishanInheritedSeparatePropertyLivingTrust.

5.IftheassetsintheTransparentTrustincluderealproperty,andifyourchildsellsorrefinancesthatrealproperty,thetitlecompanywillnotrequirethesignatureofthespouseonanysaleorloandocumentsbeforeissuingatitleinsurancepolicy.

ThisfifthreasonissuchagreatbenefitoftheTransparentTrustthatitrequires

abitofexpositionsoIcanmakesureyouunderstandit.AsyourLivingTrustcoach,that’smyjob.

The function of the title company is to insure title to real property. Theissuanceofatitleinsurancepolicyisrequiredbeforeanybankorotherfinancialinstitutionwilllendmoneytoanownerorpurchaserofrealproperty.Letmesayit thisway:Thereare threecertainties in this life:death, taxes, andno saleorrefinanceofrealpropertywithoutatitleinsurancepolicy.

Before the titlecompany issues thepolicy, itsadvisory titleofficer (ATO)—the head title guy—will want to be 104 percent certain that the owner of thepropertyis,well,theowneroftheproperty.Fine.TheATOlooksatthehistoryof all the recorded documents relating to the property to make sure that theperson selling or refinancing the property is the real and true owner of theproperty.

TheATO determines that the person doing the selling or refinancing is theowner of the property. Lovely. There should be no problem getting the titlecompany to issue the title insurance policy.But, if the seller ismarried, thetitlecompanywillnotissuethatpolicyunlessthespouseofthesellersignsall the selling or refinancing documents—even if the spouse is not on thedeed,andevenifthespouse’snamedoesnotshowupanywhereintherecordeddocumentsintheproperty’schainoftitle!

When the seller approaches his spouse for her signature, will she sign?Perhapstheyjusthadabigargumentthatmorning.Perhapssherelishestheideaof road-blocking the transaction out of some warped notion of vengeance.Perhaps she wants to have an attorney review all the documents of thetransaction.Whateverthereason,itisentirelypossiblethatshemaynotsign.Ifshewithholdshersignature,good-byesaleorrefinance.

Whyistheseller’sspouse’sparticipationnecessary?BecausetheATOalwayspresumes that the spouse obtained some interest in the property through themarriage laws of the state in which the property is located. For example, inCalifornia,itisentirelypossiblethataspouse’sseparate inheritedpropertycanbe “transmutated” into the community property of both spouses, under certaincircumstances,whichgivestheowner’sspouseaninterestinthatproperty.DoestheATOknowifsuchcircumstancesexist?No,andunlesshebecomesaflyonthewallintheirhouse,hewillneverknow.So,theATOwillwantthespouse’ssignatureonthedocuments,justtobeonthesafeside.

Asthethird-gradeteacherofmydaughter,Hayley,pointedouttohersomanyyearsago:Lifeisnotfair.Yourchildwillechothisrefrainwhenhelearnsthathecannotsellor refinancehis inheritedseparatepropertywithout firstgettinghisspouse to sign thedocuments.But, ifhe inherits theproperty inaTransparentTrust,hisspouse’sparticipationisrenderedmoot.Forthisreason,aswellastheother four reasons cited, the answer to your big question that you asked twopagesago(“WhatgoodistheTransparentTrust?”)is:plentygood!

Ifyourchildrenarenormal,youshoulduseyourLivingTrust to leave theirinheritanceto themintheirrespectiveTransparentTrusts.In thecontextof theinheritancearena,anormalchildisonewhoisnotmiredinaddiction,divorce,financial immaturity, creditors, or any of the other problems that I alluded toearlierinthischapterthatposeaclearandpresentriskoflosstotheinheritance.You know, the child you boast of as a “good kid” to your tablemates at yourcommunity’sannualdinnerdance.

CategoryTwo:TheProtectionTrustThatIsJustaTadLessLiberalThantheTransparentTrust—theSelf-Directed

IrrevocableProtectionTrust

The Self-Directed Irrevocable Protection Trust (SIPT) has such a boringacronym.Itdoesnotevenformawordthatcanbeusedtohelprememberthisconcept.

IneedanacronymfortheSelf-DirectedIrrevocableProtectionTrustthat,forme, serves as a shorthandway to refer to this typeofprotection trust and, foryou, creates an amusing mnemonic device to help you steer through thisdiscussion.Alittlebitofcheatingbytransposingtwoofthelettersand...voilà...youhavetheSPIT.

ThisSPITissimilartotheTransparentTrust,butonlyuptoapoint.

LiketheTransparentTrust,theSPITiscreatedinthe“whogetswhat”portionofyourLivingTrust. It isabucket that receivesyourLivingTrust assetsafteryourdeath.TheassetsintheSPITwillbeheld,managed,anddistributedforthebenefitofyourchildinaccordancewiththeinstructionssetforthintheSPIT.

LiketheTransparentTrust,theinstructionsintheSPITgiveyourchildliberal

use and access to the assets in the SPIT. Your child gets all the income andprincipal,candipintotheprincipalatanytime,andtakesontheroleoftrustee,thewheeler-dealerwhocanmanageandinvesttheminanywayheorsheseesfit.

LiketheTransparentTrust,theSPITisusedforyourchildwho,inthecontextof inheritance planning, is considered normal—that is, someonewho does notpossess any problems that automatically subject your child’s inheritance to asignificantriskofloss.

So much for the similarities. Unlike the Transparent Trust, you can buildwhateverlimitationsyouwishintothematrixoftheSPIT.Herearethefivemaindifferencesbetweenthesetwotypesofprotectiontrusts.

1.IntheTransparentTrust,yourchildmaydipintoprincipalforanyreason.However,intheSPIT,youcanforbidyourchildfromusingprincipalforanypurposeyoudisapproveof.Forexample,ifyoudonotwantyourchildspendingherSPITassetsonentertainment,travel,orotheractivitiesthatyou,thefuddy-duddy,considerfrivolousandnonproductive,youcaninsertaprovisionstatingthatshecannotusetheassetsforthosepurposes.

2.IntheTransparentTrust,yourchildcandipintotheprincipalandgiveawayanyassettoanypersonatanytime.However,intheSPIT,yourchildcanmakenosuchgifts,andcandipintotheprincipalonlyforthespecificpurposesyousetforth.

3.IntheTransparentTrust,yourchildhastheabilitytocontrolwhoreceivestheassetsafterherdeath.Ifshewantstoleavethemtopersonsorcharitiesotherthanyourgrandchildren,sheisfreetodoso.However,intheSPIT,youcontrolwhoreceivestheassetsafteryourchild’sdeath.Whenyourchilddies,theassetsintheSPITmustbedistributedtothepersonswhomyouhavenamedintheSPITasthebackupbeneficiaries.

4.IntheTransparentTrust,yourchildhastheabilitytorevokethearrangement.ShecansimplytaketheassetsoutoftheTransparentTrustandownthemoutright.However,intheSPIT,yourchildhasnopowertocancelthetrust.TheSPITisirrevocableandwilllastfortherestofyourchild’slife.

5.TheTransparentTrustandtheSPITsendtwodifferentmessages.ThemessageoftheTransparentTrustis:“Hereyougo.Enjoy.Doasyouplease.Itisourhopeyouwilluseyourinheritanceproperlyandleave

whateverremainsonyourdeathtoyourchildren.Butthatisuptoyou.Wedon’twanttotieyourhandsastohowtouseyourmoney.”

Allinall,thisisaverylovelymessagethattheTransparentTrusthasbeen crafted for the sole benefit of your child. The SPIT, however, iscreatedforthebenefitofbothyouandyourchild.Yourchildbenefitsbyhaving access to her inheritance as trustee. You benefit by obtainingsomeassurance thatyourchildwillnot squander,mismanage,ordivertyourmoneyandproperty.So,themessageoftheSPITisthis:“Wetrustyouwithyourinheritance...sortof.Wejustcan’tdieleavingyouwithunfetteredcontrolofyourinheritance.Weneedtoknowthatwe’vedoneall we can to nudge you into using your inheritance properly withouttyingyourhands toomuch.Soweamgoing to leaveyou incontrolofyour inheritance with a few limitations so I can die with a bit morecertaintythatyouwilldotherightthing.”

TheSPITgivesyour child the same five advantages that areofferedby theTransparentTrust.TheSPITavoidsprobateoftheassetswhenyourchilddies;the SPIT ties a mental string around your child’s finger to remind her thatinherited property is precious property; theSPITgives your child ammunitionagainstherspousewhoseekstobecomeaco-ownerofherinheritedassets;theSPIT becomes your child’s Inherited Separate Property Living Trust; and theSPIT allowsyour child to sell or refinanceher inherited real propertywithouthavingtoaskherspouseforhissignature.

However, unlike the Transparent Trust, the SPIT gives you some assurancethat your child will not improperly (as that word is defined by you) use anddistribute theassetswhile stillgivingyourchild theuseof, andaccess to,herinheritance.AstrusteeoftheSPIT,yourchildistheoneinchargeoftheassets,butmust act in accordancewith the limitations you have incorporated into itsterms and provisions. The SPIT is your ghostly presence looking over yourchild’s shoulder, making certain that she is not wasting or squandering herinheritance,notgivingitawaytoherbullyofahusbandwho,accordingtoyou,married her only for money (your money), and not having the assets go toanyoneafterherdeathotherthanherchildren.

However,aproblemwiththeSPITis thatyourghostlypresencemaybetheonlyfactorkeepingyourchildonthestraightandnarrow,andtoyourchild,thatmaynotbeaverycompellingfactor.Withyourchildastheonlytrusteeofher

SPIT,thereisnopoliceofficerlookingoverhershouldertoensurethatsheisnotusingtheprincipaloftheSPITinawaythatcontravenesitsprohibitions.YourchildisherownSPITPolice.

Astrustee,yourchildislegallyboundtoadheretothetermsandprovisionsoftheSPITasyousetthemforthinyourLivingTrust.Itisagainstthelawforyourdaughter—oranytrustee—tomanageatrust inamannerthatdirectlyconflictswiththetermsofthattrust.TheattorneythatyourchildhiresforadviceonthedistributionofyourLivingTrustassetswillsendthismessageloudandclear.Inmyexperience,thatwarningisusuallysufficientformosttrusteestokeepthemonthestraightandnarrow.Nonetheless,withthechild’sknowledgethatsheisherownSPITPolice,thetemptationtodeviatefromtheSPITinstructionsiseverpresent.

Thereis,however,onegroupoffolkswhoareinterestedintheSPITactivitiesofyourchild: thebackupbeneficiaries.Theseare thepersonswhomyouhavenamedinyourLivingTrustastherecipientsoftheSPITassetsafteryourchild’sdeath—most likely, your grandchildren. In legal parlance, they are the“remaindermen.”YourgrandchildreninheritwhateverremainsintheSPITafteryourchilddies.WithsuchanexpectancyinterestintheSPIT,theyhaveadirectandvestedconnectiontothegoings-onoftheSPITduringyourchild’slife.Themore your child deviates from the built-in limitations, the less yourgrandchildrenwillreceiveafteryourchild’sdeath.

Will your grandchildren monitor their parent’s activities as trustee of theSPIT? Probably not. Chances are, your grandchildren will not become awaretheyhavetherighttoreceiveinformationabouttheirparent’sadministrationandmanagementoftheSPITuntilafterthedeathofthatparent.

InlightofthepossibilitythatyourchildwillusetheSPITassetsforprohibitedpurposes,whatcanyoudotoensurethatyourchilddoesstaysontherightpath?Really, theonly solution is tonameaco-trustee—aco-manager—of theSPIT.With a co-trustee, your child must obtain the co-trustee’s signature on everytransaction...everypaymentofincome,everydipintoprincipal,everydepositandwithdrawal,andeverywheelanddeal.Theco-trusteeisyourbackstopfromthegravetokeepyourchildfromgoingastray.

But,askyourself:Doyoureallywantyournormalchild tohave toobtainathirdparty’sconsenttouseherowninheritancewhentheonlyriskoflosstobeminimized isyourchild’spossible improperuseof the inheritance?Youknow

yourchildbetterthanIdo.Maybesheisthekindofpersonwhodoesnotshowanybackbonetopressureimposedonherbyherspouse,andyouprojectthatshewill succumb tohisentreaties togivehimaportionofher inheritance.Maybeyour child has always thrown away paychecks in pursuit of wine, song, andshopping,andyouconjecture that shewillneverbecomefinanciallymature tothepointwheresheusesfundsonlyforhersupport,health,education,andotherpermissiblepurposes.Iftheriskoflossordiversionislegitimateandprobable—eventothepointofbeingtangible—thentheco-trusteearrangementoftheSPITisanexcellenttooltocombatthatrisk.

However,ifthereasonforaruledoesnotapply,thendon’tapplytherule.Ifyournormalchildhasnotshownanysignsofproblemsthattraditionallysubjectmoney to risk of loss, then the appointment of a co-trustee of theSPIT is toomuchcontrolfrombeyondthegrave.Toinvolveathirdpartyinthemanagementand control of your child’s inheritance is like punishing your child for badbehavior that she has not done. It’s likeMoe in one particular Three Stoogesepisode where he slaps Curly, who, by all objective standards, did not doanything to justify such abuse. In fact, Curly was just standing around. Incomplete shockand surprise,Curlyyells, “Whatdidyoudo that for? Iwasn’tdoing nothing’!”With all confidence,Moe replies, “Thatwas in case you dosomethingwronglaterandIain’taroundtoseeit.”

NeverbeforeandneveragainwillyoureadaThreeStoogesanalogyinabookontheLivingTrust.Ishouldbefetedforsuchanobscureandabsurdreference—or,ifyouhavenosenseofhumor,disbarred.Nonetheless,Iwillinglytakethatbulletforyou,thereader,inordertodrivehomethispointthatyoushouldnotappointaco-trusteeofyournormalchild’sSPIToutofthemereconcernthatshemay possibly engage in behavior that is antithetical to the limitations you setforth.

CategoryThree:TheProtectionTrustThatGivesControlofYourChild’sInheritancetoaThirdParty—theThird-Party

IrrevocableProtectionTrust

IrequireanacronymfortheThird-PartyIrrevocableProtectionTrust,becausethereisnowayIamgoingtowrite“Third-PartyIrrevocableProtectionTrust”adnauseam.But,thereisnothingfunandexcitingthatcanbedonewithTPIPT.So,

IwillcallitthePUPPETfortworeasons.

First, thewordpuppet has some of the same letters as TPIPT. Second, thewordpuppetaptlydescribeshowyourchildmayperceiveherselfinrelationtothe third party that you put in control of her inheritance. To your child, thismeanssheisthepuppetoftheoppressivethird-partyPuppetmasterwhocontrolsher[purse]strings.

AswiththeTransparentTrustandtheSPIT,thePUPPETisanentitythatyouestablishinyourLivingTrust.ThetermsandprovisionsofthePUPPETarejustwordsonpaperuntilyouandyourspousearebothdead.Whenthatoccurs,thePUPPET springs into existence and your child’s inheritance from yourLivingTrust will funnel into the PUPPET, where it will be held, managed, andadministeredby a third-party trustee (manager)whomyou’ve selected inyourLivingTrust.

ThePUPPETstatesthatincomegeneratedbytheassetswillbeaddedtotheprincipal,andthatthethirdpartymustpaytoyourchild,orapplyforherbenefit,so much of the principal as the third party determines is reasonable andnecessaryfor:

•Yourchild’seducation.•Thepurchaseorrefurbishingofyourchild’sprincipalresidence.•Theestablishmentof,orinvestmentin,abusinessthatwillconstituteyourchild’sprimarylivelihood.

• The development of a prudent personal investment program for yourchild.

•Yourchild’ssupport.•Yourchild’ssupportintheeventofherphysicalormentalincapacity.•Yourchild’shealth.•Thehealth,support,andeducationofanyofyourchild’sownchildren.

Itisimportanttopointoutthewordsmustpayintheparagraphprecedingthislaundrylistofpermissiblepayouts.ThatmeansthethirdpartycannotrandomlywithholdthePUPPETassetsfromyourchild.If thethirdpartydeterminesthatyourchild(orherchildren)hasanyof theneedsdescribedinthelist, thethirdpartymustpayforthoseneedsfromPUPPETassets.

The thirdpartycandistribute the funds toyourchild,whowill, in turn,usethem to pay her supplier of goods and services, such as her physician,pharmacist,grocer,orlandlord.However,ifthethirdpartydeterminesthereisa

significantriskthatyourchildwillnotproperlyapplythefundsforthoseneeds,thethirdpartycanpayyourchild’ssuppliersonherbehalf.

The PUPPETmay last for the rest of your child’s life, unless you build incertainconditions that, ifpresented,willoperate to terminate thePUPPETandcause the thirdparty tohandover thePUPPETassets directly toyour child. Idiscusstheseconditionsfurtheroninthischapter.

When your child dies, the PUPPET assetswill be distributed to the backupbeneficiarieswhomyounamedinyourLivingTrust.YourchildhasnopowertoinstructthethirdpartytoleavethePUPPETassetstoanyotherbeneficiary.

Yourchildhasnorighttodictatetermstothethirdparty.Shecannotmakeanydemandsonwhenthethirdpartymakesdistributionstoherandhowmuchthosedistributionswillbe.The thirdpartywillconductan independent investigationofyourchild’sneedsandmakeanobjectivedeterminationofwhatthoseneedsare—andwhattheyarenot—andthenpayaccordingly.

Asyoucansee, thePUPPETis fairly restrictive. I say“fairly”because it iswaylesslimitingthantheprotectiontrustIdiscussinthefourthcategory,which,tome, is theneutronbombofprotectiontrusts.Butthatcomparisonisof littleconsolationtoyourchildwho,forallsheknows,mustcapitulatetothird-partycontrolofherinheritancefortherestofherlife.

In theunderstatementof theyear, thedecision to incorporate thecontrollingPUPPET into your Living Trust is not a casual one. We need to carefullyexaminethecircumstancesthatjustifythePUPPET.Inotherwords,let’stakealook at your child and talk about whether the problem she possesses justifiessucharestrictivemeasure.

Asyoureadtheremainderofthissection,itwillbereadilyapparentthatthesuccessorfailureofthePUPPETisseriouslydependentonthepersonorentityyouselectasthethirdpartywhoholds,manages,andadministersthePUPPETforyourchild’sbenefit.IdiscusstheissuesandfactorsthatshouldgovernyourdecisionontheselectionofthethirdpartyinChapter20.

YourUnderageChild

Your child cannot receive an outright inheritance (not even in a TransparentTrust or a SPIT) if she is aminor at the time of your death.Whatwere your

money-managingskillslikewhenyouwereinyourteens?Nonexistent?Soweremine.

It is self-evident that your minor child cannot manage and control herinheritance.Perhapsshewillnothaveanyfinancialmaturityuntilsheisinherlate20sorearly30s.Asaresult,youneedtoincorporateaPUPPETintoyourLiving Trust that appoints a third party to control and manage your child’sinheritance until she reaches an age that you designate. When she hits thatdesignated age, the third party will turn over the PUPPET assets to yourdaughteroutrighteitherinaTransparentTrustorinaSPIT,dependingonwhichdeviceyouchoose.

Whatageshouldbe thedesignatedagewhen the turnover takesplace?Thisdecisionisnotbasedonanylegalstandard.Itiswhateverageyoudetermine.

So again, what age? If I am drafting your Living Trust, I will put downwhateverageyou tellme.But ifyouare likemostofmyclients,youwillnothaveaclueastowhichagetoselect,soyouwillaskformyopinion,whichisthis: Usually age 25 seems appropriate. Why? Because as I get older, theyounger seem younger, and I cannot help but equate youth to financialimmaturity.Andtome,25seemstobethetimeoflifewhentheyoungputawaythespoilsofyouthandfocusontheconventionallifestyleofcareer,family,andservice to community. Thus, I will recommend that 25 be the age that youdesignateastheturnoverage.

However, here comes another big question:What happenswhen your childreaches thedesignatedageand the thirdpartydetermines that,byallobjectivestandards,shehasaproblemthatposesasignificantriskoflosstothePUPPETassets?

Forexample,whenyouestablishedyourLivingTrust,yourchildwas16and,byall accounts, amodelchild.Goodgrades.Fairlypopular,withnice friends.Productive.Activeinathletics.Shewasthetypeofyoungpersonotherslookatwithenvyandsay,“Iwishshewasmykid.”Then,theunthinkablehappensandyouandyour spousedie inacommonaccident, leavingyournow20-year-oldchild with a substantial inheritance. Pursuant to your Living Trust, herinheritanceisfunneledtoaPUPPETthatwillbeheldbyathirdpartytospendandmanageonherbehalfuntilshereachesthedesignatedageof25.Sofar,sogood(notthatyouruntimelydeathisagoodthing).

Your death, however, becomes the catalyst for your child’s tragic downfall.

Shebecomesaimlessanddirectionless.Hergradesdecline.Shewithdrawsintoashell. She suffers an emotional pain that she findsparalyzing.She attempts tomaskthatpainjustsoshecanwalkoutthedoor.Shebeginswithalcohol,thenresorts to drugs. By the time she reaches 25, she is an addict. She calls thePUPPET third party and demands that she receive outright control of herinheritance.

ThethirdpartywillnotwanttoturnoverthePUPPETassetstoanaddict.Butwillhehaveachoice?Yeshewill,butonlyifthePUPPETgivesthethirdpartythe power to postpone distribution of the assets if the third party perceives acompellingreasonforthatpostponement.

IntheLivingTrustsIprepare,Ialwaysincludesuchaprovision,whichstates,inessence,thatthethirdpartyshallhavethepowertopostponethedistributionofanypartoftheprincipalorincometoyourchildifthethirdpartydeterminesthat there is acompelling reason topostponedistribution, suchasyourchild’saddiction to illegal drugs, alcohol, or any controlled substance; your child’sserious disability, pending divorce, potential financial difficulty, or apparentinabilitytowiselymanagethefundstobedistributed;aserioustaxdisadvantageinmakingsuchdistribution;orsimilarsubstantialcause.

Accordingly, the termination of the PUPPET may be postponed, and apostponementofanydistributionmaybecontinuedfromtimetotime,uptoandincludingtheentirelifetimeofyourchild.

Withoutthissafetynet,thethirdpartywouldhavenochoicebuttoturnoverthe PUPPET assets to your now-addicted child. I have encountered manysituations where third parties had to sign over the PUPPET assets tobeneficiariesdespiteknowingthatthefundswereatseriousriskofdissipation,butstillhadnopowertowithholdordeferdistribution,becausethebeneficiarieshadreachedthedesignatedages.

AlthoughIamspendingmanypagesdiscussingthePUPPETinthecontextofprotectingyourminor child’s inheritance, I alsowant to reassureyou that thisdiscussionwill,mostlikely,neverapplyinyoursituation.Inthe20yearsIhavepracticedlaw,andinmyfather’s45-yearpractice,Idonotrecallanyoccasionwherebothparentsdiedsimultaneouslyleavingminorchildren.Moretypicalisone parent dying and leaving a surviving parent. Nonetheless, if you havechildrenwho areminors, I donot discourageyou frompursuing thePUPPETplaninyourLivingTrustsothatyouhavemadetheproperarrangementforthe

protectionofyourchildren’sinheritanceintheunlikelyeventthattheyarestillminorsonyourdeath.

YourAddictedChild

Duringthelifeofyouand/oryourspouse,Icannothelpyoualleviatetheburdenimposedonyoubyyouraddictedchild,asyouareprobablythepersonwalkingthisearthwhohasthemostmotivationtoprotecthimfromhimself.IcanonlyadviseyouonhowyourLivingTrustassetsshouldbeutilizedafteryourdeathforyouraddictedchildsotheyareprotectedforhim,andfromhim.

Themostclear-cutofallproblemsintheinheritancearenaisplanningfortheaddicted child.You love your addicted child; but you just don’t lovewhat hedoes.Youdon’twant todepriveyouraddictedchildofhis rightful share.Yousimplywanttoensurethathisinheritanceisnotusedtofeedhisaddiction.

Forcertainty thatyouraddictedchild’s inheritancedoesnotendupwithhisdrugsupplier,youmustleavehisshareoftheLivingTrustassetsinthePUPPET.Withthismethod,youraddictedchild’s inheritancewillbeheld,managed,andspentbythethirdpartyforyouraddictedchild’sbenefitfortherestofhislife.Whenyouraddictedchilddies,thethirdpartywilldistributethePUPPETtothebackupbeneficiariesyouhavenamedinthePUPPET.

ThereisonlyoneissueaboutthePUPPETinthecontextoftheaddictedchildthatneedsdiscussion.Thatis,shouldthePUPPETchangeifyouraddictedchildchanges? Although an addict is thought to be an addict for life, it is entirelypossible that your addicted child, somehow, could miraculously kick hisaddictionafteryourdeathandsoberuptothepointthathenolongerposesarisktohisinheritance.

This kind of miracle can happen. Out of my many clients who have anaddicted child, I have witnessed the precious few occasions where the childcleaned up and became financially responsible after his parents’ deaths. Buttheseoccurrencesare,unfortunately,rare.That’swhytheyarecalledmiracles.

I have stated previously in this book that I am against the Tyranny ofUnjustified Lifetime Control. I realize that, by all objective standards, youraddictedchildmayneverattaincompletenormalcy,andthatheshouldnevergethishandsonhis inheritance. In that respect, lifetimecontrolofhis inheritance

throughthePUPPETisjustified.Nonetheless,Ibelievethethirdpartyshouldbeallowed to terminate the PUPPET if your addicted child recovers, even if itwouldtakeamiracleforthattooccur.Thus,IadviseyoutobuildhopeintothePUPPET:aplan that canhelp in that recoverybyofferingyouraddictedchildtheopportunitytoobtaincontrolofhisinheritance.

ThisinheritanceplanofhopestartsoutwithprovisionsthatinstructthethirdpartytousethePUPPETassetssimilarlytohowyouhavespentmoneyforyouraddictedchild:makingpaymenttothelandlordforrent;makingpaymenttothegrocerystoreandrestaurantsforfood;makingpaymentforallotherexpensesforhisnecessitiesoflife;andperhapsgivingsomemoneydirectlytoyouraddictedchildforpocketmoney,butnotenoughtoprovideasourcetofeedhisaddiction.

The plan then gives your addicted child the promise of acquiring moreindependentcontrolofthePUPPETassetsifherecovers.Toyouraddictedchild,the prospect of gaining access to his inheritance may become a powerfulmotivator to stop using drugs. Then again, perhaps he is so far gone that hisentiremotivation in life is just to dowhatever it takes to get his next fix.Nomatter.This is theplanofhope,andhope isnotself-executing. Ifyouhope toachieve a result, you increase the odds of achieving that result by first layingdowntheappropriategroundwork.

Nowforthehardpart—layingdownthegroundwork.ThesearethestandardsinthePUPPETbywhichrecoveryismeasured.Thesestandardsarecompletelydependentonthecircumstancesinvolvingyouraddictedchildandyourattitudeabouthowstrict thestandards shouldbe.Thesestandardsof recoverymustbedrafted carefully, because a mistake could result in your still-addicted childgainingcomplete controlofhis inheritance. In fact, the specterof thiskindoffailurehauntsmewheneverIamchargedwiththeresponsibilityofputtingthesestandardsonpaperthatsomeone,yearsinthefuture,mustinterpretandactupon.Thestandardscouldincludeone,some,orallofthefollowing:

•Recoveryisdeterminedsolelybythethirdpartybasedonthethirdparty’sownobservations.

• Recovery is determined by letters from two licensed psychiatrists whohavenorelationship,bybloodormarriage, toyouraddictedchildor toeachother.

•Recoveryisdeterminedbyaprivateinvestigatorhiredbythethirdpartytoinvestigateandexamineyouraddictedchild’saddictionstatus.

•Recoveryisdeterminedbyajudicialofficer(ajudge)sittinginacourtofcompetentjurisdiction(inanareanearwhereyouraddictedchildresides)whobaseshisdecisiononalloranyof theaforementionedopinionsorreports.

• Recovery is determined by the third party after receiving the results ofdrugtestscommissionedbythethirdpartythatshowthatyouraddictedchildhasbeendrug-freeforarequiredperiodoftimethatyoudesignateinthePUPPET.

Onafewoccasions,IhavedraftedprovisionsthatrequirethatthethirdpartyshallturnoverthePUPPETassetstoanaddictedchildwhenhereachesanolderorelderlystatus(i.e.,65,70,75).Althoughthisseemsantitheticaltoinheritancerisk management, I assume that if an addicted person has not died beforereachingthoseagecategories,hehaskicked,oratleastcontrolled,hisaddiction.Perhaps this is toocasualanassumption tomake;butaskyourself:Whenwasthelasttimeyousawanoldaddict?

YourFinanciallyImmatureChild

ThefinanciallyimmaturechildisyourchildwhoisnormalandconventionalandwhoisbeyondtheageofmajorityorclosetotheageIwouldnormallydesignatefor receiving outright control ofmoney, but you perceive that the child is notquitereadytotakeoverandbeputincontrolofherinheritance.

•Youharborsomedoubtaboutherabilitytomanagemoneybasedonanaspectofherlifestyleofwhichyoudisapproveorfinddistasteful.

•Youfeellukewarmaboutthenotionofhercomingintocontrolofthefamilymoney.

•Youfeelsheisontherighttracktofinancialmaturity,buthasnotjustyetarrivedatthefinalstation.

•Youperceivesheissimplytooimmaturetohandlemoney.

Youmaynoticethateachofthesedefinitionsofthefinanciallyimmaturechildstarts with the word you.You harbor. You feel. You perceive. I point this outbecauseyourdefinitionoffinancialimmaturitymaybebasedonyourstandardsthatmay not be consistentwith the financial realities ofmodern-day life.Thelast thingyouwant todo iscontrolyourchild’s inheritancewithaPUPPETifsuchcontrolisunjustified.

Forexample,youcometomeandsay,“Mr.Condon,ourdaughterhasanicejob,butsherefusestogetmarried,andshespendsallhermoneyonthehighlife.MyGod,shejustboughtanewcar,andmywifeandIdidn’tgetanewcaruntilour25thweddinganniversary.We’vegot todosomething,orafterwe’regoneshe’sgoingtospendourmoneyintotheground!”

IfIhearyoumakesuchastatement(whichIhearallthetimefrommyWorldWar II/Greatest Generation clients), I am not hearing words that realisticallyconnote financial immaturity that justifies the use of aPUPPET.That is not adescription of someone who is out of control and frittering away money onfrivolities. Using some very superficial and presumptive bedside psychology,you are looking at your daughter’s spending habits through a window fromanothertime...whenyouwalkedtoschooluphillinthedrivensnowanduphillagain when you walked back home, and when spending money on anythingotherthanthenecessitiesoflifewasnear-heresy.Yourgenerationalperspectivehascausedyoutomisinterpretyourchild’sspendinghabitsas thoseassociatedwithaspendthrift.

Anddelvingmoreintoyourpsyche,whichIamabjectlyunqualifiedtodo,areyounotalittlebitjealousofyourchild?Jealousofherearlyaccesstomaterialthingswhenyouhadtostruggletofindmoneyforthosepurchases?Jealousofherfreedomfromtheshacklesofconventionalmarriedlifewhileyoustayedontheoftentimesboringstraight-and-narrowchamber-of-commercepath?

However,youmaytakeoffenseatmyattempttoassessyourchild’sfinancialbehaviorfromafar.Thatwouldnotbeaninvalidresponse.YoucertainlyknowyourchildbetterthanIdo.Iamnotapsychologistorpsychiatrist.AllIcandoisrely on the answers I receive during my interrogation of you and offer myopinionbasedonthesumtotalofmyexperienceindealingwithfamiliesintheinheritancearena.Ifyoupersevereinyourviewofyourchild’scharacter,IwillconcuranddraftyourLivingTrustaccordingly.

Regardlessofwhetheryouacceptordismissmyopinionofyourperception,youcanseethatthedeterminationofwhetheryourchildisfinanciallyimmaturedepends on your perception of her just as much as it depends on her actualfinancialbehavior.As thesematters come intoplay,youcanexaminewhetheryour child truly is financially immature to the pointwhere a third partymustmanageherinheritanceinaPUPPET,orissomeonewhosefinancialbehaviorisconsistentwithnormalcyandreality.

Butforpurposesofmakingthissectioncomplete,letusassumethatyouhaveconvincedmethatyourinitialcharacterizationofyourchildiscorrectandthatyoucantrustyourchildwithmoneyonlyasfarasyoucanthrowher,whichisnotfaratall.Youhaveafinanciallyimmaturechild,andyoumustcasthershareoftheLivingTrustassetsintoaPUPPETafteryourdeathtoprotectthemoneyfrombeingsquanderedintooblivion.

As you are now aware, I am against the Tyranny of Unjustified LifetimeControl.Idonotbelievethatfinancialimmaturityjustifiesthird-partycontrolofyour child’s inheritance for the rest of her life. Financial immaturity is notaddiction, incompetence, or any other problem classification that poses a“forever”riskoflosstoyourchild’sinheritedassets.Throughthemerepassageof time and occurrence of events (gettingmarried, having children, obtainingemployment), it is entirely probable that your child will eventually learn thefinancial facts of life. Children domature—perhaps not as fast as youwouldlike,buttheydo.

So,inyourfinanciallyimmaturechild’sPUPPET,youshoulddesignateanagewhenthePUPPETendsandthethirdpartymustturnoverthePUPPETassetstoyourchildeitheroutright, inaTransparentTrust,orinaSPIT.Or, ifyouwantmore certainty that your child’s inheritance will not be ravaged bymismanagementandsquandering,providethatthethirdpartyshallterminatethePUPPET when the third party determines that your child has exhibitedfinanciallymaturebehavioronaconsistentbasis.Youcan furtherprovide thatthe thirdparty’sdeterminationmustbebasedonobjective factors andcriteria,such as any or all of the following: private investigator reports; letters frompsychologistswhohavemetwithyourchild; reviewsofyourchild’sbankandbrokerage statements for a certain period; interviews with your child’ssignificant other, siblings, employer, and friends; andmonitoring your child’sspendinghabits.

One last thing about the PUPPET for the financially immature child: ThePUPPETholdsandmanagesyourchild’sentireinheritanceuntilshereachesthedesignated ageor until the third party determines that the risk of loss throughmismanagementandsquanderingisminimized.Myemphasisonthewordentireis to help distinguish this plan from another concept of inheritance riskmanagementsubscribed tobymanyattorneyscalled“intervalallocation.”Thismethod instructs the third party to distribute, for example, one-third of thePUPPET assets upon attaining a designated age, one-half of the balance five

yearslater,andtheremainingamountfiveyearsafterthat.

Thetheoryofintervalallocationisthatifabeneficiaryblowsthroughthefirstinstallment or loses it through inexperience, shewill get another chance uponreceiptof thenextdistribution. Itassumes thebeneficiarywillgainexperienceandwisdom in dealingwith an allocation, and thatwisdom can be applied tolaterdistributions.

Intervalallocationwas,andis,apopulartrustallocationmethod,butnotwithme.WhenevenoneportionofthePUPPETassetsisdistributedtoabeneficiary,itsubjectsthatportiontotheriskoflossthroughimmaturity.Whyputeventhatone portion at risk when the entire inheritance can be protected until thebeneficiary reaches the age that, we assume, will prevent loss throughimmaturity?Also,theonlythingabeneficiarymaylearnbyblowingthroughthefirstinstallmentisnottowastethenextinstallmentsoquickly.

Thus, if your financially immature child is normal, I see no reason todistribute in increments. Forget about interval allocation, and use your LivingTrusttocreateaPUPPETthatprotectsyourfinanciallyimmaturechild’sentireinheritanceuntil she reaches thedesignatedageor satisfies the conditionsyousetforth.

YourMentallyIllChild

Not being a physician, I am acutely unaware of the panoply of noncongenitalmental conditions that affect psychological and emotional well-being.What Icanpointout,however, is thatforevery20families thatIdealwith, there isachildorsiblingwhohadaonce-normalexistencebutwasdraggeddownwithamentalillness,usuallyschizophreniaorbipolardisorder.

If you have a child who developed a noncongenital mental illness that ispossiblylifelong,youdonotneedmetotellyouthatherinheritancewillneedprotection from that illness.When it comes to mental illness, the Tyranny ofUnjustified Lifetime Control does not apply. Youmust leave her share to thePUPPET,whereathirdpartywillhold,manage,andadministeritinaccordancewithitstermsandinstructionsfortherestofherlife.

I have had a personal brush with this area in the inheritance arena. I havepersonallyseen,andmayhavebeenpartiallyandindirectlyresponsiblefor,the

inheritance loss anduntimelydeathofChrisCole,whowas thebrotherof thewomanwhoeventuallybecamemygirlfriend,Tristina.Afterreadingaboutthisincident,youwillwonder—asdoI—whyshestayedonboard in thegirlfriendcapacity.Musthavebeenthesex.

Throughoutthisbook,Ihaveregaledyouwithglimpsesofmypersonallifeinordertoemphasizecertainissues.Perhapssomeofyoumayhavefoundsuchadeviceunprofessional.Myfathercertainlywould.Icanhearhimnow:“Dammit,Jeff, what client wants to know about the problems in his lawyer’s life? Itdiminishesthelawyerintheeyesoftheclient.Justtendtotheclientandmoveon.”While I understand thisviewpoint, I have alwaysdisagreedwith it.Sure,somefolksmightfindmypersonalstories“oversharing.”Butwhatcoulddriveapoint home to the client more than sharing that point as it has arisen in thelawyer’sownlife?

With that disclaimer inmind, I want to tell you aboutmy experience withChris, a 34-year-old man who suffered from a permanent bipolar conditionbroughtabout,inpart,byexcessivedruguseinhisyouth.Chrisinitiallycametomyofficetoopposeaconservatorshipthathefeltwasunfairlybeingimposedonhim.

As he sat in front of me, Chris appeared as normal as normal could be:Cogent. Articulate. Friendly. Humorous. Well-groomed. He talked about hisbipolarconditionin themostobjectiveof terms.Hedetailedhisdrugregimen.He explained that he wanted to live in Maui and establish there a video-production business, but that the financial restrictions of the conservatorshippreventedhimfromgainingaccesstothefundsnecessarytomakethosemoves.

Ithought,whatanice,responsibleguy.He’samanwithaplan.Whywouldanyone think he needs to have his funds—an inheritance from his mother—monitored and controlled by a court-appointed conservator? Based on myobservation, I agreed to represent Chris in his quest to be rid of hisconservatorshipandgainpersonaluseofhisinheritance.

Chris’conservatorwashissister,Tristina.That’sright...thesamepersonasmygirlfriend.ItwasthroughChristhatwemet.

Tristinaputupasmallfight.Sheknewherbrothercouldbeascharmingandreasonableasanyone,butthathebecameacompletelydifferentpersonwhennoton his meds: Erratic. Bizarre. Rambling. Financially irresponsible. All thereasonswhysheobtainedaconvervatorshipforhiminthefirstplace.However,

inlightofthemostpleasantinterviewIhadwithChris,Idismissedherwarningasoldnews.TheChrisImetwasanewChris,someonewhomTristinahadnotmetandsomeonewhonolongerneededathird-partyconservatortomanagehisinheritance.

The issue ultimatelywent to court. I did not convince the probate judge toterminate the conservatorship, but Iwas successful in getting the conservator,nowapersonother thanTristina, to freeupmoreofChris’ inheritance forhispersonaluse.IrememberhowhappyChriswaswiththeresult,andhowmuchprideIfeltinajobfairlywelldone.

AfterChriscameintopossessionofsomeofhisinheritance,henearlythrewitallaway.Hepaidforamultiple-nightstayattheRitz-Carltonthathedidnotuse.He gave excessive amounts to homeless persons whom he befriended. Hepurchased a run-down and inoperable automobile for way more than its bluebookvalue.HewenttoHawaii,buthedidnotsetupthatvideobusiness.Forthemost part, he kept to himself, creating music that no one would hear, andengaged in behavior so erratic and bizarre that the authorities inMaui bootedhimofftheislandseveraltimes.

WhenChris ran out ofmoney, he came tomyoffice.Hewas not thewell-groomed and articulate person whom I had first met a few months before.Unshaven.Disheveled.Nonsensical.HedidnotappeartobeanydifferentfromthehomelesspeoplewhohitmeupeverydayforchangeasIenterthecorner7-ElevennearmySantaMonicaoffice.

Chris was also angry. He demanded that I file an action against hisconservator to force him into releasingmore ofChris’ inheritance.Of course,having heard about his financialmisadventures fromTristina, and seeing himtheninhisravagedstate,Irefused,saying,“Chris,youreallypulledafastoneon me. Fool me twice, shame on me.” Chris responded with a 10-minuteramblingmonologuethatwasdifficulttofollow,buthismainpointwasclear.Tohim,Iwasjustlikealltheotherswhohadrefusedtohelphimwhenheneededhelpthemost.

Ireplied:“Chris,thebiggesthelpIgaveyouwaslosingtheoppositiontotheconservatorship. I didn’t know that at the time, but I know this now.What amistakethatwouldhavebeenforyoutogetallyourmoney.ThereisnowayI’mgoing to help you get more money, which you will only use to fuel yourdestruction.”Chrisdidnotlikethisadmonition,sohefiredme.

Inmy20-yearpractice,Ihavebeenfiredsixtimes.Fiveterminationsinvolvedpersonalityconflicts,whichstillamazeanddisturbme.Asmyfathersaidaboutme,“Ifyoudon’tlikeJeff,thenyoudon’tlikeanyone.”ButwithChris,forthefirsttime,Ihadbeenfiredforastrategicconflict.Hewantedmoremoney;yethehaddisplayedbehavior thatshowedmethathismental illnessposedaveryreal risk of loss to his inheritance—and to himself. But unlike the five priorterminations, this one did not causeme angst; I stoodmy ground on a firmlyheldprinciple,andIbecamefreetodatemyformeropposition,Tristina.

Chris went back to Maui and continued his routine of music making andbizarrebehavior.In2007,Chriswentmissingforseveralweeks.Aisland-widesearchwasmade.Ultimately,hewasfounddead.Hewas35.Hispartialremainswere found in a small pondnear theMauiAirport.Wewill never definitivelyknowwhetherhisdrowningwasa suicideor theaccidental resultof abipolarepisode. However, I will always personally believe that having control of aportion of his inheritance fanned the flames of Chris’ destruction, and that Iunwittinglyplayedapartinthatprocess.

That should be the end of this section. Permanent control of your child’sinheritance in thePUPPET is,well, permanent.What else is there to discuss?Well,maybe...justmaybe...thePUPPETforthementallyillchilddoesnothavetobeaforeverproposition.

Ifyoulivelongenough,alotcanhappenduringthatlongtime.Yourchild’smental illness may, through the miracle of modern medical science andtechnology,bewhollyorpartiallyremedied.Shouldnotyourchildobtaincontrolof his inheritance if such a medical breakthrough occurs after you and yourspousearegone?

Youhavewallowed in themisery of your child’smental illness for so longyou may be emotionally incapable of mustering up the synapses needed toconsiderthepossibilityofyourchildattainingsomesemblanceofnormalcy.Butnow, your Living Trust coach is telling you to do just that. In your child’sPUPPET,youshould incorporateaprovision that the thirdpartywill turnovercontroloftheassetstoyourchildintheeventhermentalillnessiscontrolledtothe extent that she can spend andmanage itwith relative fiscal responsibility.This determination can be made by the third party based on the opinions ofmedicaldoctorsandpsychiatristswhohaveexaminedyourchild.

There is, of course, always the possibility of error. If the opinion of the

doctorsturnsouttobeinvalid,yourillchildwillhavecontroloftheinheritanceand, in a fit of illness or mania, can run through it in the proverbial second.During my entire practice, I have witnessed two occasions when suchmisdiagnosesoccurred.Inbothcases,theprotectiontrustbeneficiariesreceivedthe all clear to control their inheritances. Shortly after they received access totheirformerprotectiontrustassets,theyrevertedbacktotheiroldselves,andthefundswereusedtofeedtheirdestruction.

Ifthepossibilityoferrorconcernsyou,thendisregardmyadvicetobuildhopeinto that child’s PUPPET. After all, you want certainty that your mentally illchild’s inheritance is protected from herself, and your desire to obtain thatcertaintyalwaystrumpsanyothergoal.

CategoryFour:TheNeutronBombofProtectionTrusts—theDiscretionaryTrust

TheDiscretionaryTrust(DT)isjustlikethePUPPETinallrespects,exceptforonekeydifference.

•LikethePUPPET,theDTisanirrevocableprotectiontrust.Afterthedeathofyouandyourspouse,yourchild’sshareoftheLivingTrustassetswillpourintotheDT,whichisdesignedtoprotectyourchild’sinheritancefromtheproblemsthatthreatenariskofloss.

•LikethePUPPET,theDTcannotbechangedoramendedbyyourchild,unlessitterminatesbysatisfactionofconditionsthatyoubuildintotheDT.

•LikethePUPPET,theassetsoftheDTareheld,managed,andadministeredforyourchild’sbenefitbyathirdparty.

•LikethePUPPET,theincomegeneratedbyassetsintheDTisaddedtoprincipal,andyourchildreceivesprincipalforwhateverpurposesyousetforth.

•LikethePUPPET,theDTdieswhenyourchilddies,andtheassetsoftheDTwillbedistributedtowhomeveryounameinyourLivingTrustasthebackupbeneficiaries.

•LikethePUPPET,yourchildhasnorighttodirectthethirdpartytogiveanyofDT’sassetstoanyperson,andcannotaltertheDT’sbackupbeneficiaries.

•LikethePUPPET,yourchildcannotdemandthatthethirdpartyapplytheDT’sassetsinanywayotherthanthepurposesyouincorporatedintoitsprovisions.Actually,Isupposethereisnothingtostopyourchildfrommakingthedemand,butthethirdpartyisnotallowedtoacquiescetothatdemand.

Sowhat is thedifferencebetween thePUPPETand theDT?Thedifferenceliesintheusageofonewordortheother:shallormay.

InthePUPPET,youprovidethatthethirdpartyshallusethePUPPET’sassetsfor the benefit of your child. Certainly, the third party has the discretion todetermine the amount of payments tomaintain your child’s day-to-day needs,andthepowertodecidewhetherthosepaymentsshouldbemadetoyourchildordirectlytosuppliersofyourchild’sgoodsandservices.However,thePUPPET’sthirdpartymustmakepayoutsoftheprincipal.Thethirdpartyhasnochoice.Athirdpartywhorefusestomakeanypaymentscanbesuedforbreachoftrust.

But in theDT, you provide that the third partymay use the assets for yourchild.Inotherwords, theDT’sthirdpartyhasthesole,complete,andabsolutediscretiontomakepaymentsofprincipaltoorforyourchild...ornot!

Thatisexactlyasitsounds.Thethirdpartyhastheabsolutepowerto,ifheorshe so chooses,nevermake any distribution of theDT’s assets to your child.Howaboutthemapples?

Sowhywouldyoudothis toyourchild?Whatpossibleproblemcouldyourchildpossessthatisjustsohugeandposessuchanextremeriskoflosstoyourchild’s inheritance that it justifies this insane amount of control by the thirdparty?

That problem is . . . creditors! Not small creditors, like the outstandingbalance of a few thousand dollars on your child’s Visa card. We’re talkingserious creditors, the ones that can potentially wipe out most or all of yourchild’s assets, including the money and property he inherits from you. Thebankruptcycreditors.Thejudgmentcreditors.Thebusinesscreditors.TheIRS.TheStateBoardofEqualization towhichyour child has not paid sales tax inyears. Themalpractice action that is not covered by sufficient insurance. Theloansharktowhomyourchildowesbig—whichreallyhappens!

Even if you are the most casual person in the world when it comes toinheritancematters—the “I don’t care what happens tomy assets after I die”

type—I guarantee you that you do not want to die knowing that your child’screditorswillswallowupthemoneyandpropertyittookyouandyourspouse40to50yearstoaccumulate.

You cannot solve your child’s creditor problems, but you can provide aninheritance plan that absolutely protects the inheritance he receives from yourLivingTrust,andthatiswhattheDTisallabout.Whenyougivethethirdpartythecompletediscretiontoneverpayfundstoyourchild,andthethirdparty,infact, does not pay funds to your child, your child does not have control orownershipofthosefunds.Yourchild’screditorscannotgoafterfundsthatyourchilddoesnotcontrolorown.It’sthatsimple.

Can the creditors force the third party to choose to pay out funds to yourchild?Absolutely not!Again,with theDT, you give the third party completedecision-making power on the payout of the DT assets. The creditors cannotforcethethirdpartytodoanything.

Whenyourchild’screditorproblemsdisappear,andthethirdpartydeterminesthatyourchild’screditorproblemshave,somehow,beenresolved,thethirdpartyisfreetodistributetheDT’sassetstoyourchildinaTransparentTrust,SPIT,orPUPPET.

Foryou,thisistheperfectsolution.Yourchildwillgethisshare,butitwillbeprotected from his creditors in the DT. Your child, however, may not be asreceptive, because his receipt of any portion of his inheritance is completelydependentonthewhimsoftheDT’sthirdparty.

I have found that when the underage, addicted, mentally ill, or financiallyimmaturechildren learn that their inheritancewillbe funneled toa thirdparty,theyalreadyhadanexpectationtheirparentswouldimplementaplanforthird-partyinheritancecontrol.Butwhenthecreditorchildmakesthisdiscovery,standback andwatch the fur fly. Quite often, the creditor child has no idea—eventhough he should—what caused his parents to exercise such a restrictiveinheritancerisk-managementdeviceas theDT.Asonecreditorchildscreamedtome,“I’manormalguy.Icanhandlemyinheritance.I’mnotgoingtospenditondrugs.I’mnotgoingtospenditonstupidstuff.I’mnotgoingtogiveitaway.I’mnotgoingtoloseitinadivorce.Icanhandlemydebtproblemsonmyown.WhyshouldIhavetorelyonanybodytodecidewhetherIshouldgetmyownmoney?Condon,howcouldyouletmyparentsdothistome?”

InChapter9,Idiscusstheuseofthefamilyinheritancemeetingintheprocess

of setting up your Living Trust. This meeting takes place with you and yourchildren in your Living Trust attorney’s office, where you open the lines ofcommunicationabouttheinheritancedecisionsyoumadeandhowyourLivingTrustwill implement thosedecisionsafteryourdeath.Thismeetingoffersyoutheopportunitytogaugeyourchildren’sreactionstoyourdecisionsandrespondto them.Thismeeting is thebestmethodIknowto recognizeandresolveanyproblems and conflicts over theLivingTrust assets that could arise after yourdeath;but,asIexplainedpreviously,itisatoolthatisunfortunatelylittleused.

However,ifyouaregoingtoleaveyourchildhisinheritanceinaDT,youhadbetter damnwell conduct thatmeeting to tell him about it. If you knew yourinheritance would be subject to such repressive and seemingly outrageouscontrols, you would want to know that as well. After your creditor child hasconcludedtheusualreactiveprocessofshockanddenial,youcanhelphimwiththeacceptanceportion,like,“Weloveyou,butwedon’tfeelthesamewayaboutyourcreditors.WeknowtheDTissointrusive,butcanyouthinkofanyotherwaytopreventyourcreditorsfromgettingyourinheritance?”

Ifyourcreditorchildisreasonable,hewillrecognizethewisdomofdeferringcontrolofhisinheritanceuntilhissignificantcreditorproblemsareathingofthepast.

CHAPTER19

UsingYourLivingTrusttoForceYourChildintoaConventionalLifestyleORIFTHETWIGISBENT,WILLFORCEDO

ANYTHINGTOSTRAIGHTENITOUT?

MyfatherandIusedtoconstantlyandfacetiouslyprideourselvesonbeingtheworld’s first (and only) father-son lawyerswhowrote an inheritance planningbook while perched on surfboards at Surfrider Beach in Malibu waiting forwaves.No,wedidn’tbalancelaptopsonourboards;butwedidhatchalotoftheideasandconceptsthateventuallybecameourfirstbook,BeyondtheGrave.

During the years that we surfed together, my father and I met severalcharacterswholovedandlivedthesun-surf-sandlifestyle:Kemo,wholivedinavan in the parking lot at Surfrider and sold shirts of his own design; KathyZimmerman, whose beach exploits became the inspiration for the series ofGidgetmovies screenwritten by her father;Marty,who ran amarathonon thebeachbikepathalmosteverysingleday.

Forme,themostmemorablewerethenumerousfolkswemetwhomwesawon the beach every single time we showed up. The beach was not just theirlifestyle—it constituted their entire existence. They spent entire days . . .weekdays,weekends...surfingandrelaxingundermakeshiftcabanasjustlikethe one the Big Kahuna built in Gidget. Forget college, higher education,employment,children,service to thecommunity,andall theother trappingsoftheconventionallifestyle.Forthesebeachdwellers, itwasacontinualhangouton thesand,withnothingmore todo thanchatup their fellowbeachdwellersandbidetheirtimeuntilthenextbigswell.

My father went surfing more than I did, and he spoke with these beachdwellersfrequently.Oneday,Iaskedmyfatherhowthesepeoplewereable tosustain their alternative lifestyle. Did they havemoney?Were they trust-fundbabies?I’llneverforgetmyfather’sresponse:“Jeff,theseguysdon’thaveapotto piss in. They live for the surf. The only job they have is waiting for theirparentstodie.”

You,too,mayhaveachildwhomarchestothebeatofadifferentdrummer.This is one who knows what work is by watching you go to work, but hasdecidedthatworkingisnotforhim.

How did your child get to that point? Perhaps you contributed to it byprovidingsomefinancialsupportregardlessofwhetherhemadeanyproductiveeffort.Orperhapsyouneverinstilledinyourchildthesenseofinnerpridethatcomesfromearninganhonestwage.Whateverthereason,thefactremainsthatyou have, metaphorically speaking, a bent twig—a child who never finishedschool or cannot orwill not keep a steadypaying job—and it appears that nooutsideforcecanstraightenitout.

Ifyouhaveresignedyourselftothefactthatyouareunabletodoanythingtobringpositivechangetoyourchild’slife,thenjointheclubofthevastnumbersofpeoplewhotrytodosomethingaftertheydie.Andthatsomethingis:tousethe Living Trust to impose conditions on your alternative-lifestyle child’sinheritance.

TheIncentiveTrust

This planworks like this. You provide in your Living Trust that your child’sinheritancewillfunneltoathirdpartywhowillholdtheinheritanceinaseparatetrust,usuallycalledanincentivetrust.Thetermsoftheincentivetrustarebuiltinto the section of your Living Trust that deals with who gets what on yourdeath.

Theincentivetrust’stermsincludeconditions.Thesearehoopsthatyourchildmust jump through to receive the incentive trust’s assets. Such hoops mayincludegettingacollegedegree,attainingacertainprofessionalcapacity,havinga child, or keeping a conventional job for a certain period of time. When itcomes toestablishing inheritanceconditions inyourLivingTrust, theworld isyouroyster.

When the third party determines that your child has satisfied the conditionsthat you established in the incentive trust, the third party will release theinheritancefromtheincentivetrusttoyourchild.

Youcanseewhythisplaniscommonlyreferredtoasanincentivetrust.Youtreatyourchild’sinheritanceastheincentiveforhimtoachievethegoalshedid

notwanttoattainduringyourlifetime.Buttome,thisplanshouldbecalledthecarrot-and-sticktrust,becausethatisexactlywhatitis.It’susingtheinheritanceasthecarrotthattreatsyourchildlikearabbit,leadinghimonandmakinghimgochaseafteragoalthatmayalwaysbeelusive.

I realize thereareseveralschoolsof thoughton the incentive trust.SomeofmyclientsjustlovetheideaofusingtheirLivingTrustasthelastchancetoleadtheiralternative-lifestylechildontothemoreconventionalpath.But,bymyuseofthatcarrotandrabbitanalogy,youcanprobablytellthatIdonotfavorLivingTruststhatcontainincentivetrusts.Unlessinheritanceconditionsarenecessaryto prevent your child’s inheritance frombeing squandered because of divorce,creditors,addiction,immaturity,mentalillness,andthelike,youshouldnottryto control your child’s behavior from the grave by placing conditions on theinheritance.

Why?Putyourselfintheshoesofyourchild.Whatmessagedoyouthinkhereceives from you with inheritance conditions? He is inadequate. He nevermeasuredup.Heislikearecalcitrantschoolchild.Heisadisappointmenttohisparents.Doyoureallywantthesetobeyourlastmessagestoyourchild?

IalsoinstinctivelyreactagainstimposinginheritanceconditionsbecauseIdonotbelievetheyaccomplishthegoalyouattempttoachieve.Whenyouandyourspouse die, your child will probably be in his 50s, and his character andmotivationwillhavelongbeenestablished.Willtheinheritanceconditionshelptoundothatmind-set?Probablynot.Irealizethisisanoldandtriteadage,butit’s true: You can’t teach an old dog new tricks. Don’t attempt to coercecompliancewithall-or-nothingconditionswherecomplianceisunlikely.

TheIncentiveTrustThatCreatesaRealIncentiveforYourChildtoFindEmployment

Inmostincentivetruststhatclientshaveinmindwhentheycometomyoffice,and in those I have seen in Living Trusts drafted by other attorneys, theconditions to the inheritances are all-or-nothing. These are the kinds ofconditionsthatserveasplotpointsininheritance-themedmovies,likeBrewster’sMillions,whereRichardPryor’scharacterhadtospend$100millionin30dayswithoutowninganypersonalassetsifhewantedtoinherit$2billion.

IntherealworldoftheLivingTrust,theall-or-nothingconditioncanbefoundinsuchexamplesasthese:

•“Ifyouwantyourinheritance,youwillgetacollegedegree.”•“Youwillreceiveyourinheritanceuponbecomingaphysician.”•“Youwillonlygetyourinheritanceonceyouhavechildrenofyourown.”• “You will not get your inheritance unless you marry a person of theLutheranfaith.”

I just do not like an incentive trust that potentially gives nada to youralternate-lifestyle child and that sends the message that it is “my way or thehighway.”Instead,Ipreferaplanthatgivesthatchildsomeinheritanceandanopportunityandincentivetogetmore.

For example, there is the dollar-for-dollar incentive trust. The effect of thisplanisthatyourchildshallreceivesomeportionoftheinheritancewithoutanycondition,withtherestofitpassingtoanincentivetrusttobeheldandmanagedbyathirdparty.Theplanfurtherprovidesthatthethirdpartywillpayyourchildonedollar foreverydollaryourchildproves that shehasearned,suchaswithpaystubsorcopiesofreceipts.

Another compromise is the “that’s all you get” incentive trust.YourLivingTrustprovidesthatyourchildreceivesacertainamountofassetswithnostringsattached, and that’s all she gets. This is considered an incentive trust planbecauseyourchildrealizesthatifshewantsmoremoney,shewillhavetofindawaytogetmoremoney,suchasgettingandkeepingasteadyjob.

A variation of the “that’s all you get” plan involves your child’s entireinheritancebeingtransferredtoanincentivetrustwithathirdpartyholdingandmanagingthefunds.Thethirdpartyisinstructedtopayacertainamounttoyourchild everymonth for the restofher life.Onyour child’sdeath, the incentivetrust’s assetswill go to backupbeneficiarieswhomyouname in the incentivetrust.Once again, this planmaymotivate your child to obtain employment tomakeadditionalmoneyif,ofcourse,shedesiresmoreincomethanthemonthlystipendprovidedbytheincentivetrust.

StrikingaBalancebetweenCompetingDesires

Although I have offered you a few alternatives to all-or-nothing inheritance

conditions, I feel compelled to reiterate that they are middle-groundcompromises between the extremes. On your end, you have your desire tocontrolyourchild’sbehaviorfrombeyondthegraveandforcehimtoliveuptoyour standards. On my end, there is my instinctive negative reaction againstlifetimeinheritancecontrolsthateffectivelycoerceyourchildintoalifehedoesnotwant. Inmymind, all-or-nothing conditions belong only in the context ofprotecting inheritances from real risks of loss posed by such problems asaddiction,immaturity,divorce,ormentalillness.

But,withthecompromiseincentivetrustplansIhavejustdescribed,youdonot leave your child the sour legacy of a perpetual reminder that he failed toattaingoalsandvaluesyouaspiredtoforhim.Rather,andevenifitgoesagainstyourgrain,themessageyousendisproductiveandpositive;itisthatyouacceptyourchild’sfate,youwanttomakehislifeahappyone,andyouwanttoprotecthimbygivinghimaccesstoaportionofhissharewhilemotivatinghimtogetmore.

CHAPTER20

TheSuccessoftheThirdPartyIrrevocableProtectionTrust(PUPPET)DependsonWhomYou’veSelectedastheThirdPartyORTRYNOTTOAPPOINTONEPRIVATEPERSONTOHOLDANDMANAGEMONEYFORANOTHERPRIVATEPERSON

In Chapter 18, I wrote a blue streak about the protection trust, a deviceincorporated into your Living Trust that is used to protect your child’sinheritancefromthewindsoffate.Essentially,theprotectiontrustformsacastlewall aroundyour child’s inheritance to shield it fromwhatever problemsyourchildhasthatcouldwasteanddissipatetheinheritedassets.

I alsodiscussed several typesofprotection trusts thathavecleveracronymsattached to them for easier communication. In someof thoseprotection trusts,youappointyourchild to serveashisorherown trustee—themanagerof theassets thatyou leave to theprotection trust.However, thereare two types thatrequire the use of an independent third party as manager: the Third-PartyIrrevocable Protection Trust (which I dubbed the PUPPET) and theDiscretionaryTrust(DT).

In a nutshell, your PUPPET is a special subtrust that you write into yourLiving Trust. Generally, you create a PUPPET if you have a child with aproblemorvice thatposesasubstantial riskof loss to the inheritance, suchasaddiction,youth,financialimmaturity,ormentalillness.Basically,thissubtrustofyourLivingTruststates thatafteryouandyourspousearedead, theLivingTrustassetsshallbefunneledtoathirdparty,whowillholdtheminaseparatesubtrust for the benefit of your child. The third party is required to manage,spend,andapplythefundsforyourproblemchild’sbenefitinaccordancewiththeinstructionsyousetforthinyourLivingTrust.

Thesuccessorfailureofyourchild’sPUPPETisseriouslydependentontheperson,orentity,thatyounameasthethirdpartyinyourLivingTrust.

WhoWillYouAppointastheTrusteeofYourChild’sPUPPET?

Astheheadingofthissectionexplicitlyandboldlyinquires,whoareyougoingtoappointasthemanagerofyourchild’sPUPPET?Inaperfectworld,youhavechoices. In that perfectworld, you can be the rich, top-hattedMonopoly iconwhocan choose anyoptionyoudesire.For the rest of uswho live in the realworld, though,our choices for the selectionofour children’smanagermaybequite limited because, as youwill soon see, youmay have a very tough timegettingsomeonetotakethejobofbeingyourchild’sPUPPETmanager.Assuch,yourchoicesboildowntotwocategories:

1.Third-partyprivateindividuals,suchasyourotherchildren;yourchild’suncles, aunts, or cousins; or one or more of your closest and mosttrustworthyfriends.

2. A third-party professional corporate fiduciary, such as the bank trustdepartmentorprofessionalprivatetrustee.

Before we can address which category you should select from, we mustaddresswhat the job of PUPPETmanager entails.Quite simply, the PUPPETprovides the management, application, and distribution of your child’sinheritance for the benefit of your child. This involves basic duties of trustmanagement, which, as youwill see, are not exactly casual endeavors. Thesedutiesare:

•PreservethePUPPETassetssotheyarenotwastedordiminishedbybadorriskyinvestments.

•ProtectthePUPPETassetssotheyareshieldedfrompersonsattemptingtogainunauthorizedaccesstothoseassets.

•Make the PUPPET assets productive so theymaintain their purchasingpowerinthefuturewheninflationhasraisedthebasiccostsofliving.

•Monitoryourchild’slifeandneeds,anduseandapplythePUPPETassetsfor your child’s benefit (such as providing the basic staples of food,clothing,andshelter)inaccordancewiththeinstructionsyousetforthinthePUPPET.

• Perform all the functions and tasks that typically comprise the activemanagement ofmoney, such as reviewing investments, keeping books,inputting financial information in some computer program, preparingPUPPET activity reports, and meeting with such professionals ascertifiedfinancialplanners,accountants,andattorneys.

If the PUPPET portfolio consists of real estate, add to these duties all theactivities required for the management of property: dealing with the crazytenants, collecting rent, filing unlawful detainer actions for nonpaying tenants,hiringandmonitoringapropertymanager,andgettingahandleonthewearandtear.

Whew!Isthatall?Nowthatyouknowwhatthejobis,let’stakealookatthepool of potential candidates. As expressed earlier, your choices are a privateindividualoracorporatetrustee.

YourFirstChoice:ThePrivateIndividual

If you are likemost ofmy clients, your instinctive choice to be the PUPPETmanagerforyourproblemchildwillbeanindividual,particularlyyournormalchild.You feel this is themost natural choice because you believe that bloodwatches out for blood and that only a siblingwould bewilling to assume theburdenofhelpingoutanothersibling.Ofcourse,theseareverysensiblereasons.

But, after having seen what happens when one child holds and managesmoneyforasibling,Imustadviseyoutonotmakethatchoice.Why?Becauseyouwillmakethelifeofyournormalchildamiserableone,withhisorherdailylifesubjecttothefollowingprospects.

TheProspectofBeingSued

ThetrustlawofeverystateintheUnitedStatesprovidesthatatrusteemustkeepthe trust assets safe and productive. If your problem child perceives that thesibling PUPPETmanager has not effectively discharged those dutieswith thePUPPETassets,evenifthatperceptionhasnobasisinreality,yournormalchildcanfindhimselforherselfbeinghauledintocourttoexplaintothejudgethatalliswell.Welawyershaveasayingaboutanymatterthatgoestocourt:Youmaybeabsolutelyandobjectivelyintheright,butwhoknowswhatsomecrazyjudgeorjuryisgoingtobelieve?

Moreover,themanager’sfinancialactivitiesarealwayssubjecttothechild’sscrutinyandjudgment.Forexample,ifthePUPPETassetstakeanosedive,your

problemchildcanaccusethesiblingmanagerofbreachoftrustandsueforthediminution in value. On the flip side, if your problem child claims that thePUPPETassetswouldhaveskyrocketedhadthesiblingmanagercapitalizedonparticular investmentopportunities,yourproblemchildcansue for theallegedlossofprofit.

And finally, your normal child may not be equipped, intellectually oremotionally,tofulfilltheadministrativeandinvestmentdutiesnecessarytokeepthePUPPETassets safeandproductive. If that is thecase, thenbyappointingyournormalchildasthePUPPETmanager,youarepracticallyinvitingalawsuitintohisorherlife.

TheProspectofBeingConsumed

As Imentionedearlier in this chapter, it isnot a casual endeavor to fulfill theduties of being a PUPPETmanager, and your normal childwill discover thisfirsthand.Bookkeeping.Filing.Meetingswithprofessionals.Preparing reports.Dealingwithyournormalchildandhispossiblycrazyantics.Itrequiresalotoftime.IfthePUPPETassetssufferanylossduetoyournormalchild’sinattention,heorshecanbesuedtopaybacktheamountofthatlossfromhisorherownfunds.Andwhat’smore,yournormal childmaynotbe skillful in investmentsandmaynothavethenecessarytoolstodealwithdailydetailsofmanagingthePUPPETassets.

Whoneedsthat?WhenIleavemyofficeafteralongday,thelastthingIwantistohavetoimmersemyselfinanotherjob.WhywouldIwanttodrownmyselfat home in spreadsheets when I can go surfing, coachmy daughter’s softballteam,watchrerunsofHouseandSeinfeld,andengageinanyotherpleasurableout-of-office activity that does not require a lot of brain power? The loss ofquality “me” time is not worth whatever fee I am allowed to take from thePUPPETformanagementservicesrendered.

TheProspectofBeingHarassed

Yournormalchildalsohastodealwithyourproblemchild,whocanpotentiallymake his life miserable. For example, your problem child wants a car. His

siblingPUPPETmanageragrees.YourproblemchildsayshewantsaCadillac.Themanager responds with, “How about a nice Hyundai?” Although today’sHyundai ismiles ahead of the cheapmodelwe used to drivewhen theywerefirst introduced to theUnitedStatesmanyyears ago, your child stillwants anEscalade.So,hepressestheissuewithhissiblingPUPPETmanager . . .a lot.Incessantdailytelephonecalls.Dozensofdailye-mailmessages.UnannounceddailyvisitstothesiblingPUPPETmanager’shome.Layinghisbodyinfrontofhis sibling PUPPET manager’s car, vowing not to leave until the managercapitulates.CreatingascenewiththesiblingPUPPETmanagerandhisfamilyinpublic.

TheProspectofMisuseofthePUPPETAssets

Say thatyouhaveadisableddaughterandahealthyson.Youprovide inyourLivingTrustthatyourdaughter’sshareoftheinheritancewillpasstoaPUPPETwithyoursonasthemanager.Whathappensifyoursonneedsmoneybecausehelosthisjoborhishouseisabouttobeforeclosedupon?Whathappensifyourson or any member of his family suffers from an illness and they haveinsufficient health insurance? What happens if your son decides to send hischildren to private school and the tuition is above their means? There are somany what-ifs that could happen in your son’s life, but they all lead to onesignificantprospect:Your sonmayusehis sister’sPUPPETassets tocomeupwithdesparatelyneededfunds.

Youmaybe thinking, “Wait aminute!Condonsays that thePUPPETfundsaretobeusedsolelyforthebenefitofmydaughter.Mysonisnotsupposedtousethemforhimselforforhisneeds.Thesecondmysonusesevenonepennyforhimself he canbe sued for breachof trust!”Andyouwouldbe correct.Athird-party PUPPET manager is legally bound to use the funds for yourdaughter’shealth,education,support,andallotherpurposesyousetforthinyourLivingTrust.

The legalworld and the realworld, however, are two different concepts. Isthere anyone around to ensure that your son is applying the PUPPET fundsproperly?Perhaps,butonlyifyourdisableddaughterhasthementalcapacitytoprotect herself. However, your daughter may not understand the financialworkings of thePUPPET, leaving herself vulnerable to your son.And even if

yourdaughtersensessomemismanagement,willsomeonelistentoher?Willshehavetheabilitytoseeklegalredress,orwillshebetotallyatthemercyofyourson with none of the safeguards that normally protect a beneficiary from atrustee’sabuse?

TheProspectofLossoftheSiblingRelationship

If you have one child hold, manage, and distribute for your other child, thesibling relationship will fade away and become supplanted by a moneyconnection.When they get together, they are joined by an invisible elephantnamed“PUPPET.”Allyourdisabledchildthinksis“Youhavemymoney,andIwant it.” At some point, the elephant’s presence becomes more tangible andsubstantial,withpleasantriessubtlymeldingintoquestionsaboutmoney.(“Whatterrific pictures of my nephews. By the way, when can I expect the nextpayment?”)Ultimately,theelephantfullyemergesandtrampsaroundtheroomwithdemandsofmoney.(“Damnit,stopholdingback!Iaskedyouforpaymentaweekago!Whereisit?!”)

Idon’tknowaboutyou,but livingwith these fiveprospectsdoesnotsoundlikeagoodtime.Ifyournormalchildisawareoftheserisks,hewillprobablydecline to serve.And if he discovers themonly after he begins service as thePUPPETmanager,hemightquit . . .andsurrenderthePUPPETassetstoyourproblemchild!

Of course, quitting and relinquishing the PUPPET assets to your problemchildisnotwhatyouhadinmind.Infact,suchaturnoverwouldbeconsideredabreachoftrust,andyournormalchildcouldbesuedbyanyoneaffectedbythatact.Also,perhapstheproblemchild’sinheritance,andmaybeyourchild,willbeat risk as a result of havingunfettered control of the assets.However, toyournormalchild,allthoseconcernswouldrunadistantsecondtothejoyandreliefofgettinghislifeback.

YourSecondChoice:TheBetterChoice

Forallof these reasons, from theperspectivesofbothyourproblemchildandthepersonwhomyoumight select as yourproblemchild’sPUPPETmanager,

youshouldselectathirdpartywhoisinthebusinessofmanagingthemoneyofothers. These are professional private fiduciaries, bank trust departments,brokeragefirms,andcertifiedfinancialplanners,whomIshalllumptogetherinonecategoryastheprofessionalmanager.

Wheredoyou find theprofessionalmanager?The sameplaceyou find anyprofessionalyoudesiretohire.Internet.Googlesearch.Referralfromafriend.Yellowpages.Also,sincemanybankshavetheirowntrustdepartments,youcansimplywalkintothebankyounormallydobusinesswithandasktospeaktoatrustofficer.Issuchaspontaneousvisitanimposition?Believeme,itisnot.Anybanktrustofficerwilldropwhateverheorsheisdoingandspendasmuchtimewith you as you need to satisfywhatever inquiries you have about the bank’sservices.

The professional manager treats the management of the PUPPET, well,professionally. It’s a full-time job.Thebankhas facilities tomanagePUPPETassets. It is audited internally aswell asby state and federal regulators. It hasemployees with sophistication and experience in dealing with investmentdecisions.Thetrustdepartmentcanwithstandbeinghoundedandpressuredbyachild intent on gettingmore control.Of course, the professionalmanagerwillchargeafeeforservicesrendered;butyouget farmorefor thedollar than theprivateindividualmanager,whowillnotdoasgoodajob.

WhenyouareputtingtogetheryourLivingTrustthatincludesaPUPPETforyour disabled child, you will need to find a professional manager that youbelieve will protect your child’s assets and effectively work with your child,whichmeans:

• You want the professional manager to know and adhere to yourinvestmentphilosophy.

•YouwanttheprofessionalmanagertodistributethePUPPETincomeandassetsinaccordancewithyourwishes.

•Youwanttoknowthattheprofessionalmanagerwillhaveagoodworkingrelationshipwithyourdisabledchild.

•And of course, youwant to know howmuch the professionalmanagerwillchargeforitsservices.

After you have selected the professionalmanager, you need to convey thatinformation toyourLivingTrustattorney,whowill incorporate thatname intothedocument.

CHAPTER21

WhoAreYourGrandchildren?ORDOYOUREALLYWANTYOURLIVINGTRUSTASSETSTOULTIMATELYWINDUP

WITHYOURSON’SSECONDWIFE’SKIDSFROMHERFIRSTMARRIAGE?

Weliveinasoapoperaworldofmultiplemarriages,multipledivorces,domesticpartnerships, same-sex unions, longtime relationships, and commitmentceremonies. We have wives, husbands, ex-spouses, lovers, significant others,partners, girlfriends, boyfriends, and cohabitants. All this sounds fine to me.Liveandletlive,aslongasyoudon’tsmoke.Yourrighttoenjoyanactivityorendeavor ends when it directly and adversely affects my right to breathe airdevoid of poisons. The last time I checked, living an alternate lifestyle is notcarcinogenic.

Withallthesedifferenttypesofrelationshipsandcharacterizations,youmayno longerknowwhoyouconsider tobeagrandchild for inheritancepurposes.This becomes a fairly significant because you have, most likely, named yourgrandchildren as direct or backup beneficiaries in your Living Trust. Forexample:

• You have provided that a certain amount of cash will go to eachgrandchildwhoislivingatthetimeofyourdeath.

•Youhaveprovidedthatifachildisnotlivingwhenyouandyourspouseare both dead, the deceased child’s children (your grandchildren) willstepintotheinheritanceshoesofthatdeceasedchild.

•Youhaveprovidedthatifyourchildislivingwhenyouandyourspousearedead,yourLivingTrustassetsarefunneledtoyourchild’sprotectiontrust. No matter what type of protection trust you have crafted(TransparentTrust,SPIT,TPIPT,DiscretionaryTrust),itislikelythattheprotectiontrustassetswillbedistributedtoyourchild’schildren(again,yourgrandchildren)whenyourchilddies.

Who you consider to be your grandchildren to the extent that you wish to

include theminyour inheritancebloodline ismoreofapersonalmatter thanalegalissue.Inotherwords,youreallyareonyourownwithonlyyourfeelingsasyour guide. After all, there are no books on this subject.We lawyers are nottaught “grandchildren recognition” in law school. However, this very shortchaptermainlyservestobringyourawarenesstothisoverlookedissue.

Grandchildren101

Whoareyourchild’schildren?Whoareyourgrandchildrenwhoarelikelytobethe ultimate inheritors of the money and property it took you a lifetime toaccumulate?Inallof inheritanceplanning,Ibelievethis is themostsubjectiveandpersonal issue thatmyclientsgrapplewith.Forexample,doyouconsideryourgrandchildtobe:

•Thechildofyourunmarrieddaughter?•Thestepchildofyourmarriedson?•Theadoptedchildofyourmarrieddaughter?•Thechildborntoyoursonandhiswife“outofutero”?•Thechildofyourdaughter’ssame-sexpartner?•Thefosterchildofyourunmarriedson?•Thechildwhoseonlybondwithyourchildisanemotional,notgenetic,one?

Thereareprobablymore scenariosofgrandchildrenclassification than I amaware of. But, you do not need a technical treatise on all possible strata ofgrandchildren to know that your family includes a grandchild in thenontraditionalsense.Thisisapersonwhoisatleasttwogenerationsafteryou,isnotachildnaturallyborntoyourchild,andwhohasestablishedaparental-typebondwithyourchild.

Myattemptsatbedsidepsychologygoonlysofar.Onlyyoucangaugehowyoufeelaboutwhethertheyoungpersoninyourchild’slifeisagrandchildforinheritance purposes. When you are able to make that intensely personaldecision, you can tell your Living Trust attorney that you want that personincludedorexcludedasadirectorbackupbeneficiary.

TwoCertainties

As I mentioned, the decision about whether someone is a grandchild forinheritancepurposesisaverysubjectiveone.Thereisnorightorwronganswer.It is all based on your feelings and perceptions. Unlike other issues in theinheritance arena, this is one where I am not going to impose my personalbeliefs.But, thereare twocertainties that Ibelieveshouldbeconsideredwhenyoufacethisissue.

First, Iamcertain thatnot including thatyoungpersonasabeneficiarywillresult inestrangementbetweenyouandyourchild, theyoungperson’sparent.Toyourchild,thatyoungperson,whethernatural-born,conceivedinatesttube,or brought into the fold by a new spouse or partner, is your grandchild.Yourchild will expect you to exhibit and engage in all the behaviors that lovinggrandparentsdemonstratetotheirgrandchildren:allowingthatyoungpersontocall you “Grandpa” or “Grandma”; giving that young person holiday andbirthdaygifts;takingthatyoungpersontothemoviesandplayground;showinguptothatyoungperson’sLittleLeaguegamesandgraduationceremonies.Youknow...grandparentandgrandchildstuff.

Welcomingthatyoungpersonwithopenarmsisonething,butincludinghimor her as an ultimate inheritor of your assets is a completely different animal.However,toyourchildthereisnodifference.Asyouponderwhethertoincludethat youngperson as grandchild in yourLivingTrust, your childwillwonder,“Whatthehellistheretoponderinthefirstplace?That’smychild.That’syourgrandchild,justassureasifhewasnatural-born.”

Thosearethefeelingsofsomeonewhoishell-bentonensuringtheacceptanceofthatyoungpersonintothefamily.Ifyoudonotincludehimasabeneficiary,thenyouhavebecome,inyourchild’seyes,anarrow-mindedtraditionalistwhocannotseehowtheworldhaschanged.

However, I urgeyou tobehonestwithyourself andnotbe swayedbyyourchild’s opinion. Your child’s feelings are not your feelings. You need to dieknowingthatyourmoneyandpropertywillfollowthepathyouwant,andthatyourdecisionisnotbasedonwhatyourchildforcesyoutoacceptbythethreatofestrangement.

Hereisthesecondcertainty.Howeveryoudefinewhoyourgrandchildis,Iam

certain that you do notwant that definition to include your child’s significantother.

WhyamImakingthisseeminglybizarrestatement?Hereiswhy.

My client left one-third of his Living Trust assets to his daughter in aprotectiontrust.Theprotectiontrustprovidedthatuponthedaughter’sdeath,theprotection trustassetswouldgo to thedaughter’schildren;but, if thedaughterdid not have children, then to my client’s other children (the daughter’sbrothers).

Aftermyclientdied,thedaughter’sprotectiontrustwasfundedwithone-thirdoftheLivingTrustassets—justlikeclockwork.

Shortly after the protection trust was funded, the daughter made anappointmenttoseeme.Whensheconferredwithme,shetoldmefourthings.

1.Shewassufferingfromamedicalproblemthatwaspotentiallyterminal.2.Hertwobrothersviewedheralternativelifestylewithdisdain.3.Shehadnochildren.4.Shewasinalong-termrelationshipwithhergirlfriend.

Whywasthedaughterdumpingherlifestoryonme?Becauseshewantedtofind a way to beat the protection trust. She wanted to know if she could doanythingtoleaveherprotectiontrustassetstohergirlfriendafterherdeath.Thiswasmy response: “Noway.Theprotection trust sayswhat it says.Whenyoudie,sinceyoudon’thavechildren,theassetswillgotoyoursiblings.Youcan’tchange it.Yourparentsmade it irrevocable.Theywantedyourshare tostay inthefamily,notgotoyourgirlfriend.Sorry.”

The daughter died about two years after that meeting. After her death, Ireceived a call from one of her brothers. This is how the conversation went,whichIrememberlikeithappenedyesterday:

Brother:Mr.Condon,Iseethatmysistersawyouabouttwoyearsagobeforeshedied.Whatthehellkindofcrazyadvicedidyougiveher?

Me:None.Ijustgaveherarun-downofherprotectiontrust.Shewantedtheassetsintheprotectiontrusttogotohergirlfriend.Isaidnocando.With no children, those assetswould have to go to her siblings on herdeath.

Brother: Well, Mr. Condon, you must have said something, because

we’renotgettinganythingfromherprotectiontrust.

Me:Of course you are. I remembermymeetingwith her. She did nothavechildren,sotheprotectiontrustprovidesthatitallgoestoyouandyourbrother.

Brother:That’snothappening.

Me:Why?

Brother:Becauseshewentoutandadoptedhergirlfriend!

InearlyfelloutofmychairwhenIheardthatbitofnews.Iwasshockedbythe daughter’s scheming maneuver, and yet totally impressed by it. Thedefinitionof“grandchild”asitappearsinthedaughter’sprotectiontrustisthis:Agrandchildoftheclientisapersonbornto,oradoptedby,thedaughteroftheclient. So, the daughter simply adopted her girlfriend, who then became thedaughter’schild...andmyclient’sgrandchild...andthebackupbeneficiarytotheprotectiontrustassets.

TheNewandProtectiveDefinition

You live, you learn. To prevent this type of unintended inheritance allocationfromreoccurring,theprotectiontruststhatInowdraftdefineagrandchildasapersonwho isborn toachildof theclient,oradoptedbyachildof theclientprior to thatadopteeattainingtheageofmajority.With thatsimplealteration,yourchildrenwillbeunabletobustthetrusttoleavetheprotectiontrustassetsto anyone other than their own children.Not that theywillmake the attempt.But,asIfoundoutwiththedaughterwhogamedtheprotectiontrusttoleavetheassetstohergirlfriend,youjustneverknow.

CHAPTER22

TheIRSIsBack!AndThisTime,It’sforReal!OR“SORRYABOUTYOURPARENTS’DEATHS.THATWILLBE$200,000,

PLEASE.”

Iamsurethatyou’rethrilledattheprospectofreadinganotherchapterabouttheestatetax.Ifyoucannottell,thatisamildlysarcasticstatement.Intruth,I’llbetyou approached reading this chapter with as much dread as I had when Iapproachedwritingit.

Writing about the estate tax in a way that keeps you interested is such adauntinganddifficulttaskthatIdelayedthewritingofthischapteruntiltheveryend. In fact, even when the bell tolled to signify that the time to write thischapter had arrived, I literally ran frommy desk, plopped onmy couch, andwatched four movies in a row on HBO, Starz, Showtime, and The MovieChannel.Ihadnotengagedinsuchmind-numbingprocrastinationtacticssinceIagonizedoverthewritingofthatpaperforProfessorManiquis’RomanticpoetryclassatUCLAinwhichImadeafutileattempttoprovethattheprotagonistinCervantes’ Don Quixote de la Mancha coupled with himself. I say “futile”becauseitearnedamereCminus,andIwasluckytogetthat.

AsyourLivingTrustadvisor,Ineedyourenergyleveluptothepointwherecanreadthischapterabouttheestatetaxwithoutbecomingdrowsy.Inmymind,there is no better way to get your adrenaline flowing than by making thisstatement:It’sserioustime!Ifyouarerichenough,theIRSwillgetaportionof your assets when you and your spouse are both gone. But, if you areaware of the estate tax process—and understand it—you will save yourfamilysomeseriousdough!

Nowyouaresufficientlyenergizedtoslogthroughsomesemiboringestatetaxstuffthathappenswhenbothyouandyourspousearedead.Let’sbegin.

TheFederalEstateTaxReturn—Your“DeathInventory”

AsIpreviouslytoldyouinChapter13,theestatetaxisataxonthetransferofassetsafterthedeathoftheownerofthoseassets.Becausethistaxtakesplaceafterdeath, somefolkscall it the“death tax.”That isacompletelymisleadinglabel,asitgivestheimpressionthatthereisataxontheactofdeath.

Letmebeclearsoyouwillnevermakethismistakeagain...orthefirsttime.There is no taxbecauseofdeath; there is only a taxon the transfer ofwealthafter death. So, the next time your Republican congressional representativesattempttogoadyouintovotingRepublicanbecauseoftheirpromisetoabolishthe“deathtax,”youcannowinterpretwhattheyreallymean.

InChapter13,Idiscussedtheestatetaxinthecontextofthedeathofthefirstspousetodie,whomIcallthedeceasedspouse.Asageneralproposition,thereisnoestatetaxafterthedeceasedspouse’sdeath,becausethereisnotaxonthetransfer of assets from the deceased spouse to the surviving spouse. This iscalled the marital deduction, which is a dollar-for-dollar deduction for everydollar that goes to the surviving spouse, or to a trust for the benefit of thesurvivingspouse.Thereisalsonoestatetaxonthetransferofassetsthatpasstotheexemptiontrust,whichisaconceptIalsodiscussindetailinChapter13.

Althoughthereisusuallynoestatetaxdueafterthedeceasedspouse’sdeath,the surviving spouse may still have to file the deceased spouse’s estate taxreturn.The estate tax return (known in thevernacular asForm706) is like aninventoryofassetsthatthedeceasedspouseownedatthetimeofdeath.Inthisreturn,thesurvivingspousedescribesthenatureandvalueofallassetsinwhichthedeceasedspousehadaninterest.Butagain,thefactthatanestatetaxreturnmaybedueafterthedeceasedspouse’sdeathdoesnotmeanthatanestatetaxisdue.

Whenthesurvivingspousedies(thatis,whenbothyouandyourspousearedead),anotherestate taxreturnmayberequired.And this time, it’s for real. Ifyouarerichenough,theIRSwillaskforaportionofyourassetsintheformofanestatetax.Whoqualifiesas“richenough”?TotheIRS,youarerichenoughtopayestatetaxifthenetvalueofyourestateexceedsyourexemptionamount(moreonthislaterinthischapter).

Theresponsibilityforpreparingandfilingtheestatetaxreturnbelongstotheafter-death agent you named in your Living Trust. After the last spouse dies,yourafter-deathagentmustgatherinformationaboutalltheassetsthathavethesurvivingspouse’snameonthem.

Whatkindofassets?Allofthem.Realestate.Stocks.Bonds.Treasurybills.Savingsbonds.Brokerageaccounts.Mutualfunds.Checkingaccounts.Savingsaccounts.Certificatesofdeposit.Cash. Insurance.Promissorynotes.Pedigreeddogsandcats. Jewelry.Antiques.Collections.Furniture.Automobiles.Oil andgas leases. Businesses. Limited partnership shares. Limited liability companymembershipinterests.Miningrights.Timeshares.Ifanassetdoesnotfitintoacategory,itgetslistedinthereturnas“Miscellaneous.”

The IRS does not care how the surviving spouse owned the assets. In theLivingTrust.OutoftheLivingTrust.Injointnameswithanyotherperson.Inasurvivor’s trust. In an exemption trust. In a marital trust. In an account withsomeone named as a beneficiary. In an IRA account. In a pension plan. In a401(k).Inapartnership.Itjustdoesnotmatter.Ifthesurvivingspouse’snameisanywhereonthatasset,yourafter-deathagentmustlistitintheestatetaxreturn.

Howdoesyourafter-deathagentgoaboutgettingthisinformation?

For realestate, theafter-deathagenthas tohirea realestateappraiser. I say“hire”becauseappraisersdonotpreparethosereportsforfree.Yourafter-deathagentmustpayafeefromyourLivingTrustassetsinordertoreportthevalueofyourrealestatetotheIRSsotheIRScanimposeanestatetaxonthatvalue.It’sanastylittlecircle.

Forallyourotherassets,yourafter-deathagentmustobtainallthestatementsand documents that represent those assets. This means your after-death agentwill root through yourmain financial workspace to look for bank statements,brokerage statements, income tax returns, and all other documents that willprovideaclueas to thenatureandextentofyournon-realestateassets. If thesurviving spouse has an asset that is not evidenced by a statement, such as areceivablenotreducedtowriting,yourafter-deathagentmayneverknowaboutitandwillnotlistitintheestatetaxreturn.SincetheIRSimposesanestatetaxononlytheassetslistedinthereturn,theomissionofundiscoveredassetsmaybe just finewith you; but unknown assets also do not get transferred to yourchildrenorotherheirs.

Inaddition,asincongruousasthismaysound,theestatetaxreturnmustalsolistanytransferorgiftmadebythesurvivingspousethatexceedtheannualgiftexclusion.Whatistheannualgiftexclusion?ItistheamounttheIRSsaysyoucangiveawayeachyeartoanypersonwithnogifttaxtoyouandnoincometaxtoyourrecipient.Rightnow,theamountoftheexclusionis$12,000.

So,ifyougiveyourson$50,000rightnowforadownpaymentonahouse,yourafter-deathagent is required to list thatgift in theestate tax returnas thevalueofthatgiftoverthe$12,000exclusion(or$38,000).Putanotherway,thevalue of that gift over and above your $12,000 exclusion ($50,000) is addedbackintotheinventoryandiscountedforestatetaxpurposesasanassetthatyouownedatyourdeath.

Again,Iknowitmaybedifficulttowrapyourheadaroundthisconcept.Howcan a gift before your death be considered an asset that you owned at yourdeath?Here’show.TheIRSdoesnotwantyoutothinkyoucanavoidanestatetaxbygiving awaywhat youownbeforeyourdeath. If you coulddo that, sowouldmillionsofothers,andtheIRSwouldnevercollectanyestatetaxdollars.So,theIRSsaysthatanygiftyoumakeaboveacertainamount(theannualgiftexclusion)is,fromanestatetaxreportingstandpoint,putbackintoyourestate.

Atsomepoint,yourafter-deathagentwillconcludethesearchfor theassetsthat are owned by the surviving spouse at death.He or shewill have the realestateappraiserreports,thebankandbrokeragestatements,thecanceledchecksfrom the insurance policy payouts, and all other relevant documents to showownershipandvalue,andwillalsohavetheinformationaboutall thegiftsandtransfers over the annual gift exclusion made by the surviving spouse to anyotherperson.Yourafter-deathagentwillthenfeedthatinformationtotheLivingTrustattorney,whowill,inturn,inputitintospecialsoftwarethataddsitallupandcalculatestheestatetax.

Aftercompletingthattask,theattorneywillcallyourafter-deathagenttogivethebignewsontheamountofestatetaxtobepaid.Asyouwillsee,theamountoftheestatetaxtobepaidisabsolutelydependentontheyearofthesurvivingspouse’sdeath.

TheNot-So-GoodNews

Ifthesurvivingspousediesin2008,therewillbenoestatetaxifthetotalvalueis less than $2 million. This figure of $2 million is the surviving spouse’sexemptionamountin2008.InEnglish,thisistheamounttheIRSsaysthatthesurvivingspousecan transferafterdeath toanyoneandinanymannerwithouttheimpositionofanyestate tax.Ifyouare thesurvivingspouseandyour total

networth(includingthegiftsaddedbackintoyourassetinventory)islessthan$2million,yourafter-deathagentwillnothavetoraidanyofyourassetstopayanestatetax.Lovely.

However, if the total net worth of the surviving spouse is more than $2million,therewillbeanestatetaxoneverydollarabovethatamount.Therateoftaxstartsatabout33centsonthedollar,withthetoptaxrateat45centsonthedollar.

Let’smoveon.Ifthesurvivingspousediesin2009,therewillbenoestatetaxif the total value is less than $3.5 million. The exemption amount jumpssignificantly from $2million in 2008 to $3.5million in 2009. If you are thesurviving spouse andyournet totalworth (including thegifts addedback intoyourassetinventory)islessthan$3.5million,noestatetaxwillbepaid.Again,however,ifthenettotalexceedstheexemptionamountin2009,theIRSimposesataxonthatoverage.

Hereiswhereitstartstogetjuicy.Undercurrentlaw,thereisnoestatetaxatall in2010.Ifyouarethesurvivingspouseanddie in2010, itdoesnotmatterwhatyournettotalinventoryis.Theentireamountwillpasstoyourchildrenorotherheirswithnotonepennyofestatetax.Thisisamazing.Foroneyearonly,the estate tax is repealed,which is the first time since 1931 that no estate taxexistsintheUnitedStates.

Why this anomaly in estate tax law where the repeal lasts only one year?BecausewhentheRepublicanscameintopowerin2000,theycouldnotmusterthe two-thirds vote required to carry out their oft-promised permanent “deathtax”abolishment.Theone-year repealwasacompromise that theRepublicanscould livewith in order to show the voters that they hadmade good on theircampaignpromise.

But here is something you probably don’t know about the increasedexemption amount in 2009 and the one-year-only repeal in 2010. In order tomakeuptheamountoftaxrevenuelostasaresultofthosechanges,startingin2010 Congress has canceled a much-loved and often-used tax break called“stepped-upincometaxbasis.”

Specifically,yourbasisinanassetiswhatyoupaidforthatasset.Ifyoupaid$10,000foraresidentialpropertyinSantaMonicain1931,andyousellitfor$1million in 2008, the difference between the two numbers ($1 million minus$10,000equals$990,000)isyourprofit.AndyouknowwhattheIRSlovestodo

withprofit?Taxit!

But, ifyoustillown thatpropertywhenyoudie,yourbasis in thatpropertystepsuptothefairmarketvalueofthepropertyasofyourdeath.Thisisjustfinewiththebeneficiarieswhoinheritthatpropertyfromyou.Ifyour$10,000basisstepsupto$1millionatyourdeath(becausethatiswhatanappraisersaysit’sworth on your death) and the inheritors of that property sell it for $1million,thereisnotaxableprofit.Thedifferencebetweenthesaleprice($1million)andthestepped-upbasis($1million)iszero.Noprofit,notax!

Lovely!

Not so lovely, however, is the congressional trade-off that begins in 2010whenstepped-upbasis is canceled (but fora fewexceptions).Thismeans thatyour$10,000basisinyourSantaMonicahousestaysas$10,000onyourdeath.If the inheritors of that property sell it for $1million, the profit is $990,000,whichwillbesubjecttoacapitalgainstaxofatleast20percent.

Congressthoughtitwasdoingtaxpayersafavorwiththeincreasedexemptionamountandone-year-onlyrepeal.Hardly.Whereastheestatetaxaffectsonlytherichest2percentoftheAmericanpopulation,theeliminationofstepped-upbasiswill touchabout12percentof taxpayers.Asaresult, thegovernmentmayendupwithmoreofourdollarsinincometaxesthatitwouldwithestatetaxes.

The cancellation of stepped-up basis was always part of the proposedlegislation to repeal the estate tax, but was rarely, if ever, mentioned in thenationalmedia.That’snotasurprise.Whywouldanynewssourcewanttoreportcomplicatedandboring implicationsofproposedmajor tax revisionswhen thebig ratings (and big advertising dollars) are in such human-interest stories aswaterskiingsquirrelsandsettingaworld record for themost tubaplayersevergatheredinonespot?

Enoughrantingabout this tangentconcerning thecancellationof stepped-upbasisandthedumbing-downofnationalandlocalnews.Thequestionyouwantansweredis:WhathappenswiththeestatetaxonJanuary1,2011,whentheone-year-onlyrepealisover?

Undercurrentlaw,theestatetaxkicksbackinwitharelativelylowexemptionamountof$1million.Ifyouarethesurvivingspouseandyoudiein2011,andthe net value of your estate (including the gifts added back into your assetinventory)ismorethan$1million,yourafter-deathagentwillhavetoraidyour

assetstopayanestatetax.

Goingfromacompletelynon-estatetaxyearof2010toataxableestateyearof2011isbadenough.Butgoingfroma$3.5millionexemptionamountin2009to a $1million amount in 2011 is, inmy opinion, an evenmore insufferablecomparison.Ofcourse,ifyouarethesurvivingspouseanddiein2011withlessthan$1million,yourbeneficiarieshavenothingtoworryabout.However,withyour real estate, cash and brokerage assets, IRAs, pension plans, annuities,insurance, and other commonly owned assets, it is somewhat foreseeable thatyour estate can easily hover around, and perhaps exceed, the taxable estateterritoryof$1millionormore.

Inanyevent,thatistheestatetaxpictureundercurrentlaw.Withthatinmind,youcannowunderstandmypreviousstatementthattheamountoftheestatetaxdependsontheyearof thesurvivingspouse’sdeath.AsaLivingTrust lawyer,therearemanymethodsandplans that I candesign to reduceoreliminate theestatetaxwhenyouandyourspousearebothdead.But,thetoolthatyoureallywishIhadisacrystalballthatcouldforetelltheyearofyourdeath.

Indeed,ifIcouldpredictthatyouwilldiein2009and2010,thenyoucoulddeterminethatestatetaxpreventionplans,andthecostsandfeesassociatedwiththoseefforts,wouldbeunnecessary.Obviously,nosuch toolexists.So, just toprotectmy backside, Imust assume that (1) youwill not die until after 2010when theapplicableexclusionamount is amere$1million, and (2)your totalnetworthwillexceedthat$1millionmark.Andthatassumptionwillrequireyouto throwmoney inmygeneral direction to comeupwith expensive andhigh-maintenancetax-preventiontechniques.

Withtheestatetaxthepoliticalfootballithasbecome,Ibelievethatchangesinourexecutiveand legislativebranchescouldbringchanges to the estate taxlaw.When2010rollsaround,newspapersandInternetnewssiteswillattempttogalvanizethereadingpublicwiththefactthat2011willbringwithitthereturnof the estate tax and lowering of the exemption amount to $1million. If thepublic is paying attention, perhaps they will bring enough pressure on theirelected representatives to revert to the old estate tax system where only therichest2percentofAmericansaresubjecttothetax.Ibelieve,asdomanyofmycolleagues, that if this reversion is enacted, it could manifest as a permanentexemptionamountfrom$3millionto$5million.

In themeantime, with the current law in place, there aremasses of Living

Trustbeneficiarieswhowouldfinditveryconvenientifyouhadthedecencytodiebefore2011whenthe$1millionexemptionamountreturns.Ipredictthatin2010,wewillreadorhearofaccountsofterminallyillsurvivingspousesdyingindrovesbeforetheclockturnsto12:01A.M.onJanuary1,2011.Somewillbesuspicious deaths that result in police investigations of persons who wouldbenefit from the estate tax break given in that one year. Perhaps therewill bearrestsandconvictions.

Obviously,thisisnotwhatCongressintendedwiththeone-year-onlyrepealoftheestatetax;but,accordingtothelawofunintendedconsequences,thisiswhatIbelievewewillget:deathsofterminallyillseniorshastenedbytheirestate-tax-break-seeking beneficiaries. I hope I’m wrong, but I truly believe I will beprovedright.

TheEstateTaxReturnProcess

Stillawake?Yes,youare.Howcanyounodoffwhilereadingaboutmurderinthecontextofestatetaxrepeal?Itcannotbedone.But,let’sgetbackontracktothestoryofthesurvivingspouse’sestatetaxreturn.

IftheLivingTrustlawyerascertainsthatanestatetaxisdue,yourafter-deathagentwillhavetowriteacheckfromyourLivingTrustassetstocoverthattax.If thereare insufficient liquidassets topay the tax,yourafter-deathagentwillhave to sell something to generate those funds,most likely your LivingTrustrealestate.Ofcourse, thesaleof realestate incursanumberofcostsand feesover and above the estate tax, such as broker commissions, escrow fees,installationoflow-flowtoilets,water-heaterbracing,documentarytransfertaxes,recordingfees,andmanymiscellaneouscharges.It’sasiftheestatetaxisbeingpaidat105percentofitsvalue—thatis,100percentforthetaxandanadditional5percentforcostsneededtocomeupwiththemoneytopaythetax.

After your after-death agent signs the estate tax return, the Living TrustlawyersendsthecheckandthereturntotheIRS.Thereturnandcheckmustbesentwithinninemonthsofthedateofthesurvivingspouse’sdeath.Anextensionofsixmonthscanbeobtainedtofilethereturn,buttheextensionrequest(Form4768)mustbeaccompaniedbyacheckfortheestimatedestatetax.

Ifyourafter-deathagentcannotobtainthefundstopaytheestatetaxwithin

thatnine-monthperiod, the lawyercanrequestanextensionof timetopay theestatetaxforuptooneyear(alsoonForm4768).However,afterthenine-monthdate, the IRS’s interest clock ticks awayon theunpaid estate tax.The interestrateisveryhigh,typicallyfrom9percentto12percent.

TheestatetaxreturnandcheckaresenttotheIRSestatetaxreturncenterinCincinnati.Everysingleestatetaxreturnissenttothislocationregardlessofthestateofthesurvivingspouse’sresidence,becausethisistheonlylocationintheUnitedStatessetupforanthraxscreeningsforestatetaxreturns.

Here is another indignity suffered by your Living Trust beneficiaries. Yourafter-death agentwill notmake anydistributionofLivingTrust assets toyourbeneficiariesuntiltheentireestatetaxprocessiscompleted.“Completed”meansmorethanjustthewritingandsendingofthecheckfortheestatetax.TheestatetaxprocessisnotcompleteduntiltheIRShasexaminedandacceptedtheestatetaxreturn.

If the IRSaccepts the return as filed, itwill issue a “closing letter” toyourafter-death agent. This is like getting a “pass” on a test. However, if the IRSwantsmore information, orwants to contest some aspect of the return, itwillissuean“examinationletter”inwhichtheassignedIRSofficer,whowillbeanattorney,willstatetheissuesheorshedesirestoaddress.

PlayingtheWaitingGameAfterYourEstateTaxReturnIsFiled

Inmyexperience, the time it takes for the IRS to issueaclosing letter rangesfromonetotwoyearsfromthedateoffiling.Remember,theestatetaxreturnisfiled up to 15 months after the death of the surviving spouse. Applying myincredible math skills, this means your Living Trust beneficiariesmaywait alongtimeforyourafter-deathagenttodistributetheirLivingTrustshares.Outofall thephonecalls I receiveonadailybasisatwork, Iwouldestimate that20percentofthemarefromLivingTrustbeneficiariesasking,inessence,“Arewethereyet?”

WhydoestheIRStakeitssweettimetoexaminetheestatetaxreturn?Unlikean income tax return,which has a 1 percent chance of audit, every estate taxreturntheIRSreceivesisaudited.It’sa100percentchanceofaudit.Inaddition,each person examining each estate tax return is an IRS attorney.As youmay

haveexperienced,ittakesalongtimeforanattorneytodoanything.

IftheIRScontestsamatterintheestatetaxreturn,itwillmostlikelyconcernthe valuation of real property. In my experience, real estate valuation is thenumber-oneissueraisedbytheIRSduringestatetaxreturnexaminations.

TheIRSisalwayswarythatthereturnmayincludeapropertyvaluationthatistoolow.IftheIRSdoesnotagreewiththevalueofthepropertyascontainedintheappraisalreportsthathaveaccompaniedthereturn,theIRSwillobtainitsownappraiser,whoinvariablywillvaluetherealestatehigherthantheappraiserretainedbyyourafter-deathagent.

Usually, thesedisputes settle at themedianvaluebetween thehighand lowappraisals,butdon’tcounton that.While themajorityof IRSattorneysIhaveencounteredhavebeenpleasant todealwith andwill readily accommodate anexpense-savingdeal,Ihavealsoexperiencedthewrathofthosefewwhorefusetobendatall.Insuchevent,theappraisalbattlegoestothenextlevelofscrutinywiththatattorney’sadministrativesuperior.Ifadealcannotbestruck,thebattlewagesontotheTaxCourttoletthejudgedecide.

However, rarely, if ever,will I let anappraisalbattleoranyotherestate taxreturn issuego to theTaxCourt level,as the legalcostscanpotentiallyeatupany estate tax savings that a favorable Tax Court ruling could offer. I wouldratheryourafter-deathagentholdhisnose,makethebestdealpossible,andwalkawaywithhurtpride,butalsowithyourLivingTrustassetslargelyintact.

Iftheexaminationprocessresultsintheimpositionofmoreestatetax,theIRSwillcharge intereston thatextraamount.Certainly, that is tobeexpected.Butwhatistrulyunfairisthattheinterestwillbedeemedtoretroactivelybeginfromthenine-monthdate,notthedatethatthefinalrulingismade.Thismeansthatifthe IRShas taken its sweet timeexamining theestate tax returnandfinalizingthecase,interestisaccruingduringthatentiretime!

Onone occasion, I dealtwith an IRS attorney during an examination of anestate tax return where we engaged in an otherwise typical appraisal battle.Abouteightmonths into thatexamination, the IRSattorneyquitandwent intoprivatepractice.IttooktheIRSabout13monthstohireanewattorneyandgethimuptospeedonacaseloadthatincludedmycase.

When the examinationwas concluded, the new IRS attorney’s report statedthatadditionalestatetaxesweredue.Fairenough;butIwasshockedtoreadthat

interestwaschargedforthe13-monthhire-and-catch-upperiod!AlthoughItryto keep my clients from IRS levels beyond the examination level, I was soincensedbysuchgallthatIofferedtotakethisissuetoTaxCourt...forfree!Ultimately, I raised such a stink that the IRS attorney backed off on thosecharges.

Butwhetherornotheroics are involved, at somepoint the issues raised forexaminationwill be resolved and a closing letterwill be issued, leaving yourafter-deathagenttofinallydistributetheLivingTrustassetstothebeneficiariesyou’venamedinyourLivingTrust.

SeekOutSolutionstoReduceYourEstateTax

There are dozens of plans and techniques of which you can avail yourself toreduce your estate tax. Innumerable books have been written on this subject.While most are reader-friendly, most bring back nightmares of the mostinsufferablyboringtextbookofyourschooldays.

Ifthiswereabookwiththeestatetaxasitsmainsubject,Iwoulddescribethemenuofplansthatyoucouldimplementtoreduceoreliminatetheestatetaxonthedeathof the surviving spouse.However, suchadiscussionwould turn thisbookintosomethingitisnotintendedtobe.ThisisabookonhowtoliveanddiewithaLivingTrust,andthevastmajorityofestatetaxreductionplanshaveabsolutelyzerorelationtoyourLivingTrust.Forsuchadiscussion,Iwill taketheeasywayoutandreferyoutothereader-friendlylaundrylistofoptionsthatappearinmyfirstbook,BeyondtheGrave:TheRightWayandtheWrongWayofLeavingMoneytoYourChildren(andOthers),inChapter37entitled“HowtoLeaveMoretoYourChildrenandLesstotheIRS.”

When you read that chapter or other books on how to reduce or eliminateestate taxes, you will notice that all estate tax planning techniques have onecentral common trait, which is: They all involve some element of giving upcontrolofyourwealthnow,whileyouarealive.Why?Becausethelessyouownwhenyoudie,andthelowerthevalueoftheassetsyouownonyourdeath,thelesstheestatetaxwillbe.Formyestateplanningattorneybrethrenreadingthisparagraph, Imust add this little privatemessage:Yes, gentlemen.Of course Irealize that isabroadandsweepinggeneralizationforwhich therearea lotof

exceptions. But I’m attempting to convey, in plain English, an overarchingconcept in order to assistmy readerswith comprehendingwhat canbe a verycomplexsubject.Backoff,please.

If you have little or no problem conveying assets during your life to yourchildren, grandchildren, or charities of your choice (whether or not above theannual gift exclusion), you are already ahead of the game. But, if the merethought of releasing your kung-fu grip on your assetsmakes youweak at theknees,thenforgetit.Myphilosophyis:Neverpartwithwealththatyoufeelyouwill need or that you feel you will miss. To your beneficiaries who end uppayingmoreestatetaxbecauseofyourinabilitytopartwithyourmoneynow,Isay,tough!It’syourmoneyandproperty.Youdoornotdowhateverestatetaxplanningyouwant.Yourbeneficiariesarefortunatetogetwhattheyget.

Having referredyouelsewhere foryourestate tax reduction training, ImustaddthatthereisoneestatetaxissuethatisdirectlyrelatedtoyourLivingTrustthatiscrucialinthecontextofpaymentoftheestatetaxfollowingthedeathofthesurvivingspouse.But,IcanalmostguaranteethatyourLivingTrustattorneyhasneverdiscussed this issuewithyou.This issueconcernswhatyourLivingTrustsaysaboutwhopaystheestatetax,anditiscoveredinthenextchapter.

CHAPTER23

WhoPaystheEstateTax?ORDON’TMAKEONEPERSONPAYTHEESTATETAXONLIVINGTRUSTGIFTSTHATGOTO

ANOTHERPERSON

After the death of the surviving spouse, your Living Trust’s after-death agentwillinventoryalltheassetsownedbythesurvivingspouseatthetimeofdeath.Ifthetotalnetvalueofthatinventoryexceedsthesurvivingspouse’sapplicableexclusionamount(whichIdiscussatlengthinChapter22),theafter-deathagentwillpayanestatetaxtotheIRS.

Whatisthesourceofthefundsusedtopaytheestatetax?YourLivingTrustassets!ThebeneficiarieswhomyounamedinyourLivingTrustwillhavetheirrespectivesharesreducedbytheamountofLivingTrustassetspaidtotheIRSbyyourafter-deathagent.

Nowwecometothemainpointofthischapter.HereistheBigIssue:Whentheestate tax ispaid, thatpaymentwill either reduce the sharesofallofyourLiving Trust beneficiaries or reduce the shares of some of your Living Trustbeneficiaries. And with this Big Issue comes the Big Question: WhichbeneficiariesinyourLivingTrustwillhavetheirsharesreducedbyestatetaxes,andwhichoneswillreceivetheirfullshareswithoutanysuchdeduction?

TheThreeTypesofEstateTaxAllocationProvisions

Inlegalparlance, this is theareaof theestate taxallocation,andit isprobablythemostoverlookedsubjectintheinheritancearena.Askyourself:Doyourecalldiscussing this issue with your Living Trust attorney during any of yourmeetings?Mostlikely,youareinthevastmajorityofLivingTrustclientswhohaveneverbeforeencountered thissubject.However, ifyourattorneytookthetimetoraisethesubjectofestatetaxallocationwithyou,Iampleasedtotellyouthatyou“didgood”(orgotlucky)inyourselectionofthatattorney.

Theconceptofestatetaxallocationisfairlysimple.InyourLivingTrust,youhavethepowertodecidewhichbeneficiariesshallshouldertheburdenofpayingtheestatetax.Forpurposesofthischapter,Iwillrefertothebeneficiarieswhomyouselecttopaytheestatetaxasthe“chosenones.”

Thechosenonesdonotactuallydigintotheirownpocketstocomeupwiththemoneytopaytheestatetax.Rather,theestatetaxispaidfromyourLivingTrust assets by your after-death agent. Later, when the estate tax process hasbeencompleted,theafter-deathagentdistributestheLivingTrustassetstoyourbeneficiarieswithdeductionsfromthesharesofthechosenonesintheamountoftheestatetax.Ineffect,thechosenones’sharesarereducedbytheamountoftheestatetaxpayment.

Youhavethreebasicchoicesfordeterminingwhothechosenoneswillbe.

1.ThechosenonescanbethebeneficiariesofyourLivingTrustassets,inequalshares.Thisisthemostcommonmethodofestatetaxallocation.AprovisioninyourLivingTrustthatcallsfortheestatetaxtobeborneequallybyallyourbeneficiariesiscalledan“equalestatetaxallocationprovision.”

2.ThechosenonescanbethebeneficiariesofyourLivingTrustassetsinanamountthatisproportionatewitheachbeneficiary’sshareoftheLivingTrustassets.Thistypeoftax-sharingplaniscalledthe“proportionalestatetaxallocationprovision.”

3.ThechosenonescanbebeneficiariesofyourLivingTrustwhomyouspecificallynametobethepersonswhobeartheestatetax.Inessence,thisplanallowsyoutopickandchoosewhichluckybeneficiariesgettheirsharesreducedbyestatetaxandwhichonesareallowedtoreceivetheirfullshareswithoutanyreduction.Suchaplaniscalledthe“specificestatetaxallocationprovision.”

Itwasmathandwordproblems thatdroveme to lawschool.Nonetheless, Inowmustresort tothosedevicestodrivehomehowtheseestatetaxallocationprovisionswork,andtheireffectafteryouandyourspousearedeadandestatetaxesmustbepaid.

EqualEstateTaxAllocationProvision

Ofthe threeestate taxallocationprovisions justdescribed, theequalestate taxallocationprovisionisthemoststraightforward.

•Yourspousedied10yearsago.Youarethesurvivingspouse.Youdie.Youaresurvivedbyyourthreechildren.

•Yourafter-deathagentexaminesyourassetsandascertainsthatyourtotalnetworthatyourdeathis$3million.

•YourLivingTrustprovidesthatyourthreechildrenshallreceiveyourLivingTrustassetsinequalshares.

Withinninemonthsafteryourdeath,yourafter-deathagent filesyourestatetaxreturnalongwithacheckfortheestatetaxintheamountof$300,000.

TheIRSexaminesthereturnandacceptsitasfiled.Yourafter-deathagentisnowready todistribute theassets toyourchildren, inequalshares.Butbeforethatdistributionismade,yourafter-deathagentmustlookinyourLivingTrusttoseewhomyouhaveappointedasthechosenones—thebeneficiarieswhowillhavetheirsharesreducedbytheamountofthe$300,000estatetax!

If your after-death agent sees an equal estate tax allocation provision, eachchildbearstheburdenoftheestatetaxpaymentequally.Asaresult,eachchildwillreceivetheremaining$2.7millionofLivingTrustassetsinequalshares,or$900,000apiece.

ProportionalEstateTaxAllocationProvision

Wewarmedupwithafairlyeasyexample.Now,withtheproportionalestatetaxallocationprovision, itgetsabitmorecomplex.Butstaywithme,andI’llgetyouthroughthis.Ascomplicatedasthiscanget,itsurelyiseasiertounderstandthan the offside violation that I am required to know as a referee in mydaughter’ssoccerleague.

•Yourspousedied10yearsago.Youarethesurvivingspouse.Youremarryandyouhaveahappylifewithyoursecondspouse.Youdie17minutesafterreadingthisbook.Youaresurvivedbyyoursecondspouseandyourthreechildren.

•Yourafter-deathagentexaminesyourassetsandascertainsthatyourtotalnetworthatyourdeathis$3million.

•YourLivingTrustsaysthatonthedeathofthesurvivingspouse(you),10percentoftheLivingTrustassetswillbedistributedtoyoursecondspouse,withtheremaining90percentpassingtoyourthreechildreninequalshares.

Withinninemonthsafteryourdeath,yourafter-deathagent filesyourestatetaxreturnalongwithacheckfortheestatetaxintheamountof$300,000.

Eightmonthsafterthereturnisfiled,yourafter-deathagentreceivesaclosingletterfromtheIRS,whichgivestheestatetaxreturnapassinggrade.Yourafter-deathagentisnowfreetodistributetheremainingassetsof$2.7milliontoyourbeneficiaries.Butbefore that distribution ismade,your after-death agentmustlookinyourLivingTrusttoseewhomyouhaveappointedasthechosenones—the beneficiaries who will have their shares reduced by the amount of the$300,000estatetax!

Ifyourafter-deathagent seesanestate taxallocation section inyourLivingTrust, it will most likely have the standard boilerplate proportional estate taxallocationprovision,which,inessence,saysthis:Allestatetaxesshallbeborneproportionatelybyallbeneficiaries. Ifso, theneachbeneficiarypays theestatetax in proportion to the value of his or her bequest as it relates to the entireestate.

IfthisproportionalestatetaxallocationprovisionisinyourLivingTrust,yoursecond spouse will be responsible for 10 percent of the $300,000 estate tax,which is $30,000, and your childrenwill be responsible for 90 percent of the$300,000estatetax,whichis$270,000.Asaresult,yoursecondspouse’stotalnet 10 percent of the remaining $2.7million is $270,000, and your children’stotalnet90percentoftheremaining$2.7millionis$2,430,000.

Allocating the estate tax proportionately among the beneficiaries soundsprettyfair.Witheachbeneficiarypayingashareofestatetaxinproportiontotheamountofassetseachbeneficiaryreceives,whowouldkvetchaboutthat?Well,ifyoudidnotwantthatallocation,thekvetcherwouldbeyou!TakealookatthenextexampletoseewhatIamtalkingabout.

SpecificEstateTaxAllocationProvision

If I have not lost you yet, let’s build on the previous example to explain thespecificestatetaxallocationprovision.

Remember,yournet totalLivingTrustassetsarevaluedat$3million.YourLiving Trust leaves 10 percent to your second spouse and 90 percent to yourthree children.The estate taxpaidbyyour after-death agent fromyourLivingTrust assets is $300,000, leaving a balance of $2.7million for distribution toyoursecondspouseandthreechildren.

Yourafter-deathagentlooksinthetaxallocationsectionofyourLivingTrust.Insteadofaproportionalestatetaxallocationprovision,heorshefindsaspecificestate taxallocationprovision stating thatyour second spouse shall receive anentire10percent share freeof estate tax.Thismeans that theentireburdenofpaying the $300,000 estate tax specifically falls upon the 90 percent of theLivingTrustassetspassingtoyourthreechildren.

Youdidnothavetoselectyourchildrenasthechosenones.Youcouldhavepicked your second spouse as the chosen one.When it comes to picking andchoosingwhobearstheestatetax,theworldisyouroyster.

So,whydidyourspecificestatetaxallocationprovisionselectyourchildrenas the chosen ones? Who knows? Perhaps you believed your second spouserequires the full 10 percent share to provide for basic needs. Or perhaps youwantedyoursecondspousetoreceiveafullshareasarewardfortakingcareofyouduringyour incapacitywhenyourchildrendidnotstepup to lendahand.Whateverthereason,youincludedthisspecificestatetaxallocationprovisioninyour Living Trust, which prevents your second spouse’s share from beingreducedbyestatetax.

With this provision in your Living Trust, from the remaining $2.7 million,yoursecondspousewillreceiveafull10percentshareofthe$3millionestate($300,000). As a result, your children’s 90 percent share of your $3 millionLiving Trust assets is reduced by the full estate tax ($300,000) and by yoursecond spouse’s full 10 percent share ($300,000), for a grand total of $2.4million.

Compare the results. With the proportional estate tax allocation provision,your children end up with $2,430,000.With the specific estate tax allocationprovision that imposes the estate tax burden entirely on your children, yourchildrenendupwith$2.4million—adifferenceof$30,000.

Maybeyouareinthewealthcategorywhereyoudonotconsider$30,000tobeanoverlysignificantamountofmoney.Thenagain,howdoyourchildrenfeelaboutit?Howlongdoesittakethemtomake$30,000?Forsomefolks,likeyourchildren, that could asmuchasoneyear’s salary.By lowering their collectiveshares by $30,000, youmay let them feel like theywere robbed and you andyoursecondspousearethebandits—notwithagun,butwiththespecificestatetaxallocationprovision inyourLivingTrust thatallocates theentireestate taxburdentothem.

Doyoucareaboutyourchildren’sperceptionsaboutimposingtheentireestatetaxburdenontheirshare?Perhapsyoudo.Orperhapsyoudonotcareonewhitabout how your children will react. But as your Living Trust advisor, Irecommendthatyouexploretheseemotionalandfamilyissuesthatarepartandparcelofestatetaxallocation.Remember,thisopportunityarisesonlyifyouaremadeawareofthistaxissueinthefirstplace.

ThreeConceptsYouMustKnowaboutEstateTaxAllocation

Theareaofestatetaxallocationisvery,verycomplex.Entiretreatiseshavebeenwrittenaboutthissubject,whicharebeyondtedious.Foryou,though,Iimposeonly thisdemand.Whenyouwalkaway from this chapter, Iwantyou to takeawaythreemainconcepts.

TheFirstConcept

Thefirstconceptisthatyouneedtorecognizethemereexistenceoftheissueoftheestate taxallocation.This isnot justaboilerplateprovision inyourLivingTrust; it is a substantivematter thatwill have a direct impact on the amountsreceivedbyyourLivingTrustbeneficiaries.Bymerelyglancingatthischapter,younowknowenoughaboutestatetaxallocationtoraisethesubjectwithyourlawyerasyouestablishyourLivingTrust.

TheSecondConcept

Thesecondconcept ismuchmore specific, and it is this: IfyourLivingTrustleavesaspecificbequesttoaspecificperson,andyourLivingTrustcontainsanequalestatetaxallocationprovision,allhellwillbreaklooseamongyourLivingTrustbeneficiaries.Youwillhavecreatedabattlebetweenthebeneficiarywhoreceivesthespecificgiftandtherestofthebeneficiarieswhoreceiveeverythingelse.

Why this battle? Because the beneficiaries who receive everything else arenowexpectedtobeartheestatetaxattributabletothatspecificgift.

You will more readily understand this conflict by reading the followingexample.

•Youhavefourchildren—onedaughterandthreesons.YouhaveaLivingTrustthatleavesyourhousetoyourdaughterandallotherLivingTrustassetstoyourfourchildreninequalshares.

•Youdie.Yourafter-deathagenthasvaluedyourestateat$4million.Ofthat$4million,$1millionisattributabletoyourhouse.

•Yourafter-deathagentdeterminesthattheestatetaxdueis$600,000.•YourLivingTrustincludesanequalestatetaxallocationprovision,whichstates,inessence,thatallfourchildrenshallbeartheestatetaxinequalshares.

Canyouseewherethisisgoing?

Your daughter’s specific bequest of your $1 million home constitutes 25percentofyourLivingTrustassets.FairnesswouldseemtodictatethathershareoftheLivingTrustassetsshouldbereducedby25percentofthe$600,000estatetax, which is $150,000. Instead, because of the equal estate tax allocationprovision,theburdenofpayingtheestatetaxonyourhomefallsuponallofyourfourchildren.

Youwant toseeangry?Your threesonswillbehoppingmad!Notonlydidtheir sister get an extra gift, but they are responsible for three-quarters of theestatetaxonthatgift.That’sa$37,500reductionapiece.

Your three sons will argue that you did not intend to incorporate such anunfairestatetaxallocationinyourLivingTrust,andtheyareprobablyright!Inalllikelihood,youwouldwantyourdaughtertoberesponsiblefortheestatetaxattributabletoherspecificbequest.But,becausecarefulattentionwasnotpaidtothis issue when you established your Living Trust, your document includes a

general, boilerplate equal estate tax allocation provision, making your realintention irrelevant. As a result, your sons are stuck with the unfair andinequitableresult.

TheThirdConcept

The third and final concept youmust internalize is that youdonotwant yourLiving Trust beneficiaries to shoulder the estate tax burden that belongs topeoplewhoinherityourassetsoutsideyourLivingTrust.

Toillustratethisconcept,let’sthinkaboutthefollowingscenario:

•Youhaveachildfromyourfirstmarriage.•Youhavetwochildrenfromyoursecondmarriage.•YouhaveaLivingTrustthatleavesallofyourLivingTrustassetstoyourtwo“secondchildren.”

•Youloveyourone“firstchild.”Youdonotwanttoleavehimoutoftheinheritancearena.So,youbuyan insurancepolicy that, onyourdeath,paysout$500,000toyourfirstchild.

• You die. Your after-death agent has ascertained that your Living Trustassetsareworth$2million.Withyour$500,000 insurancepolicy,yourafter-deathagentdeterminesyourtotalnetvalueat$2.5million.

•Yourafter-deathagentalsodeterminesthattheestatetaxona$2.5millionestateis$400,000.

•Your Living Trust provides that all estate taxes shall be borne by yourLivingTrust beneficiaries, in equal shares. This is the equal estate taxallocationprovision.

•Yourfirstchild’s$500,000insuranceproceedspasstohimoutsideofyourLivingTrust.Allyourfirstchildneedstodoissendadeathcertificatetotheinsurancecompany.Theinsurancecompanywill thenwriteachecktoyourfirstchildforthatamount.

•Yourfirstchild’s$500,000giftconstitutes20percentofyourtotalestate.Ideally, your first child should be responsible for 20 percent of the$400,000 estate tax,which is $80,000.But, this is not the idealworld.Because your Living Trust provides that all estate taxes will be borneequally by your Living Trust beneficiaries, your non-Living Trustbeneficiary—your first child—gets to skate away with his $500,000

withoutonepennyofreduction.

Didyou intend that your first child receive $500,000without any reductionfortheestatetaxattributabletothatgift?Probablynot.Ifyouhadthoughtaboutit, you would have inserted a proportional estate tax provision that says, inessence, thatallbeneficiariesofyourLivingTrustassetsandnon-LivingTrustassetsshallbeartheirownburdenoftheestatetaxandnotshifttheentireestatetaxtotheLivingTrustassets.

Butyoudidn’tputinsuchaprovision,becausetheissueofallocationwasnotbroughttoyourattention.

ForewarnedIsForearmed

Theallocationoftheestatetaxamongthebeneficiariesofyourassets—whethertheypass fromoroutsideyourLivingTrust—is avery important issue that isalmostalwaysoverlookedwhenaLivingTrustisestablished.Butforewarnedisforearmed!Nowyou are aware of the threemost common types of estate taxallocation provisions, and that the wrong one in a Living Trust can havedevastatingunintendedconsequencesamongthosebeneficiaries.

So,nowthatyouarearmedwiththisadvicefromyourLivingTrustadvisor,ask your Living Trust attorney this simple question at your next Living Trustreviewmeeting—which,Iassureyou,hewillneverexpecttohearfromaclient:“So,what type of estate tax allocation provision do youhave inmind for ourLivingTrust?”Icanalmostpromiseyouthathisreactionwillbetofalloffhischair.Afterhepickshimselfupofftheflooranddustshimselfoff,hewillthenreviewhis standardboilerplateestate taxallocationprovision in thecontextofyourparticularsetofcircumstances.

And who knows? Perhaps he may conclude that his standard estate taxallocationprovisionmaynotbesoapplicableinyourLivingTrust.

POSTGAME

REVIEWANDLESSONSLEARNED

Youare nowout of the inheritance arena.You establishedyourLivingTrust,livedwithit,anddiedwithit.Yourlifetimeofaccumulationshas

been distributed to your children, grandchildren, charities, and otherbeneficiariesyouhavenamedinyourLivingTrust.

Whathappensnow?Postgamereview!Thisiswhenweplaybackthevideo of the game and learn fromwhatwent right . . . andwhatwentwrong. Of course, since I have not had the pleasure of meeting youpersonallyandgettingtoknowyourparticularinheritancecircumstances,itisimpossibletoreviewyourgamefilmtoseehowyoudid.Didyourbeneficiariesexperience thesmooth transferofyourLivingTrustassetswithout diminishment from probate fees and estate taxes? Or did theyengageinsomuchconflictthattheyhadtoresorttothetelevisedcourtofJudgeJoeBrownforresolution?

Since it is physically impossible forme to reviewyourgame film, Imust resort to relaying the experiences I have hadwith variousLivingTrustscenariosfrommy20yearsofpracticingintheareaofinheritanceplanning.FromtheQ&Aandthecautionarytalesthatarepresentinthiscooling-down period, you may see yourself and be able to take awaysomevaluableadvicethatyoucanincorporateintoyourLivingTrust.

Yourexistence in theLivingTrustworldat all stagesof thegame isquite insular. You don’t know anything about your neighbor’s LivingTrust.You probably don’t knowmuch about theLivingTrusts of yourclosestfriendsandrelatives,otherthanthefactthattheyhaveestablishedthem.TheLivingTrust isoneof themostprivatematters thatyouwilleverencounter.ButwhentheinheritanceinstructionsinLivingTrustsarenotcarefullyconsidered, themostprivatefamilymattersexplodeintoapublicandlegalforumwhereseeminglyeveryoneknowsyourbusiness.A lotof thegame filmyouwillnowsee in thispart is just that. It isadisplayofpreviouslyprivatefamilymattersthatbecamepublicinalegalcontextbecauseofLivingTruststhatwerenotcreatedusingthewisdomofTheLivingTrustAdvisor.

CHAPTER24

QuestionandAnswerTime!ORTAKETHEOPPORTUNITYTOASKTHISEXPENSIVELAWYERYOURQUESTIONS...ATNO

CHARGE

I always leave room at the end of my Living Trust seminars for Q&A, so Ithought I would follow suit with the last section of this book, the PostgameReview. Answering questions is my favorite thing to do as an inheritanceplanningattorney.Wheneveraquestionisposed,severalopportunitiesariseforme.

I get the opportunity to see how I performwith the answer.With somanyquestions being the same (“What is the Living Trust?”), I like to challengemyselfbygivinganswersthatdeviatefromthescript.Also,IwanttoseehowwellIfarewithquestionsthatdealwithsubjectsforwhichIhaveonlypracticalexperience (as opposed to formal class training), which, for the most part,concern familyandhumandynamics in the inheritancearena thatmaybestbeansweredbypsychologists.

IgettheopportunitytoexperienceaburstofnervousenergywhenIreceiveaquestion about inheritance planning that I have no clue how to answer. Ithappens.Maybeit’saboutsomeobscureandtechnicalregulationoftheInternalRevenueCode.PerhapsitdealswithaninheritancesituationthatIsimplyhavenever before heard about or encountered. Or it might be a question about asuper-sophisticatedestate tax reduction technique thatmaybeused forWarrenBuffett,BillGates,andDonaldTrumpbutwhichIhaveneverbeforedraftedorencountered.

WhenIreceiveaquestionatmyseminarsthatIdonotknowhowtoanswer,Ijustrememberthefive-step“savingface”processthatmyfathertaughtmesoIdon’t,ashesaid,“standup therewithablankstareand look likeadumbass.”Fortunately,Ihavenothadtoemployittoomanytimesinmy20-yearpractice.Intheinterestoffulldisclosure,thesefivestepsare:

1.Givethequestionerabriefgenericone-size-fits-allresponsethatkindof

toucheson thesubjectof thequestion.This is themost important step,because it shows the questioner and the attendees that I have not beenstymied—which,ofcourse,isnottrue.

2. Tell the questioner that I cannot fully answer the question because itssubjecttakesawaytimefromtheareasthattherestofattendeescametohear.

3.Instructthequestionertoapproachmeaftermytalkconcludesandwaittoaskmethequestionagainaftereveryoneelsehasleft—whichcanbequite awhile, because I amusually inundated after a talkwith signingbooks,makingappointments,andfieldingotherquestions.

4.Getthequestioner’sphonenumberore-mailaddresssoIcanrespondtothequestionafterIgetbacktomyofficeandresearchforananswer.

5.Findtheanswerandcommunicateittothequestioner.

Putting aside the positive fright I get with the rare question I cannotimmediately answer, I truly enjoy receiving and answering questions. Somepeople get their fun by hang gliding, making pottery, collecting coins, orwatching flies getting killed by bug zappers. For me, fun is coaching girls’softball(mydaughter’steam);beingwithmychildren(whentheyarenotupsetwithme);swimmingandsurfing;watchinganymoviethatco-starsEvaMendes(whom I believe is the second coming of Raquel Welch); and answeringinheritance planning questions—wherever and whenever: at my seminars, innewspaper columns, on radio and television call-in shows, at parties andrestaurants,overthephone,bye-mail,attheoffice,oratmyhome.Itjustmakesmefeelgoodtobeabletorespondtofolksinahelpfulandmeaningfulmanner.

Inmypreviousbook, I invited readers to askmeanyquestions—for free—about the Living Trust or anymatter in the inheritance arena that pertains tothem. Iwould now like to extend that invitation toyou,butplease follow theguidelinesIdiscussat theendof thisbookin“About theAuthor.”Here ismycontactinformation:

JeffreyL.CondonCondon&Condon632ArizonaAvenueSantaMonica,CA90401Office:(310)393-0701Fax:(310)394-3555E-mail:jeff@condonandcondon.net

TheTopTenQuestions

Without further ado and further revelation, here are variations of the mostcommonly asked questions I receive about issues that arise in the inheritancearena. The process uponwhich I basedmy determination ofmost common issomewhat informal: just me sitting at my computer typing this chapter whiletryingtorecallwhichquestionsseemtocomerepeatedly,andthosewhich,Ifelt,wouldbeofmost interest to the reader.But Idon’tbelieve I’m toofaroff thetrack on what you, America, most want to ask about what I know aboutinheritanceplanning.

Q.IhaveaLivingTrust,butIstilldon’tknowwhattheheckitis.Idon’twantanotherreviewwithmyattorney,andIdon’twanttobotherwithanymorereading.CanyoujustgivemeareallysimpledefinitionoftheLivingTrustsoIcanunderstanditonceandforall?

A.Sure.Focusonthisdefinition,andyouwillunderstanditfortherestofyourlife.

YourLivingTrustisyourafter-deathpowerofattorney.InyourLivingTrust,you appoint someone—your after-death agent—to sign your name to all thedocuments thatareneeded to transferyourassetsafteryourdeath, suchas thedeedtoyourhouse.

Whowillyourafter-deathagenttransferyourassetsto?Tothepersonsyou’venamedinyourLivingTrustasthebeneficiariesofthoseassets.

Whoisyourafter-deathagent?Whoeveryounamedasyourafter-deathagentinyourLivingTrust.

Initssimplestform,thatistheLivingTrust.

Q. My daughter inherited $250,000 from her uncle. She is receivingSupplemental Security Income (SSI), which includes medical benefits.Won’tthisinheritancecausehertolosehergovernmententitlements?

A.Yes.Ownershipofmoneyinexcessof$2,000willjeopardizehercontinuedeligibilitytoreceiveSSI.

WhatcanbedonetoensurehercontinuedreceiptofthosebenefitsfromSSI?

She can disclaim the inheritance,which is the same thing as renouncing it.But, ifmore thanninemonthshavepassedsinceheruncle’sdeath, shecannotmakeavaliddisclaimer.Also,shemaynotwanttogiveupthemoney.

Shecangiveawaytheinheritance.ButshewillbeineligibletoreceiveSSIforanumberofyearsfollowinghertransferofthatmoney.Andagain,shemaynotliketheideaofgivingaway$250,000.

Finally, she can transfer her inheritance to a SpecialNeedsTrust. This is atrustthatisestablishedtoholdandapplyfundsforherspecialneedsthatarenotcoveredbythefundsyourdaughtergetsfromSSI.

Specifically, SSI pays for your daughter’s basic needs for food, clothing,shelter,andmedical.Ifyourdaughter’sinheritanceisusedtopayforthosebasicneeds, SSI is no longer needed.But if her inheritance is used to pay only forthings that have nothing to do with those basic needs, such as travel andentertainment,thenshecancontinuetobeeligibletoreceiveSSI.

Therefore, by placing her inheritance in a SpecialNeedsTrust, those fundswillonlybeusedforherspecialneeds,whileSSIcontinuestopayforherbasicneeds.

Your daughter’s uncle could have left her inheritance directly to a SpecialNeeds Trust created in his Living Trust. But he didn’t, so your daughter willhave to establishherownSpecialNeedsTrust. In sucha casewhere apersonestablishesherownSpecialNeedsTrust,shewilllikelyhavetohireanattorneytofiletheappropriatepetitionwiththecourttoobtainanorderconsentingtotheestablishmentofthatSelf-SettledSpecialNeedsTrust.

Q.Onmy death,my sonwill inherit a substantial amount ofmoney andpropertyfrommyLivingTrust.He’sonhisthirdmarriage.I’mafraidtheinheritance will end up with a new wife or girlfriend, and not mygrandchildren. I know he will have a prenuptial agreement, but is thatenough to prevent his inheritance from being siphoned off by his newsignificantother?

A.Aprenuptialagreementbetweenyoursonandhiswifemaynotbeasufficientguarantee that yourmoney and propertywill end upwith your grandchildren.Onceyour son inherits yourmoneyandproperty, it’s his todowhathewantswith it, includingputtinghiswife’snameon thebankassets,brokerageassets,andrealestate.

Theonlywayyoucanobtaina100percentguaranteethatyoursonwillnotdiverthisinheritanceoutofthebloodlineisbyleavinghisinheritancetohiminaprotectiontrust,whichIdiscussindetailinChapter18.

The protection trust allows your son lifetime control of and access to hisinheritance while preventing him from using the inheritance for improperpurposes.Whatisanimproperpurpose?Anythingthatyousayitis.Youcanputa provision in the protection trust that states your son is prohibited fromtransferringownershipofanyinheritedassetstoanyotherperson.

Ifyoursonishisownprotectiontrustmanager,youwillberelyingonhimtopolicehimselftonotviolatethatrestriction.Ifyoudon’ttrustyoursontohonorthat restriction,youshouldnameacorporate thirdpartyashisprotection trustmanager, such as the trust department of a bank, that will follow yourinstructions to the letter.Then,onyourson’sdeath, themanagerofyourson’sprotectiontrustwilltransfertheremaininginheritancetoyourgrandchildren.

Q.Mysonisadrugaddict.Ilovehim,butIdon’tlovewhathedoes.Iwanttoleavehimaninheritance,butIjustknowitwillendupspentondrugs.Shall I just cut him out and leave all of my Living Trust assets to mydaughter?

A.Nobodywantstoleaveaninheritancetoachildwhoyouknowwillwasteit.Your idea of leaving everything to your daughter is a natural and instinctualresponsetothatconcern.

But,ifyoucutoutyoursonandleaveitalltoyourdaughter,badthingsmayhappen.

If your son has a tendency to violence or rage, you or your daughter couldbecomeavictimofthatphysicalaggression.

Your sonmay develop rancorous feelings toward his sister because hewillbelieve(rightlyorwrongly)thatsheisresponsibleforhimbeingcutoutofhisinheritance.

Yoursonmaybelievethatsincehissisterhashisshareoftheinheritance,shehasthedutytoprovideforhisfinancialneeds.

Yoursonmaybecomeahomelessorstreetperson.

In otherwords, by dumping your son from your Living Trust, youmay bedumpinghimintoyourdaughter’slife...andintothestreet.

Instead of cutting your son out of your Living Trust, perhaps it would bebettertoleavehimhisshareoftheinheritance,butinaprotectiontrustwherehehasnocontroloforaccesstothefunds.Inthisarrangement,youappointathirdpartyasthemanagerofyourson’ssharewhowillapplythefundsforhisbasicneedsinlife,suchasfood,clothing,shelter,andmedical.Youcanevenprovidethat ifyoursonsomehowgetscleanasmeasuredbysomeobjectivestandards,hecangaincontrolandownershipofhisfunds.The“carrot”ofgainingcontrolcouldevenconceivablybeanincentiveforhimtoshapeup.

Q.MyLivingTrust says that $100,000 shall go to theYMCA. Iwant theYMCA to use the money for proper purposes, like buying new athleticequipment or sending underprivileged children to YMCA camp for thesummer.HowcanIbecertainthatthefundswillbeusedthewayIwant?

A.Sinceyouwillbedead,youwillneverknowwhetherthemoneyyouleavetothe YMCA will be used to assist children or applied toward the purchase ofshrimpcocktailsauceforitsnextfundraiser.However,youwanttodieconfidentthatyourgiftwillbeusedfortheformer.

There are four steps you can take to increase the odds that the charity youselecttobeabeneficiaryofyourLivingTrustwilluseitsgiftinthemanneryoudesire.

First,inyourLivingTrust,youmuststatehowyouwanttheYMCAtoapplythe gift. If you want the money to be spent on sports equipment or campscholarships,putthatinstructionrightinthebequest.

Second, also state in yourLivingTrust howyoudonotwant the gift to beused. For example, in the Living Trust I would prepare for you, I wouldexplicitlystatethisadmonition:“TheYMCAshallnotusethisbequestforanypurposethatisnotdirectlyrelatedtopurchasingathleticequipmentorprovidingcampscholarshipsforunderprivilegedyouth.Forexample,theYMCAshallnotuse thisbequest for thepurchaseofany itemor service related to fundraising,travelor entertainmentof anyboardmemberor staffoperative,orpaymentofanyexistingorfuturedebtortax.”

Third, also state in yourLivingTrust that the president of theYMCAmustenterintoanagreementwithyourLivingTrust’safter-deathagentthatthefunds

willbeusedforthepurposesspecifiedbyyou.Addthatifthepresidentdoesnotmakesuchanagreement,thebequesttotheYMCAshallbecanceledandshall,instead,begiventoabackupcharity.

Fourth, let thefundraisingofficeof theYMCAknowthatyourLivingTrustincludesaspecificbequesttotheYMCAthatmustbeusedforthepurposesyousetforthinyourLivingTrust.

Q.We have three children. Our daughter is a successful businessperson.Our two sons are nice guys, but not really financially oriented.Whenweestablish our Living Trust, we want to appoint just our daughter as ourLivingTrust’safter-deathagent,becausesheisbetterequippedtodealwithinheritancemattersthanourtwootherchildren.Don’tyouagree?

A.Notonlyno,buthell,no!

Donotmakeonechildbossoveryourotherchildren.Donotcreateasituationwhere you have one child in power and your other children on the outsidelookingin.Thispotentiallycreatesabreedinggroundforsuspicion,resentment,andjealousy,whichwillresultinrancoranddivisivenessbetweenyourdaughterandyoursons.

Yourafter-deathagenthasalotofpowerintheinheritancearena:thepowertodecidewhethertoliquidaterealestateandstocks,thepowertodeterminewhichattorney and accountant to use, the power to decide which assets will bedistributed to thebeneficiaries, thepower todecidehowandwhen the federalestatetaxwillbepaid,andonandon.

While all these decisions are being made by your daughter, your otherchildren are sitting on the sidelines, wonderingwhat is going on, questioningwhethertheirsister’sdecisionsareprudentorself-serving,andaskingwhytheyhavenotbeencontactedfortheirinput.

Andfanningtheflamesarethefeelingsofyourotherchildrenthatyoudidnotlovethemasmuchortrustthemtodothejobthatyourdaughterhassolelyforherself.

If youwant to name just one child as the after-death agent of your LivingTrust,youhave tosellmeon thereasonfordoingso. Ifyou tellme thatyourotherchildrenaredrugaddicts,mentallyill,permanentlyestranged,ormissing,IwillacceptyourdecisionanddraftyourLivingTrustwiththatonechildnamedasthesoleafter-deathagent.

However,ifyoutellmethatyourotherchildrendonotfinanciallymeasureupto your chosen child, or that your other children are located in faraway andexotic locales, or that all your children do not get along, or that you firmlybelievethattoomanycooksspoilthebroth,Iwillattempttochangeyourmindbyaskingyou,andansweringforyouthisquestion:

Doesyourreasonforappointingonlyonechildasafter-deathagentoutweightheharmthatwillcometoyourfamilybecauseonlyonechildisnamedasyourafter-deathagent?

Answer: No way! In my mind, your goal of an efficient Living Trustadministration after your death never trumps the potential harm to yourchildren’ssiblingrelationshipscausedbyyourimpositionofapowerimbalance.

So,donotappointjustoneofyourchildrenasyourafter-deathagent.Appointallyourchildren.Ifonechildelectsnottoserve,hecanalwaysresignordeclinetoact.Thedecisiontoserveisshiftedtoyourchildrenandimposedonthembyyou.

Q.IamaU.S.citizen.Mywifeisnot.WehaveaLivingTrusttowhichwetransferredallofourjointassets.ArethereanyproblemsthatwilloccurifIdiebeforemywife?

A.Oh,yes!

There is something in the federal tax lawcalled themarital deduction.Thismeansthatthereisnoestatetaxonthetransferofassetsfromadeceasedspouseto a surviving spouse. In other words, there is a dollar-for-dollar estate taxdeductionforeverydollargoingfromadeadspousetoalivespouse.

But,inordertogetthisestatetaxbreak,thesurvivingspousehastobeaU.S.citizen.Evenifyourwifehasagreencardorpermanentresidentstatus,shewillstillnotget thatestate taxbreak,becauseshe isnotbeaU.S.citizen.Thus, ifyoudiebeforeyourwifeandyourwifeisnotaU.S.citizenatthetime,shewillberequiredtopayanestatetaxoneverydollarshereceivesfromyourshareoftheLivingTrustassets.

Why did Congress make this rule? Because Congress decided that yournoncitizen wife is likely to return to her country of origin, taking the familywealthwith her. If yourwife takes such an action, she prevents the IRS from

imposinganestatetaxonthoseassetsonherdeath.

Whatcanbedonetoeliminatetheestatetaxifyoudiebeforeyournoncitizenwife?Therearetwosolutions.

First,yourwifecanbecomeaU.S.citizenbeforeyourdeath.

Second,inyourLivingTrust,youcanprovidethatifyoudiebeforeyourwife,yourhalfoftheLivingTrustassetswillgotoaspecialsubtrustcalledaqualifieddomestictrust(QDOT).WiththeQDOT,youprovidethatyourhalfwillbeheldby your wife and a third-party U.S. citizen as co-managers of the assets. ByappointinganAmericanco-manager,yougivetheIRSassurancethatsufficientcontrolsareinplacetopreventyourwifefromfleeingtohercountryoforiginwiththeassetsitwantstotaxwhenyourwifedies.

In theQDOT, the co-manager is instructed to pay to yourwife income andadditional funds that arenecessary forherbasicneeds, suchas food,clothing,housing,andmedical.TheQDOTfurtherprovidesthat ifyourwifebecomesaU.S.citizen,thesubtrustendsandyourwifetakesovercontroloftheassets;butifnot,thentheQDOTassetspasstoyourchildrenorotherheirsonyourwife’sdeath.

Q.Iknowmyparentshaveasubstantialestate.IalsoknowtheyhavenotdoneanythingaboutestablishingaLivingTrusttoavoidprobateorputtingtogetheraplantoreduceestatetaxes.HowdoIgetthemtodosomethingwithout coming across to them like a greedy guy who can’t wait for hisparentstodie?

A.Iusedtobelievethatpeoplewouldjumpattheopportunitysaveprobatefeesandestate taxes for their family. Ioncebelieved that“cuttingoutprobate feesandtaxes”weremagicwordsthatwouldspiritpeopletomyofficetoestablishaLivingTrustorotherinheritanceplan.Asaresult,Ihavespokenthosewordstotensof thousandsofpeopleduringmy20-yearpractice at seminars,meetings,andconsultations.Ifyoucountmyradioandtelevisionappearances,thenumberoffolkswhohaveheardorwatchedmespreadthisgospeljumpstothehundredsofthousands.

Why,then,doInothavehundredsofthousandsofLivingTrustclients?WhydoInotevenhavetensofthousandsofLivingTrustclients?Here’sthetruthIhave gleaned after talking with so many client prospects during my practice:

People do care about the loss of theirmoney to probate and estate taxes aftertheyaregone,butnotenoughtopayalawyertodosomethingaboutit.

That’sthetruth,pureandsimple.Payingalawyertodoanythingisoutofthecomfort zone for somany people, especially for thosewho have not had anypriordealingswithlawyers.

People are not stupid. They recognize the benefits of the Living Trust andestateplanning.Buthowmuchdesireistheretopayforaproductthatproducesa benefit that does not come into play until after their deaths? If your parentsweretoanswerthisquestion,theymightanswer,“Notawholehellofalot.”

So, in thefaceof this“Afterme,whocares?”mind-set,whatcanyoudo toget your parents to do something? Forget about the former magic words of“avoidingprobate” and“savingestate taxes.”Yourparentshave alreadyheardthem ad nauseam and have done nothing. Instead, use this three-step plan ofattack:

First, find aLivingTrust lawyer and hire him or her to establish your ownLivingTrust.Itdoesnotmatterwhetheryouneedone.That’snotthepoint.Thepoint is to be able to position yourself to say the words to your parents thatappearinthethirdstep.

Second,whileyouareintheprocessofestablishingyourLivingTrust,gotoyourparents’houseandshow themadraftof thedocument.Donot send it tothem.Donotleaveitontheirfrontporch.Youhavetophysicallydropitintheirlaps.

Third, while they are thumbing through the document, you then say thesewords:

“DadandMom,asyoucansee,I’mintheprocessofestablishingmyLivingTrust,andit’sgreat.WhenI’mgone,it’sgoingtomakethingsaloteasierformyfamily.Andyouknowwhat?IfIhaveone,youshouldhaveone.Letmemakeanappointmentforyoutoseemylawyer.He’sterrific.Andifyou’rehappywithhim,lethimdoaLivingTrustforyou,andI’llpay.”

With these steps, youwill have removed from their path two obstacles thatpreventedthemfromestablishingtheirLivingTrust:findingalawyerandpayingalawyer.

Ifthatdoesn’thelp,Isupposeyoucantrygunpoint.

Q.Wedonothaveanyrealrelationshipwithourdaughter.Wemayspeakwith her a few times a year, but we do not feel like including her as abeneficiaryinourLivingTrust.Canwecutherout?

A. There is no law that says you have to leave anything to a child. It is yourmoney.Youcanleaveittowhomeverandhoweveryouwant.Leavemoretoonechildandlesstoanother,leaveoutonechildentirely,oromitallyourchildren.Theseareyourdecisions.

IfyouaregoingtocutoutyourdaughterfromyourLivingTrust,youhavetodo it right. If youdo itwrong, youwill leave amess that your other childrenhavetocleanup.

Youmust assume thatwhenyoudie, your daughterwill hire an attorney topreparealawsuitcontestingyourLivingTrust.Yourdaughterneedsareasontosupportthatcontest,whichshewillfind.Orifshecannotfindareason,shewillmakeoneup.

For example, did you know that your other children forced you intodisinheriting her thoughduress or coercion?Were you aware that youdid nothavetherequisite“testamentarycapacity”whenyousignedyourLivingTrust?Don’tyourememberthatyoucutoutyourdaughterbymistake?Well,youmaynotrecallallofthat,butyourdaughterandherlawyercertainlydo,eventhoughtheywerenotonthesceneatthetime.

WhenyourotherchildrenarefacedwiththelawsuittooverturnyourLivingTrust, they may find it cheaper to settle the case than pay a lawyer for thedefense. Your daughter knows this; people often bring lawsuits for the solepurposeofextortingasettlement.

So,whatyouhavetodoishelpoutyourotherchildrenbyhelpingtopreparethedefenseofthatafter-deathlawsuitbeforeyoudie.

First,aroundthetimeyousignyourLivingTrust,visityourfamilydoctorandget examined. Then, have your doctor write a letter on his letterhead, or aprescriptionpad,whichsays that, in thedoctor’sopinion,youarecapableandcompetenttotheextentthatyoucanhandleyourownfinancialaffairsandmakeyourownfinancialdecisions.Give that letter toyour lawyer tobeput inyourfile.

Second,writealettertoyourdaughterinyourownhandwritingthatexplainswhyyou are cutting her out of yourLivingTrust. Shewill not be shown this

letter.Youwill not send it to her. Itwill remain in your file in your lawyer’soffice,untouchedandunseen.

Third,make an audiotape of yourLivingTrust’s signing ceremony.On thistape,yourlawyerwillaskyoutoconfirmthatyouareawarethatyouarecuttingoutyourdaughter.Youranswersmustbe ina tenorand tone thatconveyyourunderstandingofyouractionand thestrengthofyourconviction in taking thataction.Onceagain,thisitemwillstaywithyourlawyerinthefile.

Whenyoudie,andyourdaughterannouncesthatthelawsuitisforthcoming,yourlawyerwillsendthesethreeitemstoyourdaughter’slawyer.Uponreceiptandreviewoftheitems,yourdaughter’slawyerwilladvisetheclienttodropthelawsuit.Thatwill be the endof it.Your daughterwill not be able to find anylawyertotakethatcase,evenonacontingencybasis.Nolawyerwantstowalkintothemouthofacannon.

Onelastthingaboutcuttingoutachild:Evenifitgoesagainstyourgrain,youshould tell your daughter you are leaving her out of yourLivingTrust.Why?Because, in my experience, I have found that greed may lead to familyreconciliation.

Iamtalkingaboutexactlywhatyou thinkIamtalkingabout. Iwantyou toappealtothegreedinyourdaughtertomotivatehertocomebackintothefamilyfold.Ittakeswhateverittakestogetestrangedfamilymemberstalkingtoeachother;andifwhat it takes is theprospectofmoney,sobe it. Ihavefoundthatmoney can accomplishmore than anything else to quiet the squeakywheel offamilyestrangement.

Infact,theincidenceofestrangementissocommon,Icreatedastandardformletterappealingtothegreedinthechildtobecutout.Asitappliestoyouandyourdaughter,thisiswhatmy“greedletter”statestoyourdaughter:

DearDaughterofClients:

Your parents have conferred with me about a Living Trust that, fornow,excludesyouasabeneficiary.Basedontheestimatedvalueofyourparents’ estate, this would result in a loss to you of $500,000. Iunderstandthat Iamnotyourfamilyadvisor,priest, rabbi,mediator,orwhichever facilitator you prefer. But, as your parents’ attorney, I onlywant to say that while your parents are alive, there is a chance forreconciliation that could result in you receiving a share of theirLiving

Trustassets.Obviously,thatopportunityendsafteryourlastparentdies.

Youwanttoseequick?

Ihaveexperienceda75percentsuccessratewiththegreedletter.Irememberoneclientwhowashesitant in allowingme to send thegreed letter tohis sonbecause he felt it was unseemly to appeal to greed to effectuate a changedrelationship.Fiveyears later,after the letterhadservedas thecatalyst tobringfatherandsontogether,hetoldmehecouldn’tevenrememberwhatitwasthatbroughtaboutthereunion.Allhecaredaboutwasthathewasreunitedwithhisson.

Sowhatifittakesgreedtobringaboutfamilyreconciliation?Ifthat’swhatittakes,that’swhatittakes.

Q.IchangemymindallthetimeaboutwhogetsmypersonalpropertyafterI’mdead.ButI’msickofcomingtoyouandpayingafeeeverytimeIwanttomakethosechangesinmyLivingTrust.WhatcanIdotocutyououtoftheloop?

A.Youarenot theonlyonewho is tiredofmaking those typesof changes toyourLivingTrust.I’mnotcrazyaboutthemmyself.

One of the simpler services I render is amending Living Trusts toaccommodate changes in thedispositionofpersonal property.Rings, antiques,cars,computers,clothes,dogs,cats,pictures,art—allthestuffthatyouhaveinyour home, storage facility, or safe-deposit box. But do not equate simplicitywithlackofeffort.LikeanyamendmenttoaLivingTrust,apersonalpropertyamendmentstill involvesintake,attorneytime,drafting,review,secretarytime,andclienttime.WhileIdon’tchargeforLivingTrustconsultationsonthephoneorinperson,Idochargeforwork,which,ofcourse,includesthepreparationofthesimplepersonalpropertyamendment.Asmyfather said,“Jeff,youcanbethe greatest estate planning attorney that ever lived,which you are not, but ifyou’renotbeingpaidforyourwork,youmightaswellbeatthebeach.”

Still, I don’t like drafting personal property amendments. The clients resentme because they feel thework is not enough to justify a charge. I resent theclients because they resentme, and because the personal property amendmenttakes me away from more pressing matters, more intellectually challengingpursuits,and,yes,moreworkthatcanresultinhigherbilling.

So,toremovemyselfandtheclientsfromthisviciouscircleofresentment,I

nowcraft a standardprovision in all ofmyLivingTrusts called the “PersonalPropertyMemorandum.”Thisprovisionstatesthattheclientsinstructthatalloftheirpersonalpropertywillbedistributedbytheafter-deathagentinaccordancewith their wishes as expressed in a separate Personal Property Memorandum(“PPM”).IsupplyclientswithPPMformsonwhichtheysimplymaketheirowninstructionsonwho receiveswhat.ThePPMdoesnothave tobeon the formthatIprovide.Itcanbeonanypieceofpaperthecliententitles“PPM.”

Thebeautyof thePPMis that if theclientschangetheirminds, theysimplyeraseor crossout one instruction and fill in anew instruction . . . allwithouthavingtoinvolvethelawyer!ItdoesnotmatterifthereareendlessrevisionstothePPM.It’sstillvalid,andtheinstructionsonthePPMarestillvalid.Thisisn’tgradeschoolwhereyougetyourgrademarkeddownforneatnessissues.

Certainly, the possibility looms that a PPM can be changed or altered bysomeoneotherthantheclient.Topreventthatscenariofromcomingtofruition,IinstructtheclienttosendacopyofthePPMeachtimehemakeschangestoit.Uponmyreceiptofthecopy,Iplaceitintheclient’sfile.Whentheclientdies,IwillcomparethecopyofhisoriginalPPMtothecopyinmyfile.Iftheoriginalcontainschangesthatareinconsistentwiththecopy,Iwillmakefurtherinquiryinto thematter todetermineifa“fastone”hasbeenpulled.But,asapracticalmatter,IhavenotyethadsuchascenarioarisewithanyPPM,althoughthereisalwaystheproverbialfirsttime.

WhatifclientsdonotincludeinstructionsinthePPMforthedispositionofalltheirpersonalpropertyitems?Forexample,perhapstheyusedthePPMonlytodistributetheirjewelry,piano,andguncollection,butdidnotmentionwhogetsthe clothes, furniture, or automobile. Or even more compelling, perhaps theclients did not complete any portion of the PPM. Who gets their personalpropertyinthatcase?

Tobothconcerns,fearnot.InthePPMprovisionintheLivingTrust,thereisabackupplanthatsayswhathappenstoitemsnotdescribedintheseparatePPM,orintheeventthattheseparatePPMdoesnotexistatall.Thebackupplancanbewhatevertheclientwantsittobe.Perhapsitleavesthepersonalpropertytotheclient’schildren“astheysoshallagree.”Orperhapsitgivestheafter-deathagent full discretion on selecting the recipients. Or perhaps it says that allpersonal property shall be sold, with the sale proceeds distributed in equalshares.When itcomes to thebackupplan, thepossibilitiesareonly limitedby

imagination.

CHAPTER25

ARandomSamplingofCautionaryTalesfromtheInheritanceArenaORREADABOUT,ANDLEARNFROM,MYPREVIOUS

MISTAKESANDTHEMISTAKESOFMYCLIENTS

Legal knowledge aboutLivingTrusts is not enough to prevent problems fromoccurringintheinheritancearena.Likethemedicaldoctorwhogainsexperienceon the ills and bodies of patients, so it iswith the Living Trust attorneywhogainswisdom, understanding, and sensitivity to forecasting potential problemsbyseeingwhathappenswhenmoneyandpropertypassfromadeceasedpersontoaspouse,children,grandchildren,andothers.

Thestoriesinthischapteraretrue.Eachstoryisrepresentativeofthingsgonewrongbecauseof the failure to foreseeconsequences in theprocessofmoneyandpropertygoingfromthedeadtotheliving.TheyareincidentsfromwhichIgainedexperiencetobetteradviseclientsontherightwayoftransferringmoneyandpropertyafterdeath.

Withthesestories,youwillgaininvaluableinformationandinsightaboutyourown Living Trust or other inheritance plan that comes only from being therewhenassetsgofromthedeadtotheliving.

Withthesestories,youwillseethatunintendedconsequencesarecommonintheinheritancearena.

Withthesestories,youwillbenefitfrommymanyyearsofobservingthehurtthatoccurswhenamistakeismadeintheLivingTrustortheinheritancearena.

CautionaryTale1:TheLastOneontheSceneGetstheMoney

Lessontobelearned:Ifoneofyourchildrenbecomesyourcaretakerwhenyouare elderly, that childmay endupwith a greater share of theLivingTrustassets.

Mr.Washington’solderdaughtercalledmefromIdaho,complainingthatshehadnotbeenabletocontactherfathersincehersistermovedintohishousetotakecareofhim.

“Isendhimbirthdaycards,Christmascards.Noreply.WhenIcallhim,mysisteralwaysanswersandsaysheisn’tabletocometothephone.It’slikeshe’safraidtoletmecontacthim.”

I recall saying, “That doesn’t sound good. It’s always the same.One of thechildrengetsintocontrolandendsupwiththemoney.”ItisascenarioIhadseennumeroustimes:

•Asurvivingparentbecomeselderlyandneedscare.•Somechildrenareunableorunwilling to care for thatparent, leavingavacuumthatisfilledbyawillingchild,orimposedonthatchildbecauseallofhissiblingsoptedoutoftheburden.

Prettysoon,thechildleftholdingthebagrealizesthatcaringfortheparentona daily basis presents a significant imposition on his lifestyle,while the othersiblingsgoonwiththeirnormallives.

Eventually, the caretaker child thinks about being compensated for hisservices.

Mr.Washingtonwasultimatelypersuaded to seemeabouthisLivingTrust.Themoment I saw him in hiswheelchair being pushed intomy office by hiscaretakerdaughter, I just knewwhatMr.Washingtonwasgoing to say tome,andhedidnotletmedown:“Mr.Condon,IwantanamendmenttomyLivingTrustthatleaves80percenttomydaughterwholiveswithme.Shedeservesitfor taking care ofme.The other 20 percent can gomydaughterwho lives inIdaho.”

Youshouldhaveseenhisdaughter’sfacewhenI toldMr.WashingtonthatIwouldnotdraftthatamendment.Withhermouthagapeandcomplexionturningbeet red, I said, “Mr. Washington, there is no way I am going to do thatamendment. I’ve been through this too many times.When you die and yourIdahodaughterfindsoutyouleftheronly20percent,I’mtheoneshe’sgoingtoscreamat.”

“Whatareyoutalkingabout?”Mr.Washingtonasked.

“I’mtalkingaboutwhyyouarehere.Whocameupwiththe80/20splitinthe

firstplace?You?Idon’tthinkso.Itwasyourcaretakerdaughter,wasn’tit?”

Thecaretakerdaughterwassilent.SowasMr.Washington.ItookfromtheirsilencethatIhadhitthenailonthehead.SinceIwasonaroll,Ikeptgoing.

“Listen,Mr.Washington.Takemyadvice.Leaveyourtrustthewayitiswithallofyourassetsgoing toyour twodaughtersequally. Justpayyourcaretakerdaughteranagreed-uponrateperhourofservice.Payitasyougoalong.That’swhat your daughter would want if she had a job working for someone else.Instead, she’s working for you, so you might as well pay her. Thanks forcoming.”

Ididnothavesuchawarmbedsidemanner,Iadmit.ButsometimesIhavetobe abrupt in order to get my point across, especially to folks who come inthinking“A”andneverbeforeevenconsidered“B.”

WhenMr.Washingtonandhiscaretakerdaughter leftmyoffice (whichwasabout fiveminutesafter theyarrived), I thought theywould takemyadviceofpay-as-you-go-along. Until I received a call from the Idaho daughter,complaining that shestillhadnoaccess toher father.During thatcall, Iaskedherwhethershehadeverheardfromhersisterorfatheraboutthatpaymentplan.

TheIdahodaughterrespondedthatshedidnotknowwhatIwastalkingabout,which, tome,meant that thecaretakerdaughterhad foundanotherway togetpaid.IinstructedtheIdahodaughtertocheckouttitletoherfather’shouseandbankaccounts.Why?BecauseI’dbetthatthecaretakerdaughterconvincedherfathertoputhernameonthoseassetsasaco-owner.

Afewdayslater,theIdahodaughtercalledmebacktotellmeIhadguessedcorrectly. The jaded attorney was right, but only because he had become socynical throughbeingapercipientwitness tosimilarscenarios in thepast.ButtheresultisthatwhenMr.Washingtondies,hiscaretakerdaughterwillown100percentofthoseassets,cuttingouttheIdahodaughterentirely.

So,whatcouldtheIdahodaughterdotoremedythissituation,toremovehersister’s name from those assets and transfer them back to her father’s LivingTrust?Wediscussedlitigationtoestablishaconservatorshipoverherfather.Asconservator, she would have the power to cancel the joint ownership of herfatherandsisterandreturntheassetstotheLivingTrust.However,togettothatpoint,theIdahosisterwouldhavetoprovethatherfatherwasinfluencedbyhiscaretakerdaughterintoputtinghernameontitletohishouseandaccountsand

that he was unable to resist that influence. But the Idaho daughter was notdesirousofspendingherownmoneyforwhatwouldbeanever-endingpursuitinvolvingalotofexpensivemedicalexpertsandtestimony.

Finally,Isaid to theIdahodaughter,“Ifyoudon’twant tosue, thenthere isonly one solution.Get back into your father’s life. You be the one to get hisgroceries, take him to the doctor, drive him everywhere, clean up after him,suffer through chemotherapywith him, get hismedicine, and do all the otherthingsyoursister isdoingforhim, includingwatchinghimdie.Canyou leaveyourlifeinIdahoanddothat?”

Therewasalongsilenceonthephone.Iaskedagain,“Canyou?”

TheIdahodaughtertimidlyreplied,“Thanksforyourtime.”Thenshehungupthephone.

Post-Cautionary Tale Comment: Whenever I get a call from one siblingsaying that another sibling has taken over the surviving dependent parent, Iautomatically assume that the type of financial elder abuse described in thisCautionaryTaleistakingplace.

You should recognize that the child who takes care of you in your elderdependentyearsdeserves,andisentitledto,compensationforservicesrenderedand should be paid as you go along. In yourLivingTrust, you should have aspecific provision that states that if you become incapacitated, your lifetimeagentshallpayasalarytoacaretakerchildinanamountcommensuratewiththemarket rate for suchservices.Thisarrangement ispreferable toyourcaretakerchildsimplyhelpinghimselftoyourassetsbecausehethinkshedeservesit.

ThebestadviceIcangivetoyoutopreventsuchatakeoverbyoneofyourchildren is to not allow this situation to arise. Tell your children to stayconnected.Tellthemtheycannotexpecttoreceiveafullshareoftheinheritanceifthecaregivingburdenisshiftedto,orassumedby,oneofyourchildren.

CautionaryTale2:ANewMarriageRequiresaNewLivingTrust

Lesson to be learned: If you are on your second spouse, your failure toupdateyourLivingTrustcangiveyoursecondspouseinheritancerightstoyourLivingTrustassetsifyoudiefirst.

Mr.Gibsonwasabout85,buthedidn’tknowhisexactage.BorninPoland,he left to escapemilitary conscription.He came toAmerica, gotmarried, andhadasonnamedSam.ImetMr.GibsonwhenIsetupaLivingTrustforhimandhiswifethatsaid,inessence,thatSamwouldgetalltheLivingTrustassetswhenhis lastparentdied.Mrs.Gibsondieda fewyears later, andMr.Gibsonmovedintoanassisted-livingfacilitysohewouldn’tbeaburdentohissonandhiswife.

Thatsoundsfairlyconventional,doesn’tit?Butwhatisalsosomewhattypicalforwidowersisgoingasecondtimearound.Afteronly10daysattheassisted-livingfacility,Mr.Gibsonmetalady,somehowmanagedtotraveltoLasVegasonacasino junket,andmarriedher!Nooneknewof thisplan.Whoknows ifevenMr.Gibsonknew?

One thing was certain, though. As soon as Sam found out that he had astepmother,hecalledmyofficetoseeme.Whenwemet,heaskedme,“Didmydadconsultyoubeforehegotmarried?”Isaid,“Areyoukidding?Ionlyheardaboutitwhenyoutoldme.Butyourdadshouldhavetalkedtomebeforetakingthatplungetodoaprenuptialagreement.”

IalsotoldSamthathisdadhadtoamendhisLivingTrusttomakesurethathisnewwifewouldnotendupwithuptoone-halfoftheLivingTrustassetsifhediedbeforeshedid.Why?BecauseunderCalifornialaw,hisnewwifewouldbeentitledtoone-halfunlesshesignedanamendmentspecificallyexcludingheras a beneficiary. When I told Sam that he could lose a good part of hisinheritance,healmostwentcatatonic.

Afterthatmeeting,Samwenttohisfatherandtoldhimtoseeme.Mr.Gibsondeclined, supposedly saying, “Why? I’ve already spent a lot of money withCondonformyLivingTrustleavingeverythingtoyou.Whyspendmore?”

Samwouldnot let it rest.Hehadmesenda letter tohis father that said, inessence: “Mr. Gibson, if you don’t sign an amendment to your Living Trustexcludingyournewwife,shewillendupwithhalfofyourestate.I’msureyouarefondofyournewwife,butyouhaveknownherforonlyafewweeks.Wouldyouratheryourassetsgotoyourlifelongson,ortoanalmostvirtualstranger?”

Two weeks later, not having heard from Mr. Gibson, I called him at theassisted-living facility. Expecting to speak with a mentally addled, hard-of-hearingdependentadult,Ishoutedamonosyllabicrecitationoftheissueathandintothetelephone.IfeltlikeanidiotwhenMr.Gibsonsaidinaclear-as-a-bell

voice, “Mr. Condon, why the hell are you screaming? Do you think I’m adodderingoldcodger?Iunderstoodeverythingyousaid!”

Mr. Gibson said he would think about changing his Living Trust. I asked,“Whatistheretothinkabout?”ThenheandIhadabriefexchangeofwordsIhaveneverbeenabletoputoutofmind:

Mr.Gibson:Yeah.I’llgetbacktoyou.It’stimeforlunch.

Me:Fine.Don’tdieinthemeantime.

Whyhave thosewords resonatedwithme to this day?BecauseMr.Gibsondied the next day!Hewasn’t supposed to die until after I got him to sign anamendmentcuttingouthisnewwife.Buthedid.

Mr.Gibson’snewwifehiredanattorneywhoclaimedone-halfofhisestate,and that’s what she got. It was a big price for Sam to pay for his father’spenuriousness.

Post-CautionaryTaleComment:Theforceofcircumstancesorneglectmayresult in the failure to execute a prenuptial agreement or Living Trustamendmentbeforeor immediatelyafteranewmarriage.Asa result, it isverycommontorelyonapreviouslyestablishedLivingTrusttodirecttheflowoftheinheritance.But,asseenwiththisCautionaryTale, theeffect is theunintendedconsequence of giving the new spouse certain inheritance rights in a LivingTrust.

You can leave your new spousewhatever you like, even all of yourLivingTrust assets if that is your desire. It’s yourmoney and property, and you canleaveitasyouplease.However,ifyouareonyoursecondtimearoundanditisnotyourintentiontobestowasignificantportionofyourLivingTrustassetstoyour new spouse, youmust hightail it over to your lawyer’s office for a verysimpleamendmentthatlimitsyournewspouse’sinteresttothoseassets.

CautionaryTale3:SometimesHavingTooMuchMoneyCanBeaCurse

Lessontobelearned:Ifyouhavebeenblessedwithafortune,youhavetogivesomethoughttowhethertheinheritanceofthatfortunewillturnyourchildrenawayfromlivingaproductivelife.

Mr.KendallwasoneofthenicestmenIeverhadthepleasuretomeet.Hewasmarried,withtwoelementaryschoolchildren,abeautifulhome,andnodebts;hehadneverbeenarrestedforanything,andwasactiveinlocalcommunityaffairs.ThatsoundslikethelifeIwant.

Sowhatwastheproblem?Mr.Kendallwasinhismid-40sandhadneverheldasteadyjobinhiswholelife.Hewasatrust-fundbaby.Hisgrandparents,nowdeceased,establishedthetrustinthelate1920sforthebenefitoftheirchildren,grandchildren,andgreat-grandchildren.Afterhisgrandparents’deaths,theafter-deathagent (oneof those stuffyEastCoastbanks thathavebeenaroundsincethe beginning of time) started to send him $25,000 monthly, which wouldcontinuefortherestofhislife.

Again,whatalife!Canyouimagineanexistencewheretheonlyproductivethingyouhavetodoiswaitbyyourmailboxonceamonthforthepostalcarriertodeliveryour$25,000monthlyallowance?

When Mr. Kendall dies, the trust says his children will receive the entireprincipal of an estate worth approximately $25 million. They will receive itoutright,asin“Hereyougo.Enjoy!”

The prospect of big and easy money deterred Mr. Kendall from anyproductive life. With the constant knowledge that he never had to worry, hebarely finished high school, started college to follow his buddies but soondroppedout,andneverhadanyreallysteadyorgainfulemployment.Still,Mr.Kendall had enough self-awareness to know how easy access to funds ruinedhim. As he said to me, “I never really had the motivation to do anythingproductive.Myparentsgaveuponexpectingmetofindajob.IguesstheyfeltsinceIwasneveraproblemtothem,they’djust letmeslidealong;andhereIam. But, Mr. Condon, even though it’s too late for me, I don’t want thishappeningtomychildren.”

I’msurethatifhisgrandparentshadbeenawareoftheharmtheirtrustcoulddototheirgrandson,theywouldneverhavesignedthedocumentthatprovidedtheimpetusforhistrust-fund-babylifestyle.But,atleasthewassmartenoughtoknow thedownsideof idleness anddidnotwant to inflict that lifestyleonhisownchildren.

Andthat’swhyhecametoseeme.Hewantedtofindawaytodivertthetrustmoneyawayfromhischildrensotheycouldleadmoreconventionallives.

Ireadthetrustdocument.ItallowedMr.Kendalltodivertthetrustassetstoacharitable, educational, or religious organization of his choice if he had nochildren.Ofcourse,hehad twochildren,so thatalternativewasanonstarter. IhadtofindanotherwaytorearrangethetrusttoaccomplishMr.Kendall’sgoal.So,Itoldhim,“Hey!That’swhatjudgesarefor.Let’sgotocourtandseeifwecangetajudgetochangethetermsofthetrust.Maybewecankeepthemoneyfromgoingtoyourchildrenoutrightwhenyoudie.”

Onecourtpetitionand$10,000 inattorneys’ fees later, therewewere in theprobatedivisionoftheLosAngelesSuperiorCourttoaskthejudgetoallowMr.Kendall to“bust the trust”—meaning that the termsofa trust,even if theyareirrevocable, can be changed if the proponent of those changes can convince ajudge that the changesare in thebeneficiaries’best interests.ThepartieswereMr.Kendall, the bank,Mr.Kendall’s parents, andMr.Kendall’s children.Allwere represented by attorneys, each charging at least $350 an hour. I putMr.Kendallonthestand,andthefollowingexchangetookplace:

Me:Mr.Kendall,areyouabum?

Mr.Kendall:Heck,yeah!

ProbateJudge:Iwanttoseeallthelawyersinmychambersrightnow!

Inchambers, the judgesaid,“Inallmy25yearsasa trial judge, I’veneverheardalawyeraskhisownclientifhewasabum!Andyourclientevenseemedhappy to say yes. What is going on here?” I explained how Mr. Kendall’sinheritance ledhimby thenose toanunproductive life, and thathewanted topreventhischildrenfromsufferingthesamefatebychangingthetrustso theywouldnothavetotalaccesstotheirwealthontheirfather’sdeath.ThelawyerforMr.Kendall’s parents noddedhis head in agreement.The lawyer for the banksaidhedidnotcarewhatthejudgedid.

Alleyes then turned toward the lawyer forMr.Kendall’schildren,whowasappointedbythecourttorepresenttheirinterests.Thejudgeasked,“Well,whatis thepositionof theremaindermen?”(Theremaindermenare thebeneficiarieswho receive the principal after the death of the income beneficiaries.) Thelawyersaid,“JustlikeIsaidinmyopposition,Judge.Wedon’tknowanything.Thechildrenmay turnout tobepotheads,or theymayuse the funds to jump-start a company to create cold fusion in a kitchen sink. How can we be sopresumptive as to automatically assume that great wealth will bring aboutwastedlives?”

Thejudgesaid,“Wecan’t.Mr.Condon,whatwereyouthinking inbringingthismattertocourt?Wereyouhurtingforfees?”

I do not bring specious actions, and I do not churn clients for fees. I trulybelievedintheconceptofMr.Kendall’svision,soItookhiscase.Nonetheless,thejudgechidedmefortakingonacausethat,accordingtohim,Ishouldhaveknownwouldgonowhere.Thenhewentbackon thebenchanddismissed thepetition. The trust remains as is. When Mr. Kendall dies, his children willreceivegreatwealthwithoutanycontrols.

Post-CautionaryTaleComment:Anunintendedconsequenceofatrustforachildorgrandchildisthediminishment,orremoval,ofthemotivationforhighereducationorgainfulemployment.Whyworkwhenyoucansurf,playtennis,orengageinwhateverotheractivityfloatsyourboat?

So, the question becomes: how much inheritance is too much inheritance?Onefamousinvestorstatedthathewouldleavehischildrenenoughsotheywillnotgohungry,butnotsomuchthattheywillfeeltheyneverhavetowork.Thatis a worthy ideal, but where does the rest of the money go? To a charity,perhaps?

Sarcasticallyspeaking,yeah,right!Manyofmymoneyedclientstellmetheywish they had the courage to minimize the amount of wealth to a child orgrandchild, but they did not spend 50 or 60 years of their lives accumulatingwealth just to see it removed from the family bloodline. However, there aresolutions that can be incorporated into the trust that are designed to prevent asignificant inheritance fromundermining thedesire to lead aproductive life. Idiscussthesesolutions,sometimescalledincentivetrusts,inChapter19.

CautionaryTale4:KeepYourOpinionstoYourselfIfYouWanttoInheritfromYourGayRelative

Lessontobelearned:Ifyouobjecttoyourfamilymember’sgayorlesbianlifestyle,youmayfindyourselfcutoutoftheLivingTrust.

I practice in Santa Monica, which is miles and worlds away from WestHollywood and Silverlake, two areas of Los Angeles County that have asignificant gay population. Nevertheless, I seem to have attracted as clients a

bevyofupscaleandfinanciallysuccessfulgaycouplesfromthosecities.Why?Becauseofthisoneexchangewithmyfirstgayclientsmanyyearsago:

GayCouple:Mr.Condon,doyougetanygaycouplesinyourofficeforLivingTrusts?

Me:No.Imustadmit,youaremyfirst.

GayCouple:Areyoubotheredbythefactthatweareagaycouple?

Me:No.Isay,liveandletlive—justaslongasyoudon’tsmoke.

Thatonelinesentthemintohysterics.TheybecamemyclientsandtoldtheirmanyfriendsinthegaycommunityaboutthefunnyandnonjudgmentallawyerinSantaMonica.

AmongthosenewclientswereRobertandTom.

Robertwasaverysuccessfulrealestateinvestorwho,exceptforTom,hadnofamily—nochildren,parents,siblings,uncles,aunts,cousins . . .noone.Tom,by contrast, had two brothers and five nieces and nephews, all raised asMormonsinSaltLakeCity.

When they first conferredwithme about Living Trusts, Robert’s networthwas about $10 million, with no one to leave it to except Tom, his longtimepartner. Tom, in turn, wanted a Living Trust leaving his assets, which werenowherenearRobert’slevel,toRobert.Allthiswasfine.

The discussion then turned to the backup beneficiaries. If Tom died first,Robert’sassetswouldhavetogotosomeoneotherthanTom,andviceversa.

InTom’sLivingTrust,Tomcouldnamehis familyashisbackups ifRobertdiedfirst—aneasychoice.

ButinRobert’sLivingTrust,whowouldRobertnameasbackupsifTomdiedbeforehim?SinceRobertwas10yearsolderthanTom,thenamingofbackupsinRobert’sLivingTrustbecameamostcompellingmatter.Isuggestedcharitiesas thebackups,but thatdidnot flywithRobert.Finally,Robert saidhehad afriendlyrelationshipwithTom’ssiblingsandtheirchildren,andhewouldnamethemasthebackups.

Robertdiedabout fiveyears later, survivedbyTom,who inheritedRobert’sassets. I attended Robert’s funeral and was struck by the amazing turnout—whichdidnotincludeanymembersofTom’sfamily.

Afewyearslater,IhadtheoccasiontorunintoTom,whowasnowtheownerofRobert’s lifetime of accumulations.He seemed to be takingRobert’s deathprettyhard.Trying tomakesomeattemptatconversation, I said toTomthat Icould not help but be surprised that none of his family had attendedRobert’sfuneral.Foranestateplanningattorneyjadedfromyearsofclients’deaths,thatconstitutessmalltalk.

Withthisonerandomstatement,Tomseemedtochangebeforemyeyes,fromdepressedtolivid.Hethensaid,“Nope.Noneshowedup.Iwassurprised,too.Aboutninemonths ago, Iwenthome for a changeof scenery and tovisitmyfamily. Do you know what they told me? They said they did not attend thefuneralbecausetheydidnotwanttogivetheirfellowMormonstheimpressionthat they approved of gay couples or the gay lifestyle.Can you imagine that?Theynevertoldmeanythinglikethatbefore.”

TomaddedthatrunningintomeremindedhimthathewantedtochangehisLiving Trust to cut out his relatives, based solely on that slight. “Screw thewholebunchofthem,Jeff.HowfastcanyouchangemyLivingTrust toleaveeverythingtothosecharitiesyoumentionedwhenRobertandIwerefirstinyouroffice?”

Years later, Tom died. After his funeral, which his relatives did attend, hisbrother called me, saying that he assumed he was named as a beneficiary inTom’sLivingTrustandaskingmehowlongitwouldtakeforhimtoreceivehisshare.That’swhenItoldhim,“YougotcutoutafterRobert’sfuneral.Yourbigno-showandyourinabilitytokeepyourMormonopiniontoyourselvescostyouandyourfamilyabout$30millioninrealestate.”

Post-CautionaryTaleComment:WhatcommentcanImakeaboutthisstoryotherthantheobvious?Intermsofthesizeoftheloss,thefailuretotolerateanalternativelifestylemayhavebeenthebiggestmistakeIhaveeverencounteredinmypractice.

CautionaryTale5:Don’tLettheLawWriteYourInheritanceInstructions

Lessontobelearned:FailingtoexecuteaLivingTrust,forwhateverreason,may result in your money and property passing to persons you least

intended.

Aftermyfirstbook,BeyondtheGrave,wasreleasedin1996,myfatherandco-author,Gerald,receivedaphonecallfromevangelistPatRobertsontoinvitehimtodiscussfamilyinheritanceplanningonhisnationalcableshow,The700Club.Whatarushofexcitementthiscallincited!MyfatherandIpracticedlawtogetherfor15years,andtheonlytimeheyelledformetoruntohisofficewastotakePatRobertson’scallonspeakerphone.

Gerald toldMr. Robertson he would be delighted to travel to his studio inVirginiaBeachandappearontheshow.Andintheinterestoffulldisclosure,myfatherinformedMr.RobertsonthathewasJewishanddidnotsubscribetoanyofMr.Robertson’spoliticsorreligiousbeliefs.Tohiscredit,Mr.Robertsondidnothesitateinrepeatinghisdesiretohavemyfatheronhisshow.

After his 700 Club appearance, Gerald returned to his office, where hereceived a call from a high school buddywho called himself the “Captain.” Iaskedmyfather,“Whythe‘Captain’?”Hereplied,“IthinkthatithadsomethingtodowithhisdadowningafishingboatintheoldSantaMonicaHarbor.”

TheCaptainandGeraldhad last seeneachother20yearsbeforewhen theyranintoeachotherwhilesurfingatMalibu’sSurfriderBeach.Naturally,theydidsomecatchingup.WhileGeraldtalkedabouthisconventionalsocietalrolesashusband,father,andlawyer,theCaptaintalkedaboutsurfing.Nomarriage.Nochildren.Nosteadyorrealemployment.Justsurfing.

The Captain’s beach lifestyle kind of rankled my father, and he did nothesitate to tell this to the Captain. Gerald said, “Captain, you get up everymorningandonlyhavetoworryaboutwhetheryouaregoingtosurf,swim,jog,or play tennis,while I have to put on the lawyer suit and go to an office andmake enough money to support a wife, children, mortgage, office staff,overhead, and all that.” To that the Captain replied, “That was a choice youmade,Jerry.”

Fast-forward 20 years with the Captain and my father on the phone. TheCaptainsaid,“Jerry,IjustsawyouonPatRobertson’sshow.Ididn’tknowyouconverted.”MyfatherandIlaughedmanytimesaboutthatcomment.SincetheCaptainhadseenGeraldonthatshowdiscussinginheritanceplanning,myfathermentionedthatnowwouldbeasgoodatimeasanytotalkaboutdoingaLivingTrustfortheCaptain.

TheCaptain had a small house that he had bought in the early 1950s nowworth at least $750,000, aswell as stockandbankaccountsofa fewhundredthousand.Hestillhadnowifeorchildren.Hewasolder,buthewasstilllivingthebeachlifestyle.

MyfatherremindedtheCaptainthatifhedidnotchoosewhowouldgethishouseandmoney,itmightgotothestateofCalifornia.Why?Becauseifanyonedieswithoutaninheritanceplan,thelawstepsintoimposeitsowninheritanceplan.Andthe lawstates that ifapersondieswithouta testamentarydocumentandwithnobloodrelatives,allofthatperson’sassetswillescheattothestate.

TheCaptainsaidhedidhaverelatives,twobrothersliving“somewherebackEast”whomhehadnotseenforalongtime.Healsohadalongtimegirlfriend.GeraldtoldtheCaptainthatifhedidnothaveawillorLivingTrustthatnamedhis girlfriend as a beneficiary, shewould not receive one penny. The Captainresponded,“Jerry, let’sgosurfing. Itwillbe likeold times.Wecan talkaboutthatinheritancestuffthen.”

Aweek later, theywereperchedonboardsatSurfrider,waiting for thenextswell—justliketheolddays,exceptnowtheywerekindofold.Duringalullintheaction,theCaptainsaid,“Jerry,Ihopetodieonadaythat’srainyandcloudy.Idon’twant todiewhen thesun isshiningand thesurf’sup.”Except for thatcomment, therewas no other talk about death, dying, or inheritance planning.Whowantstotalkaboutbusinessatthebeach?

The Captain did die on a bright, sunny day. It was a heart attack thathospitalized him, and eventually killed him. There was a surfer’s burial. Hisbodywas cremated and buried at sea, surrounded by his surfing buddies in asmallflotillaofsurfboards.

About a week following the burial, the Captain’s girlfriend visited Gerald,askingabouthiswill.Shehadscouredthehouselookingforanythinghavingtheappearance of a testamentary document and found nothing. She came to myfather assuming he had made a will and left it with us. But he hadn’t. EventhoughGeraldhadnaggedhimonandoffforaboutayear,theCaptainnevergotseriousaboutdoingone.Itwasalwaystalkof“We’llgetaroundtoit.”

The girlfriend had no standing as an heir. Unless she did something, shewould get nothing. But what could she do? My father recommended sheconsidersuingtheCaptain’sestatebyclaimingthathepromisedtocompensateherinawillforcaretakingservices;butitwasjustanidea.Geraldcouldnotsee

suinghisoldsurfingbuddy,theCaptain,eventhoughthedefendantwouldhaveonlybeenhisestate.

WithnowillorLivingTrust,thelawofthestatedictatedtherecipientsoftheCaptain’smoneyandproperty,whoweretheCaptain’sbrothers.MyfatherhiredanInternet investigator to locate theCaptain’sbrothers.Hefound them.Whilefiguratively holding his nose, my father called them with the news of theirbrother’sdeath.Notonlywas this the first time they learnedof theirbrother’sdeath,buttheyalsotoldmyfatherthattheyhadassumedhehaddiedmanyyearsbefore.

GeraldalsoinformedthebrothersthattheCaptain’sestatewasworthabout$1millionand,astheCaptain’slongtimefriend,hewouldbehonoredtohandletheestateadministrationforlessthanfullcharge.

My father never heard back from the brothers, other than receiving a letterfromthebrothers’newattorneysayingthathehadbeenretainedbythebrotherstoprobate theCaptain’sestate.The letteralsorequested thatGeraldhandoveranyrelevantfileshehadinhisoffice.Myfatherhadnosuchfiles,becausetheCaptainhadresistedallentreatiestoestablishawillorLivingTrust.

Thatwas it.Near-strangerswhohadnot seenorheard from theirbrother inover 50 years received the Captain’s estate. I am certain they were the lastpersonstheCaptainwouldhavewantedtoreceivehismoneyandproperty.Hisgirlfriendofover20yearsgotnothing.Andmyfatherdidnotevengetbackthe$100hehadpaidtotheInternetinvestigator.

Post-Cautionary Tale Comment: A piece of scratch paper could haveprevented thisdisaster. Inmost states, ahandwritten statementof testamentarywishesonanypaperissufficienttoconstituteavalidwill.Itdoesnothavetobewitnessedornotarized.Itonlyhastobeentirelyinthehandwritingofthepersonwriting it. This is called a holographicwill, and it is just as legal as anywilldrawnbyanattorney.

Thisisexactlyasitsounds.Thereisnocatch.Youcouldripapagefromthisbook and write your inheritance instructions in the margins. As long as thenotations are entirely in your handwriting, those notations can serve as yourholographicwill.

Nolawyers.Justyouandapen.Sure,theremaynotbeanyoftheprovisionswelawyersliketothrowintoawilltomakeitacompletedocument;butaslong

asyouwritedownwhogetswhatinyourownhandwriting,andaslongasyousignanddateit,youhaveavalidinheritanceBand-Aid.

CautionaryTale6:JointTenancyGoneWrong

Lessontobelearned:Don’tplacetitletoyourhouseintoco-ownershipwithyour child just to avoidpaying a lawyer to do yourLivingTrust. If yourchildgetsintomoneyproblems,theregoesyourhouse.

She said, “Mr. Condon, I want to apologize about what I said to you.” Iresponded,“Igladlyacceptyourapology,butwhotheheckareyou?”

I’m not very good at recalling names, but facts are my stockin-trade. Themoreshetalkedaboutwhathappened,themoreIrecalledabouther.Itmusthavebeenabout10yearsearlierwhenshefirstconferredwithme.Sheowneda10-unitapartmentbuildinginSantaMonica.Herhusbandhaddiedandshehadonechild,amarrieddaughterwithaneight-year-oldson.

I advised her to establish a Living Trust that would transfer her apartmentbuildingtoherdaughterafterherdeath.Sheagreed.Ithenquotedherthefeetoprepare her Living Trust. She was not happy. “Another money-grubbingattorney!shesaid.“Whatasurprise!”

Therearethreecertaintiesinthislife:death,taxes,andpeoplewhodon’twanttopayalawyerafairfee.MyfathersaidonethingtomeaboutchargingclientsthatIuseasmystandardtothisdaywhenIdetermineafee:Thefeehastobefairtoboththeclientandtheattorney.

Suchisthetruth.Ifthefeeisnotfairtotheattorney,theattorneywillperformtheworkgrudgingly. If the fee isnot fair to theattorney, theattorneywillnotbusthishumpfortheclienttodothebestworkpossible.Ifthefeeisnotfairtothe attorney, the attorneymay onlywant to do theminimum amount ofworknecessarytoavoidamalpracticeaction.

Youhaveeveryrighttocomplainaboutwhatanattorneyhaschargedyouforservices rendered.Heck, Icomplaineda lotabout thebills I receivedfrommydivorceattorney,becausehechargedmeupthekazooforveryshoddyworkthathadtoberedonebytheattorneywhoreplacedhim.Butwhenyouspeakwiththeattorneytodiscussthatbill,keepinmindthisfairnessstandardandapproachthe

discussiononthatbasis.Itmaysaveyoualotofwondering...andyellingandscreaming.

Inanyevent,theladyinmyoffice10yearsearlierwasnotcomplainingaboutabill for servicesperformed,but rathermyquote for aLivingTrustyet tobeperformed. She said it was too high, and that the same probate-avoidanceobjective could be achieved at a fraction of the cost by putting her apartmentbuildinginjointtenancywithherdaughter.

Ofcourse,shewasright.Bysigningadeedplacingthepropertyinherandherdaughter’snamesasjointtenants,shecouldarrangethatthedaughterwouldendup with the entire property after the mother’s death without any probateprocedure.AndcomparedtotheLivingTrust,thecosttoprepareandrecordthatdeedwasalmostnegligible.

When shementioned the joint tenancy option, I immediately dove intomycanned diatribe about the dangers of a parent and child as co-owners of realproperty, which is this: Your property becomes subject to your daughter’sproblems.Ifshegetsintoadivorce,ifsheorherhusbandfilesbankruptcy,orifsheorherhusbandgetssued,theregoesyourhouse.

Thiswasherresponse:“YoudidnottalkaboutjointownershipuntilIraiseditfirst. You don’t fool me,Mr. Condon. It’s a secret that you and all the otherlawyerswanttokeepfrompeoplelikemejusttomakemoremoney.”Withthat,she concluded our meeting with the “money-grubbing attorney” remark andwalkedoutthedoor.Ididnothaveanymorecontactwithheruntil10yearslaterwiththecallofapology.

So what happened? She hired another lawyer to prepare the joint tenancydeed,whichputtheapartmentbuildinginthenamesofherandherdaughterasjoint tenants. For about 10 years, nothing happened. She continued to collectrentsandmanagethebuilding.

Thenoneday,herdaughtersenta letter toeachtenant tellingthemthatshe,thedaughter,wasa50percentownerandinstructingeachtenanttosendherhalftherent.

Assoonasthemotherfoundout,sheconfrontedherdaughter,whosaid,“MyhusbandandIarehavingmoneytroubles,andtheonlythingwecouldthinkoftohelpusoutwasusetheapartmentrents.”

Ihadwarnedthislady10yearsbeforethatmakingherdaughterajointtenant

could lead to losing thebuildingbecauseofherdaughter’sproblems.That thedaughtermightactuallyassertherright toreceive50percentof therentdidn’tcome up. That was my mistake; but given her haughty “I don’t need you”attitude,Idoubtmentioningsuchapossibilitywouldhavehadanyeffect.

Iaskedaboutwhathappenedaftersheconfrontedherdaughter.Shesaid,“Mygrandsoncameintotheroomandchasedmeout.WhileIwasrunningdownthestairs, he said that he would hurt me if I ever came back and bothered hismother.”

Itisasadstory,butitendswithahalfwaydecentresult.

The good half: The lady sued her daughter, which resulted in my clientreclaimingherentireproperty.

The bad half: It took several years of litigation to achieve that result; theattorney feesandcostswere100 timesmore thanwhat Ihadquotedher foraLivingTrust;andshelostherdaughterandgrandson.

Post-CautionaryTaleComment:Neverputtitletoanyrealpropertyinjointownership with your child for the purpose of that child becoming the 100percent owner if you die first. Yes, it is an inexpensive way of transferringownershiptoyourchildafteryourdeath.Yes,itavoidstheexpenseofaprobatecourt procedure. Yes, it avoids the cost of a Living Trust. But, look at thedownsides.

•Itexposesyourpropertytocreditorproblemsofyourchildandyourchild’sspouse.

•Itexposesyourpropertytothebankruptciesofyourchildandyourchild’sspouse.

•ItexposesyourpropertytotheIRSproblemsofyourchildandyourchild’sspouse.

•Itmaygiveyourchild’sspousemaritalrightsorclaimsintheeventofadivorce.

•Itwillrequireyoutogetyourchildtosigndeedsandotherdocumentsifyouwanttosellorrefinanceyourproperty,andperhapsthesignatureofyourchild’sspouse.

•Itexposesyourpropertytoanymalpracticeandaccidentclaimsagainstyourchildoryourchild’sspouse.

•Itexposesyourpropertytotheriskthatyourchildmayattempttosellor

conveyashareofthepropertytoathirdparty.

There is also the remote possibility your child will die before you, whichwouldputthepropertybackinyournameasa100percentowner,requiringyoutostartoverwithanothertransferplan.

CautionaryTale7:WhenItComestoMoney,FamilyLoyaltyGoesouttheWindow

Lesson to be learned: A senile surviving spouse + a little greed = zeroprotectionforthesurvivingspouse.

No lawyer likes to be accused of not protecting a client. But there I was,standingsoaccusedwhenMrs.Raysaidtome,“Youdidn’tprotectme.”

HowdidIgetthere?Howdiditcometothatpoint?

Abouteightyearsbeforethatday,Mrs.Rayandherolderson,David,arrivedatmy office. She appearedmentally alert and straightforward aboutwhat shewanted.ShewaswearyandtoooldtocontinuetolivealoneinherSantaMonicahome,whichwastheprimaryassetofherLivingTrust.Shewantedtomoveintoan assisted-living facility thatwould cost about $5,000 permonth. Shewouldhavetosellherhousetopayforthis.

Mrs. Ray relied onDavid for her daily needs, and now shewanted him tohandle all aspects of the sale: hiring the listing agent, reviewing the offers,signinganacceptance,dealingwiththeescrowdocuments—allofthat.Theplanwasthatwhenthehousewassold,Davidwouldplacethefundsinthebankandwrite the checks to pay themonthly assisted-living fee, aswell as checks forwhateverelsesheneeded.

It was a decent plan, though a little unrealistic. A sale during her lifetimewouldgenerateanimmediatecapitalgainstax;butthat’swhatsheinsisted,andsheseemedclear-mindedenoughtoknowwhatshewanted.

The solution was simple enough. Mrs. Ray would resign as trustee of herLivingTrust.With thatact, thepersonnamed inherLivingTrustasherafter-deathagent,David,wouldelevate to thepositionof lifetimeagent.Aslifetimeagent,DavidwouldhavethepowertomanageMrs.Ray’sLivingTrustassetsforher benefit and sign all documents (including checks) necessary to conduct

businesswiththeLivingTrustassets.

Ididnothear fromMrs.Rayuntil eightyears later.Actually, the call camefromoneofthenursesinthenursinghomesectionoftheassisted-livingfacility,whosaidthatMrs.Raywantedtoseeme.Puttingasidemynormalreluctancetovisit this typeofplace (whichalways struckmeas a storage facility for thosewaitingtodie),Iwent.

Inbed,anddisheveledinappearance,itwasfairlyobviousthatMrs.Raywassufferingfromsomelossofmentalacuity.Shesaid,“Iwanttogohome,butthenursesaysIhavenohometogoto.Whathappenedtomyhouse?”Isaid,“Mrs.Ray,don’tyouremember?Youcametomyofficewithyoursonandresignedastrustee. You put him in charge of your financial affairs. He followed yourinstructionstosellyourhouseandusethemoneytopaythebillforthenursinghome.”

I knew there was going to be trouble when I heard her response: “I don’trememberbeinginyouroffice.”

Itseemedpointlesstorepeatwhathadhappened.SoIjustsatthereandtookitwhenshepointedherfingeratmeandaccusedmeofnotprotectingher.Shefeltcheatedandtakenadvantageof,and,toher,Iwastoblame.

Asshelaidintome,forallthepatientsandstafftohear,IengagedinaseriesofmentalgymnasticsrelivingthepartIplayed.Eightyearsearlier,Mrs.Raywasfully aware of her action of resigning as trustee and appointing her son aslifetimeagenttosellherhome.Thatdecisioncreatedaresultthattheclientnowdidnotwant—the loss of her home.At the time, I gavehermyusualwrittendisclosure that a person who resigns as trustee surrenders management andcontrolof theLivingTrustassets tothenewlifetimeagent.But,shouldIhavedonemore?Perhapsthatdisclosureworksmoretocovermybacksidethanwarnandprotecttheclient.ShouldIhaverefusedtheclient’sinstructionforherownsafetyandnottakenthatbusiness?

WithMrs.Ray’saccusationstill ringing inmyears, I left thenursinghome,went back to my office, and called David. I explained that I had visited hismother and she was wondering why she couldn’t go home again. Davidresponded,“Forgetit,Jeff.Shewon’tevenrememberyouwerethere.”

In light ofMrs.Ray’s condition, I felt thatDavidwas probably right and Isighedabitinrelief.WhileIhadDavidonthephone,Iaskedhimaboutthesale

priceofhismother’shome.Davidsaid,“Uhhhh...Ididn’tsellthehouse.MyaccountanttoldmethatifIsoldit,therewouldbeahugecapitalgainstaxonit.He said that I could avoid that tax if I rented it out for two years and thenexchangeditforanotherinvestmentproperty.So,Idid.Iturnedthathouseintoanapartmentbuilding,andtherentgoesforMom’sexpenses.”

Thatseemedlikeagoodplantoavoidthetax.Butthenitdawnedonme—thatapartmentbuildingbelongedtoMrs.Ray’sLivingTrust.IremindedDavidthatashismother’s lifetimeagent,hestillhad theduty touse thatpropertyforhismother’sbenefitonly.

ItwasthenthatDavidcasuallypointedoutthatthepropertywasnowinthejointnamesofhimandhiswife.“Jeff, she’sgettingher rentpaid.Shedoesn’tknowwhat’sgoingon,soitjustdoesn’tmatter.Itgoestomeanywayaftershe’sgone.”

Thehell itdidn’tmatter.Mrs.Ray’sLivingTrust said thatallofherLivingTrustassetswouldpasstohertwosonsonherdeath.Bytakingthatpropertyoutofhismother’sLivingTrustandgivingittohimselfandhiswife,Davidstolehisbrother’shalfofthatproperty.WhenIshoutedthisatDavid,hecasuallyreplied,“Calmdown, Jeff.You’ll blowagasket.Mybrother died threeyears ago. It’sjustme.IgetitallwhenMomdies.”

“David,”Iasked,“didyourbrotherhaveanychildren?”

“Sure.Hehasthreechildren.”

“Well guesswhat,David?Your brother’s children step into his shoes.Theytake his one-half share of your mother’s Living Trust assets. You stole yourbrother’schildren’shalfoftheirinheritance.”

Davidwouldnotbefazed.Tothathesimplysaid,“Well,Jeff,theydon’tknowanything about it.All they know is thatmymother gaveme the house inmyname.SolongasMomistakencareof,Idon’tthinktheycare.”

“ButDavid,” I countered, “that’s notwhat yourmother’s trust says. It sayseverythingequally—one-halftoyouandone-halftoyourbrother’skidsifyourbrotherdiesbeforeyourmother.Whatpartofthatdon’tyouunderstand?”

“Well,Jeff,maybetheywilljustneverknow.”

For reasonsdealingwithattorney-clientprivilege, I couldnotnotifyanyoneaboutthismajorbreachoftrust.Mrs.Raywasincompetent,sotellingherwould

havenoeffect.IsupposeIwillhavetodealwiththissituationwhenMrs.Raydies.Butinthemeantime,IcannothelpbutthinkoftheRaysituationasanotherexampleoffamilyloyaltyhavingnomeaningwhenitcomestodividingmoneyintheinheritancearena.

Post-CautionaryTaleComment:TheLivingTrustisnotjustavehiclethatcontainsyourinheritanceinstructions.ItalsoappointsalifetimeagenttomanageyourLivingTrustassetsforyourbenefitintheeventofyourincapacity.Thatisaterrificobjective,but,asthistalehasshown,onethatclearlycanbeabusedbyyourlifetimeagentwhenyoubecomeincapacitated.

Fromanobjectivestandpoint,ImadenoerrorwithMrs.Ray.Ididwhatsheinstructedme todo, and I senther a letterdiscussing the ramificationsof thatdecision.Sheresignedastrustee,whichbroughtinhersonasthemanagerofherLivingTrustassetswiththeinstructiontosellherhouse.

Butinhindsight,InowrecognizethatforsomereasonIfailedtogettheusualvibrations from my radar that something was up. There are times when youshould sayno to a client, and thatwas clearly such a time.Although shewasfullycapableofmakingthatdecision,Ishouldhaveanticipatedthepossibilityofherbecomingsenile, leavinghervulnerable toherson.But,withhersobrightandvibrantinmyofficethatdayeightyearsago,Ididnotconsiderit.

Should Mrs. Ray be responsible for her own actions? Should she haveanticipatedthatshemightsomedaybeincapacitatedtotheextentthatshewouldbeunabletofathomorresistfinancialabuseperpetratedbyherlifetimeagent?Ofcourse.Weareallinchargeofourowndestinies.Youreapwhatyousow.

Still, she came tome, the professional, for advice, and I should have beenmorevociferousinwarningheraboutthepossiblenegativewakecreatedbyherdecisiontoresignastrustee.IwillalwaysbelievethatIshouldhavejumpedintoprotectmyclientagainstherself,even if thatmeantrefusing todo theworkandnotgettingafee.

AbouttheAuthor

OR

ANINVITATIONFROMTHEAUTHORTO

CONTACTHIMATNOCHARGE

JeffreyL.Condon is an attorneywhohas practiced in the field of trusts andestatessince1987.HereceivedhisbachelorofartsinEnglishliteratureatUCLA(classof1983)andhislawdegreefromWhittierCollegeSchoolofLawin1987.He practices at the law offices of Condon & Condon in Santa Monica,California.

Withhislatefather,GeraldM.Condon,Jeffreyistheco-authorofBeyondtheGrave:TheRightWayandtheWrongWayofLeavingMoneytoYourChildren(andOthers),publishedin1996andrevisedin2001(HarperCollins).TheWallStreetJournal has called Jeffrey’s first book “the best estate planningbook inAmerica.”Jeffrey has been cited as a source for over 100 newspaper and magazine

articlesdiscussing inheritanceplanning inpublications including theNewYorkTimes, Los Angeles Times, Washington Post, Wall Street Journal, Time,Kiplinger’s, and BusinessWeek. The topics in this area are so many and sodiverse,hehasbeenquotedinperiodicalsrangingfromFortunetoDogWorld.Jeffrey has discussed various inheritance planning issues on more than 70

radio call-in shows throughout the United States, and on numerous televisionprogramsincludingTheMoneyClub(CNBC),PrimetimeNews(CNN),The700Club (CBN),One on One with JohnMcLaughlin (NBC), and The Dr. LauraShow(CBS).Jeffreyhasconductedmore than150talksandseminarson theLivingTrust

andfamilyinheritanceplanningthroughouttheUnitedStates,whichhavebeenpresented by businesses, banks, insurance companies, charities, civic groups,service clubs, real estate companies, trust companies, and conventions. ForinformationaboutretainingJeffrey’sspeakingservices,youcancontacthim(seecontact information that follows) or consult his speaker’s Internet site atwww.speakerservices.com/speakers/detail/275.Jeffrey is not really surewhat his interests are outside his lawpractice.For

assistance,heconsultedhis10-year-olddaughter,Carly.ThefollowingisCarly’sword-for-wordresponse:

Mydadreallylikestryingtobefunny,buthe’snot.Heisbald,andtheonly hair he has is gray. He likes to coach my softball team, butwheneverhecoachesweneverwin.Helikestoswimandheisgoodatthat. And that’s the only thing he likes that he’s good at. And he alsolikesAdamSandlermovies.

JeffreywouldliketopointoutthatCarly’sobservationthatheisbaldandgrayis not responsive to his initial inquiry about his out-of-office proclivities.Nonetheless, Jeffrey represented to Carly that he would use her exact firstresponseinthis“AbouttheAuthor”section,and,toJeffrey,adeal’sadeal.Jeffreywelcomesyourcommentsorquestionsaboutany information inThe

LivingTrustAdvisorandispleasedto,withoutcharge,respondtobriefgeneralquestionsyoumayhave.Thecontactinformationis:

JeffreyL.Condon,Esq.632ArizonaAvenueSantaMonica,CA90401Telephone:(310)393-0701Fax:(310)394-3555Website:www.condonandcondon.netE-mail:jeff@condonandcondon.net

WhencommunicatingwithJeffrey,pleasefollowthesefiveguidelines:1.Forthemostimmediateresponse,yourquestionsorcommentsshouldbemade by telephone. When calling, please state that you are making a“bookcall.”

2.Jeffreycannotacceptanycollectcalls.3.IfJeffreyisunavailabletospeakwithyou,youmayleaveyournameandtelephonenumbertoreceiveareturncall(whichwillbemadecollectif

outsideLosAngelesCounty).4.Jeffreywillmostlikelyrespondtoallfaxande-mailcommunicationsbytelephone. Therefore, all fax and telephone communications to himshouldincludeatelephonenumberforareturncall.

5.Allcommunications fromJeffreyaremadewith theunderstanding thathe is not engaged in rendering legal, accounting, or other professionalservicebyrespondingtoyourcommentsorquestions.Ifyouneedlegalassistance,youare required to (1) retainJeffreyasyourattorneyor (2)retaintheservicesofothercompetentattorneyswhoemphasizeapracticeinestateand/orinheritanceplanning.

Index

Addictions.SeeSubstanceabuseAdoptionAdvantagesofLivingTrustsAdvisorytitleofficerAfter-deathagents.SeealsoSuccessortrusteeschildrenasestatetaxesandroleofAfter-deathpowerofattorneyAge/agingAgents.SeealsoSuccessortrusteesafter-deathafter-deathpowerofattorneyandfinanciallifetimesuccessortrusteesversusAlternativelifestylesAmendmentstoLivingTrusts:caretakersandlifechangesandremarriageandAppraisalsAppreciation:exemptiontrustsandoflifetimegiftsofrealestateAssets.SeealsoTrustestateappraisalsofappreciationofbrokeragedisclaimersanddiscretionarytrustsand

diversionofestatetaxesandinexemptiontrustsinLivingTrustsloansaslocatingmanagementofnon-LivingTrustownershipofpreservationofprobateandproductivityofprotectionof(seealsoProtectiontrusts;Protectiveplans)qualifieddomestictrustsandrealestateas(seeRealestate)revocationofLivingTrustsandself-directedirrevocableprotectiontrustsandsplittingsuccessortrusteesandinsurvivor’struststhird-partyirrevocableprotectiontrustsandtransferoftransparenttrustsandATF(astrusteefor)accountsAttorneys:accuracyofLivingTrustsandamendmentstoLivingTrustsandconservatoragreementsandcontestingLivingTrustsestatetaxesandfamilydynamicsandfamilyinheritancemeetingsandfederalestatetaxreturnsandfortheInternalRevenueServicelearningfromexperiencelegalcostsby

LivingTrustestablishmentbypersonalpropertymemorandumsandprobateandrealestaterefinancingandresignationoftrusteesandrevocationofLivingTrustsandsalesofrealestateandselectionofself-settledspecialneedstrustsandtrustamendmentsandunequallifetimegiftsandAudits

BankaccountsBankruptcyBanktrustdepartmentsBeneficiaries:agentsandamendmentstoLivingTrustsandcharitiesaschildrenas(seeChildren)disclaimersandofdiscretionarytrustsdistributionofLivingTrustsandestatetaxesandexemptiontrustsandfamilyinheritancemeetingsandgrandchildrenas(seeGrandchildren)ofincentivetrustsinheritanceinstructionsand(seeInheritanceinstructions)lifestyledisapprovalbyofnon-LivingTrustassetsprobateandprotectiontrustsandrealestaterefinancingand

remarriageoftrusteesandrevocationofLivingTrustsandsecondspouseasselectionofself-directedirrevocableprotectiontrustandstateasofthird-partyirrevocableprotectiontrustsBeyondtheGrave:TheRightWayandtheWrongWayofLeavingMoneytoYourChildren(andOthers)(CondonandCondon)BipolarconditionBrokerageassets

CapitalgainstaxesCaretakers.SeealsoLifetimeagentsCasestudies:cautionarytalesasonchildrenandinheritanceinstructionsonfirstchildrenversussecondspouseCashCautionarytalesCharitiesChildren:asafter-deathagentsascaretakersdebtordisclaimersanddiscretionarytrustsanddistributionofLivingTrustsandencouragingLivingTrustestablishmentestatetaxesandestrangementofexclusionasbeneficiariesexemptiontrustsandfamilyinheritancemeetingsandfinancialabuseby

financialimmaturityoffirstgrandchildrenrecognitionandinclusionofallinheritanceconflictsand(seeConflicts)inheritanceinstructionsand(seeInheritanceinstructions)jointownershipofrealestatewithlifestylechoicesofaslifetimeagentsloanstomaturationofwithmentalillnessminorproblemsofprotectiontrustsandremarriageofparentsandself-directedirrevocableprotectiontrustsandsiblingasthird-partytrusteeandsiblingrelationshipsamong(seeSiblingrelationships)substanceabuseofassuccessortrusteesthird-partyirrevocableprotectiontrustsandtransparenttrustsandtrust-fund-babylifestyleandtrustofparentsforunequalinheritancesandunequallifetimegiftsandCitizenshipCondon,GeraldM.Conflicts:caretakersanddebtorchildrenanddistributionofLivingTrustsandestatetaxallocationsandfamilyinheritancemeetingsandonfirstchildrenversussecondspouse

ongrandchildrenrecognitioninheritancesandsuccessortrusteeselectionandwiththird-partytrusteesunequalinheritancesandunequallifetimegiftsandConservatorshipConventionallifestylesCorporatetrusteesCosts:ofcaretakersofestablishingLivingTrustsofestatetaxesoffamilyinheritancemeetingsofinitialconsultationslegalofprobateofrealestatetransactionssavingsthroughLivingTrustsunequallifetimegiftsandCo-trusteesCreditorsCustomerservice,lackof

Death:dateofdistributionofLivingTrustsandinventorylackoftestamentarydocumentsandofspouse(seeDeathofspouse)spouseastrusteeaftersuccessortrustees’roleafter(seealsoAfter-deathagents)Deathofspouse:disclaimersandestatetaxesand

exemptiontrustsandLivingTrustmanagementafterremarriageandDebtorchildrenDeclarationsinLivingTrustsofassettransfersofinheritanceinstructionsofpowersasmanagerofselfasowner/managerofsuccessortrusteesoftrustDisclaimersDiscretionarytrustsDistributionofLivingTrusts:afterdeathestatetaxesandincentivetrustsandpersonalpropertymemorandumsonbythird-partytrusteesDividendsDivorces

EqualestatetaxallocationprovisionsErrors:learningfromself-draftedamendmentsandself-draftedLivingTrustsandEscrowcompaniesEstatetaxes:allocationprovisionscalculationsoncitizenshipanddeathofspouseanddescriptionofexemptiontrustsand

federalestatetaxreturnsLivingTrustmanagementandreductionofEstrangementExecutors,roleofExemptionamountsExemptiontrustsExerciseofLimitedPowerofAppointmentExplanationofLivingTrusts

FamilyinheritancemeetingsFamilyInheritancePlanningseminarsFamilyloyaltyFederalestatetaxreturnsFees.SeeCostsFinancialabuse:bycaretakersbychildrenbyfriendsbythird-partytrusteesFinancialagentsFinancialimmaturityofchildrenFirstchildren:estatetaxallocationprovisionsandremarriageofparentsandsecondspouseversusForgivenloansFriendsaslifetimeagents

Gay/lesbianrelationshipsGifts:tocharitiesestatetaxesandexemptiontrustassetsas

loansasself-directedirrevocableprotectiontrustsandunequallifetimeGifttaxesGrandchildren:identificationofinheritanceinstructionsandprotectiontrustsandGrantors(settlors)Greedletters

Healthandsupport.SeeSupportandhealthHolographicwillsHouses.SeeRealestate

Incapacity:caretakersandconservatorsanddeterminationoflifetimeagentsandrefutingofspousesuccessortrusteeselectionandIncentivetrustsIncometaxesIncompetence.SeeIncapacityInheritanceinstructions:amendmentstocharitiesandchildren’scompliancewithdeclarationofdiscretionarytrustsandestatetaxallocationprovisionsandlackof

lifestylechoicesandpowertochangeremarriageandself-directedirrevocableprotectiontrustsandsurvivor’strustsandthird-partyirrevocableprotectiontrustsandtransparenttrustsandInheritances:estatetaxreductionoffamilyinheritancemeetingsandfamilyloyaltyandloanstochildrenandoutrightseminarsonSupplementalSecurityIncomeandunequalInsurance:lifetitleInterestInternalRevenueService(IRS)Intervalallocation

Jointownership:caretakersandcitizenshipandofnon-LivingTrustassetsofrealestatetransparenttrustsandJudges

LanguageinLivingTrustsLawsuits:caretakerdisputesandcontestingLivingTrusts

debtorchildrenandonfirstchildrenversussecondspouseonjointownershiplackoftestamentarydocumentsandprobateasthird-partytrusteesandontrustamendmentsLawyers.SeeAttorneysLegalresponsibilities:self-directedirrevocableprotectiontrustprovisionsandofsuccessortrusteesofthird-partytrusteesLifeinsurancepoliciesLifestyleLifetimeagents:childrenasfriendsasselectionofspouseassuccessortrusteesasLifetimegiftsLimitedpowerofappointmentLivingTrusts:advantagesofamendmentstodeclarationsindistributionof(seeDistributionofLivingTrusts)explanationoflanguageinneedforpurposeofrequirementsofrevocationofself-draftingoftrainingonwillsversus

LoanstochildrenLoyalty

Managementofassets:afterdeathofspousebyspousebysuccessortrusteesbythird-partytrusteesbytrusteesMaritaldeductionsMaritaltrustsMarriage. See Marital deductions; Marital trusts; Prenuptial agreements;Remarriage;SpousesMentalillnessMinorchildrenMistakes.SeeErrorsMoralobligationsofchildren

Needs.SeeSupportandhealthNetworthNotarizeddocuments

Outrightinheritances:dangersofdiscretionarytrustsversusself-directedirrevocableprotectiontrustsversusthird-partyirrevocabletrustsversustransparenttrustsversustrust-fund-babylifestyleandOwners/ownershipofassets.SeealsoSettlorsdeceasedspouseasestatetaxesandjoint

realestateandselfasself-directedirrevocableprotectiontrustand

PayoverondeathaccountsPersonalpropertyPersonalPropertyMemorandumProvisionsPoliticsPour-overwillsPowerofattorneyPowerofoneprovisionsPrenuptialagreementsPreservationofLivingTrustassetsPrincipalsversussettlorsProbateProductivity:ofLivingTrustassetstrust-fund-babylifestyleandProperty.SeeAssets;Personalproperty;RealestatePropertytaxesProportionalestatetaxallocationprovisionsProtectionofLivingTrustassets.SeealsoProtectiontrusts;ProtectiveplansProtectiontrusts:deathofspouseanddescriptionofdiscretionarytrustsasgrandchildrenandself-directedirrevocableprotectiontrustsasthird-partyirrevocableprotectiontrustsastransparenttrustsasuseofProtectiveplansPUPPET(third-partyirrevocableprotectiontrusts):addictedchildrenandfinanciallyimmaturechildrenand

mentallyillchildrenandminorchildrenandstructure/useofthird-partytrusteeselectionforPurposeofLivingTrusts

QualifieddomestictrustsQuestionsandanswers

Realestate:appraisalsofappreciationofdisclaimersandestatetaxesonexemptiontrustsandinheritanceinstructionsandjointownershipofneedforLivingTrustswithrefinancingofsaleofsecondspouseandsignaturerequirementsandthird-partytrusteesandtransferof,toLivingTruststransparenttrustsandReferralsRefinancingofrealestateRemarriage:amendmentstoLivingTrustsanddeceasedspouse’sassetsandestatetaxallocationprovisionsandfirstchildrenversussecondspouseinRequirementsofLivingTrustsResignationofspouseastrustee

RevocationofLivingTrustsRisks:ofdeviationfrominheritanceinstructionsdiscretionarytrustsandofjointownershipoflossofinheritanceself-directedirrevocableprotectiontrustsandthird-partyirrevocableprotectiontrustsandtransparenttrustsandRobertson,Pat

SecondspousesSelf-directedirrevocableprotectiontrusts(SPIT)Self-draftedlegaldocuments:amendmentsasExerciseofLimitedPowerofAppointmentasLivingTrustsasSeminarsSettlorsSiblingrelationships:caretakerrolesanddebtorchildrenanddistributionofLivingTrustsandestatetaxallocationprovisionsandexclusionofsiblingsasbeneficiariesandfamilyinheritancemeetingsandsiblingasthird-partytrusteeandsuccessortrusteeselectionandunequalinheritancesandunequallifetimegiftsandSignatures:amendmentstoLivingTrustsandofco-trusteesonrealestatetransactionsrevocationofLivingTrustsand

transparenttrustsandSpecialneedstrustsSpecificestatetaxallocationprovisionsSPIT(self-directedirrevocableprotectiontrusts)Spouses:amendmentstoLivingTrustsbycitizenshipofdeathof(seeDeathofspouse)aslifetimeagentsrevocationofLivingTrustsbysecondsignaturesofsurvivingtransparenttrustsandastrusteesStepped-upincometaxbasisSubstanceabuseSuccessortrustees.SeealsoAgentsagentsversuschildrenasestatetaxesandincapacityandjudgesversusrole/responsibilitiesofselectionofSupplementalSecurityIncomeSupportandhealth:discretionarytrustsandexemptiontrustsandbylifetimeagentsqualifieddomestictrustsandSupplementalSecurityIncomeforthird-partyirrevocableprotectiontrustsandSurvivingspouses:citizenshipofdisclaimersand

estatetaxesandexemptiontrustsandastrusteeSurvivor’strusts

TaxCourtTaxes:capitalgainsestate(seeEstatetaxes)giftincomepropertyTestamentarydocuments.SeealsoWillsThird-partyirrevocableprotectiontrusts(PUPPET):addictedchildrenandfinanciallyimmaturechildrenandmentallyillchildrenandminorchildrenandstructure/useofthird-partytrusteeselectionforThird-partytrusteesTitleinsuranceTitles:children’snamesonexemptiontrustsandrefinancingandrevocationofLivingTrustsandtransfersofTrainingonLivingTrustsTransparenttrustsTrust,declarationsofTrust,parent/childTrustarrangementsTrustdepartmentsTrustees.SeealsoSuccessortrustees

amendmentsandcorporateofdiscretionarytrustsofincentivetrustsmanagementofassetsbyofself-directedirrevocableprotectiontrustsspouseassurvivingspouseasthird-partyofthird-partyirrevocableprotectiontrustsverificationofTrustestate.SeealsoAssetsTrust-fund-babylifestyleTrustmakersoftwareprogramTrustors(settlors)Trusts:discretionaryexemptionincentiveliving(seeLivingTrusts)maritalprotection(seeProtectiontrusts)qualifieddomesticself-directedirrevocableprotectionspecialneedssurvivor’sthird-partyirrevocableprotectiontransparent

UnderagechildrenUnequalinheritancesUnequallifetimegiftsUnforgivenloansUnitedStatescitizenship

Wills:holographiclackofLivingTrustsversuspour-overWitnesseddocuments