Planning for Blended Families Presented to:Georgia Forum Presented by:Lewis W. Dymond WealthCounsel,...

Planning for Blended Families

Presented to: Georgia ForumPresented by: Lewis W. Dymond

WealthCounsel, LLC

WealthCounsel, LLC 1

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Planning for Beneficiaries

• The “Tail” that Should Wag the Dog.• Proper WealthCounseling.

– It is a process;– It is not a transaction.– It involves not only your clients;– It involves those your clients love the

most;– And it can influence many generations.

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• Definition of WealthCounseling.– Control my property while I’m alive and

well;– Provide for myself and my loved ones if I

become incapacitated;– Give what I have;

• To whom I want;• The way I want; and• When I want.

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• Proper WealthCounseling.• Care for loved ones as if you were

still there:– With your resources;– With your love;– With your wisdom.

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• The WealthCounseling Process.– Education.– Design.– Drafting documents.– Implementation.

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• Importance of Initial Meeting and Information Gathering are increased dramatically.

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• Initial (Education) Meeting.– Who needs to be educated?– Levels of communication.

• Black.• Blue.• Red.• Green.

– SPIN.

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8Specifically examines selling high-value products and services.

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• Variety pack of blended families.– Length of marriage.– Clients’ ages and age differences– His; hers and ours.– Children’s ages.– Children’s ages at time of marriage.– Values of separate and joint property.– Incomes and income capabilities.– Insurance and insurability.

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• Who do you represent?– Both parties.

• Conflict of interest?• Advise of right to separate counsel.• Waiver.• Conflict may become apparent during

planning.– One party.

• Other party represented.• Other party not represented.

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• Information Gathering.– Asset information:

• Separate property.• Joint property.• Does titling confirm this?• Existing insurance.• Existing retirement plans.

– Existing estate plan.– Existing prenuptial or postnuptial

agreements.– Divorce agreement.

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• Review of existing prenuptial or postnuptial agreements.– What does it say?

• Define separate property.• Define rights at time of death.• Define rights in case of divorce.

– What do clients think it says?– Is it valid?

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• Validity of existing prenuptial or postnuptial agreements in Georgia.– No Georgia statute enacted with regard to

prenuptial agreements.– Georgia has long held that prenuptial agreements

settling property rights at death are valid.• Made in contemplation and as inducement to marriage.• Division or transfer only to occur if the parties remain

married to death.• Death focused instead of divorce-focused.• Nally v. Nally 74 Ga. 669 (1885).

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• Validity of existing prenuptial or postnuptial agreements in Georgia.– Prior to 1982 Georgia courts deemed

prenuptial agreements dealing with divorce contrary to public policy.

• Scherer v. Scherer, 249 Ga. 635, 292 SE2nd 662 (1982).

• Mallen v. Mallen 622 S.E.2d 812 (Ga. 2005).

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• Designing, drafting and executing a postnuptial agreement in connection with estate planning.– Need for separate counsel?

• If includes what happens in case of divorce?• If only covers property rights at death?

– Agreement that asset transfers are for controlling property at death and not in the event marriage terminates other than by death.

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• The Design Meeting.– The design options for a blended family

are far greater than for a first marriage family.

– Increases the importance of the initial meeting.

– You need to be ready with solutions rather than options.

– Family meetings.

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• Drafting the Revocable Living Trust.– Individual trusts.– Joint pour-over trust.

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Using WealthDocx – Blended FamiliesAssuming separate distribution plans use individual trusts.

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Planning for BeneficiariesUsing WealthDocx – Blended Families

If significant community property use Individual Trusts AND Joint Pour-over Trust

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Using WealthDocx – Blended FamiliesIf significant community property use Individual Trusts AND Joint Pour-over Trust

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DIAGRAM OF TWO GRANTOR ESTATE PLAN WITHSEPARATE LIVING TRUSTS

GRANTORS

JOINT REVOCABLE LIVING TRUST

ASSETS OF GRANTORS

HUSBAND’S LIVING TRUST

WIFE’SLIVING TRUST

HUSBAND’SSHARE OF ASSETS

WIFE’SSHARE OF ASSETS

HUSBAND’SFAMILYTRUST

HUSBAND’S MARITAL TRUST

BALANCE OFHUSBAND’SASSETS

HUSBAND’SESTATE TAX

EXEMPTION AMOUNT

Division into separate sharetrusts for wife’s descendants

Division into separate sharetrusts for husband’s descendants

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Planning for Blended Families• Importance of including statement of the

Grantor’s purpose or intent.– Reflect the client’s hopes, fears, dreams and

values.– Assistance to the Trustee, even if the beneficiary

serves as his or her own Trustee.– It is the client’s trust.– Comment to Uniform Trust Code Section 801

“This section confirms that a primary duty of a trustee is to follow the terms and purposes of the trust and to do so in good faith. Only if the terms of a trust are silent or for some reason invalid on a particular issue does this Code govern the trustee’s duties.”

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• Importance of including statement of the Grantor’s purpose or intent.

• Drafting Guidelines - Precatory or Directive.– Flexibility.– Asset Protection.– Certainty.– Corporate, family member or beneficiary

as Trustee.

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Planning for Blended Families• Importance of including statement of the

Grantor’s purpose or intent.• Drafting Guidelines - Suggestions.

– While the guidelines are intended to express the client’s hopes, fears and dreams, the client will need help in drafting their guidelines.

– Practice drafting guidelines to cover different situations.

– Easier to edit than draft.– Keep your drafted guidelines in mind while in

the design phase with client.– WealthCounsel Knowledge Base as a starting

point.

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• Guidelines – WealthCounsel Knowledge Base.

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Planning for Blended FamiliesUsing the WealthCounsel Knowledge Base.– Contains sample language shared by

WealthCounsel principals and members.– Not reviewed, edited or approved by

WealthCounsel.– Some of these documents reflect a strong

religious influence. WealthCounsel does not promote one set of religious values over other religious or even non-religious values. WealthCounsel welcomes all viewpoints. No matter your religious views, these documents are intended to provide help to all members.

– We appreciate you sharing your language.

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Planning for Blended Families• Providing for spouse vs. providing for

children.– Family dynamics.– RLT formula options.– Life insurance.– Retirement plans.– Gifting trusts.– QPRTs.

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Using WealthDocx – Blended FamiliesProviding for the Surviving Spouse – Formula options

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Using WealthDocx – Blended FamiliesProviding for the Surviving Spouse – Formula options

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Using WealthDocx – Blended FamiliesProviding for the Surviving Spouse – Distribution options:

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Using WealthDocx – Blended FamiliesProviding for the Surviving Spouse – Designing the QTIP Trust:• Income only.• Principal distributions?• Consider Total Return (Unitrust) option

when selecting income only?• $5K or 5% withdrawal power?• Testamentary Power of Appointment:

• None or limited to descendants.

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Planning for BeneficiariesUsing WealthDocx – Blended Families

Providing for the Surviving Spouse – Designing the Family (Bypass/Credit Shelter) Trust:• Consider straight to residuary

beneficiaries?• Income only?• Principal distributions? • Consider Total Return (Unitrust) option

when selecting income only?• $5K or 5% withdrawal power?• Testamentary Power of Appointment:

• None or limited to descendants.34

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Planning for BeneficiariesUsing WealthDocx – Residuary Beneficiaries– GSTT Provisions.– Residuary Beneficiary options.– Common Trust for descendants.– Trust design for individual residuary beneficiaries.

• Distribution of Income (Unitrust or Total Return Trust).

• Discretionary Distribution Standards.• Discretionary Guidelines.• Withdrawal Rights and Termination.• Lifetime Power of Appointment.• Testamentary Power of Appointment.• Lapse Options.• Distribution if Deceased.

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Planning for BeneficiariesUsing WealthDocx – GSTT Provisions.– Explicit or Permissive.

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Using WealthDocx – GSTT Provisions– Explicit:

• Used if you want to have a different distribution pattern or design for the GSTT Exempt and Non-Exempt property.

• Exempt property has aGSTT inclusion ratio = zero.

• Non-exempt property has aGSTT inclusion ratio = 1.

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Using WealthDocx – GSTT Provisions– Permissive:

• The Trustee has the authority to divide any trust into Exempt and Non-Exempt shares.

• Exempt property has a GSTT inclusion ratio = zero.• Non-exempt property has a

GSTT inclusion ration = 1.• Each share will have the same terms.• Use the “hybrid” power of appointment or the

limited power of appointment.– If you use the limited power of appointment, the authority

to divide a trust into Exempt and Non-Exempt shares, includes the authority to grant the beneficiary a general power of appointment.

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* If you include Trust Protector provisions, this power will be given to the Trust Protector rather than to an Independent Trustee.

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Using WealthDocx – Residuary Beneficiary options

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Using WealthDocx – Residuary Beneficiary options

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Using WealthDocx – Common Trust

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Planning for BeneficiariesUsing WealthDocx – Common Trust

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Using WealthDocx – Common Trust

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Using WealthDocx – Trust DesignDescendants as Current Beneficiaries:

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Using WealthDocx – Trust DesignDistributions of Income – Income Options:

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Using WealthDocx – Trust DesignDiscretionary Distributions:

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Using WealthDocx – Trust DesignDiscretionary (Precatory) Guidelines:

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Using WealthDocx – Trust DesignDiscretionary (Precatory) Guidelines:

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Using WealthDocx – Trust DesignWithdrawal Rights and Termination:

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Using WealthDocx – Trust DesignLifetime Limited Power of Appointment:

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Using WealthDocx – Trust DesignTestamentary Power of Appointment:

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Using WealthDocx – Trust DesignLapse Options – What happens to what is left?

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Using WealthDocx – Trust DesignProvisions for Afterborn or Adopted Children:

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Using WealthDocx – Trust DesignProvisions for Descendants of a Deceased Child:

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Using WealthDocx – Trust DesignDistribution if Deceased (Named beneficiaries only):

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Planning for Blended Families• Case Study #1:

– Tom and Cindy Client, both 65 years of age.

– Married in 1977.– Each has one adult son and one joint

daughter– Joint assets totaling $10M.

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– Tom and Cindy Client, both 50 years of age.

– Married in 1995.– Tom has one adult son and one daughter,

15.– Cindy has one son in college, 20.– Total net worth $1.3M.

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– Tom Client, age 65 and Cindy Client, age 38.

– Married in 2005.– Tom has three adult children.– Cindy has one daughter, age 13.– Total net worth $11.6M.

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– Tom Client, age 65 and Cindy Client, age 38.

– Married in 2005.– Tom has three adult children.– Cindy has one daughter, age 13.– Tom’s total net worth $60M.– Cindy’s total net worth $2.5M.

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Planning for Blended Families Presented to:Georgia Forum Presented by:Lewis W. Dymond WealthCounsel,...

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Transcript of Planning for Blended Families Presented to:Georgia Forum Presented by:Lewis W. Dymond WealthCounsel,...