This final installment discusses living trusts and exploring taking the "Next Step" by possibly meeting with a professional financial planner to evaluate your personal situation, maximize your investment returns, and set realistic goals. Part 10 of this series talked about the why and wherefore of wills. While completing my will I discovered one more reason to have one. If you die in "testate" (without a will) in Pennsylvania the surviving spouse only receives the 1st $30,000 + half of the remainder of the estate. The children or decedent’s parents share half of the remainder by law.
I attended several excellent estate planning seminars hosted by Hefren-Tillotson, Inc., a financial planning and brokerage house in Pittsburgh. Charles R. Reis, Esquire was their guest speaker and he gave an exceptional presentation on estate planning and taxes. He started off with several frightening scenarios for unsuspecting widows and widowers including the one mentioned above. Many think that the State will take care of the surviving spouse but that isn’t always the case. This is just one of many reasons why ALL need to execute a will and ASAP.
Living trusts are relatively easy to set up. Trusts transfer property outside of probate upon your death and generally are not public record. Even though trust documents may not be public record, in states that assess inheritance taxes, the trust’s value may be listed on your state’s inheritance tax office records. In Pennsylvania inheritance taxes are assessed on all estates regardless of the size unlike federal estate taxes that don’t tax estates that are valued under a set amount.
Trusts are flexible and allow you to transfer some or the majority of your assets to your heirs. There is little paperwork involved and you don’t’ have to maintain separate tax records or apply for a separate taxpayer ID number. They call this a living or revocable trust because you initiate it during your lifetime, have full control over the assets as long as you live, and can amend it as needed throughout your life. They can also continue for years after you die if the basic trust establishes an "Ongoing Trust" to control property that is needed to support someone with special needs or to provide for your spouse, children from previous marriage, or for grandchildren.
Living Trusts are almost impossible to contest because they are initiated during your lifetime when you are active and able to make sound judgments. Living trusts can be easily drafted online. However, when you have special needs dependents and other unique situations it is wise to consult with an attorney to review or draft your documents.
Not everyone needs a living trust. You can use other methods to avoid probate such as designating bank accounts, savings bonds, stocks, and brokerage accounts, Joint Tenancy, Pay on Death (POD), Transfer on Death (TOD), and designating beneficiaries for insurance policies. Use the free downloadable "Asset Allocation" spreadsheet that I developed with samples to determine how your accounts are registered and designated. You can evaluate and amend the account registrations and designations to ensure your assets go to the desired beneficiary. If the majority of your assets can be transferred with proper account registration you may not need a trust document. Trusts aren’t recommended for small estates with little monetary value, if you don’t have someone to designate "Successor Trustee," or if you have complex debt problems.
During your lifetime you have full control over the trust and it is revocable. After you die it can not be changed and the trust assets are distributed by the successor trustee to the beneficiaries outside of probate. The only delay in distribution would be due to the estate and inheritance tax inventories that may be required depending on the size of the state. One word of caution, you must still have a will to transfer residual estate assets that don’t make it into the living trust.
I mentioned earlier that I attended a series of seminars sponsored by Hefren-Tillotson, Inc., a financial planning and brokerage house in Pittsburgh. The free four seminar series is titled "Hefrin-Tilloston’s School to Financial Freedom" and was hosted by the amicable William Pisciuneri, Vice President and Financial Advisor, Kevin Guernsey, Financial Advisor, and Belynda Slaugenhaupt, Associate Vice President. The series covers investment planning, asset allocation, security research, insurance protection options, estate planning, and pensions.
I wrote an article titled "Should You Consider Hiring A Financial Advisor" for our blog that you will find informative.
I discovered Hefren Tilloston one Sunday many years ago while listening to their weekend talk show "Your Money and You" hosted by Jim Meredith. I called the show several times to talk with Jim about various issues and found his advise and public service refreshing. He and I both agree that "no debt is the only good debt." I discussed this concept in my book titled "Dollars & Sense; Safe Investment Strategies for Small Investors" that was published in 1988.
Their seminars are informative and there wasn't any high pressure sales that you would expect at a free seminar. One of the sessions on estate planning was presented by Charles R. Reis, Esquire, a well respected attorney in the field. Hefren-Tillotson offers to design a comprehensive "Master Plan" for participants that is geared to your personal situation and goals. The sample plan that I reviewed was well thought out, comprehensive, straight forward, conservative, understandable and actionable.
Basically, if you need assistance or simply dislike working with your estate and finances it is wise to consult professionals in the field. Even if you are comfortable managing your investments it never hurts to get a second opinion. The first step is to find a reputable company and then compare fees and costs before you sign up. When contacting a financial advisor request a copy of their Part 2A Form ADV. The Form ADV is the uniform form used by investment advisers to register with both the Securities and Exchange Commission (SEC) and state securities authorities. The second part requires investment advisers to prepare narrative brochures written in plain English that contain information such as the types of advisory services offered. I was easily able to compare financial advisors and firms using these easy to read documents. Also check their Better Business Bureau rating at www.bbb.org.
The information provided in this series should be enough to get you started with your plan. Stay tuned for more guidance and visit our estate planning pages for updates.