WHO SHOULD OWN THE GUIDE?
• IF you are named on your own, parent’s, relative’s, friend’s or neighbor’s estate plan as a trustee, you will need to know your responsibilities and have the system to successfully address the trust placed in you.
• IF you are establishing an estate plan with an independent third party, bank or corporate trustee, you will want to use the guide’s, "Notify-Respond-Verify" system. Make sure they get it correct.
• IF you are a parent or grandparent, what gift could be more important or useful than a well drafted estate plan and a system to make it work? Give your heirs the tools they can use to make the plan a success.
WHO SHOULD GIVE THE GUIDE?
• IF you are an estate planning attorney you realize your clients need a system for transferring and tracking their assets. This is it. The Guide for the Successful Trustee.
• IF you are an accountant do your clients have their assets properly titled? Use the "Guide" to get the proper registration and use the system to keep it that way. Thousands of dollars in unnecessary taxes and fees are generated by incorrect registrations.
• IF you are a financial advisor, have your peers and predecessors titled all of their clients’ past investments properly? What is your liability to clients on past transactions and current estate plans? Meet with the client and family go over the three phases of estate planning. Illustrate the phases and the differences between the three. "The Guide for the Successful Trustee" has the system to make it simple and successful.
Guide for the Successful Trustee
A Gift for the HeirsBy Richard D. FinleyBalboa Press
Copyright © 2012Richard D. Finley
All right reserved. ISBN: 978-1-4525-4681-0Contents
Overview.........................................................................................5Preface..........................................................................................6The Guide for the Successful Trustee – How it Works........................................8Section 1 - Creation of Estate Plan..............................................................13Section 1 - Notes:...............................................................................19Section 2 – Transition of Estate Plan......................................................21Section 2 - Notes:...............................................................................25Section 3 – Settlement of Estate Plan......................................................27Section 3 – Notes..........................................................................33Hand Filled Instructions, Letters and Logs.......................................................35Section 1 - Data Collection - Trust Definitions and Information Instructions.....................40Trust Information:...............................................................................41Asset/Contact Listing............................................................................43Financial Organization Notification..............................................................45Directory Listing for Financial Institutions.....................................................46Change of Beneficiary Form Request – Life Insurance........................................48Change of Beneficiary Form Request – Non Life Insurance....................................49Section 2 - Data Collection - Trust Definitions and Information Instructions.....................52Data Collection – Trust Information........................................................54Asset/Contact Listing............................................................................57Section 2 – Letters........................................................................59Authorization to Financial Institution...........................................................60Letter to Institutions to Discontinue or Modify Benefits.........................................62Notification to Service Providers................................................................66Notification of Beneficiaries....................................................................68Directory Listing for Organizations/Contacts.....................................................70Section 3 - Data Collection – Trust Information............................................72Trust Data Collection Form – Contact Information...........................................73Asset/Contact Listing Form.......................................................................75Section 3 – Letters........................................................................76Letter to Financial Organizations................................................................77Letter to Institutions to Discontinue or Modify Benefits.........................................79Notification to Service Providers................................................................83Getting Started With The Guide for the Successful Trustee........................................91Glossary.........................................................................................93
Chapter One
Section 1 - Creation of Estate Plan For the sake of this publication we will be referring to the creation of a trust-based estate plan as the development of an "estate plan". Because not all situations require a trust or trusts, it is very important to consult with a qualified estate planning attorney to review each family's needs. This guide may still be an excellent tool for the organization of assets, even if the situation does not require a trust. However, if a probate is required, please note that there are very specific procedures, forms and deadline requirements that vary from state to state and court to court, and a qualified probate attorney should be consulted.
It is critical to the success of any estate plan to get off to a good start. The better grasped this section is, the easier future sections will be. This guide does not generate legal documents. Rather, the guide helps establish a record keeping system of correspondence between an individual or family and the financial institutions and businesses with which they do transactions.
Typical assets that may need a change of registration when a trust is funded include, but are not limited to: stocks, mutual funds, bank accounts, real estate, bonds, re-investment accounts, money markets, etc. Assets that typically don't change title but may require a change of beneficiary include retirement plans, annuities and life insurance. These organizations may well have their own proprietary forms used to change beneficiaries. You may need to contact them for a change of beneficiary form.
Attorneys will not automatically transfer those assets which are changing title or beneficiary. However, if they do transfer assets, they may very well charge at their hourly rate. If you are apprehensive about the requirements of a particular asset, by all means spend the extra money to consult an attorney. Accountants, attorneys and financial planners agree that failure to fund or to properly fund a trust are the primary reasons trusts do not accomplish the goals of the grantee or grantors.
The time has been spent with the attorney formulating the plan. The check has been written to pay for it. Now comes the time to fund the trust. "Funding a trust" is estate-planning jargon for transferring assets to the trust. As soon as possible the trustee needs to re-register title on those assets affected by the creation of the trust.
It is very important that trustees understand the difference between the parties to all insurance contracts and retirement plan assets. The parties can be owner, beneficiary, insured, annuitant or insurer.
Owners are also known as grantors, trustors, settlors or participants. Trusts and other non-natural entities can be owners as well. "Incidents of Ownership" exist when the individual or entity has full or partial control of the contract. Incidents of Ownership are important when determining tax liability.
Beneficiaries are the parties designated to receive income, proceeds or tax savings created by the insurance policy or retirement plan.
The insured is the person or persons whose death triggers the payment of the death benefit to the beneficiary. The cost of the insurance is determined by his/her life expectancy.
The annuitant is similar to the insured in a life insurance contract. The life expectancy of the annuitant is used to set payment amounts on annuity contracts.
The insurer is the organization that will, for a premium payment, under-write protection as outlined in the contract.
The complexities of ownership make it imperative that all of the parties understand their roles and responsibilities in all transactions. Always consult with qualified legal and tax advisors before making any changes to estate planning documents or retirement funds.
The problems generally come up when working with the different treatment of Qualified and non-Qualified funds. Qualified, or retirement plan funds like IRAs, 401Ks and pension plans are treated differently from non-qualified funds in the tax code. Don't mix up the two types of funds. If you are not sure, ask the attorney. It can get very disorganized and expensive if the assets are not treated properly.
The process of transferring is really quite simple, but may be a little tedious.
• The first step is to notify the proper institutions of the changes that have been made.
• The second stage is to track the response from the institution and complete their requirements for transfer.
• The third step is to get verification from the institution contacted that your requested change has been made.
Get hard copy (written) documentation on all communication. You never know when you will need it. Not all transfer agents are created equal. Expect mistakes. The forms that appear in Appendix A, Section 1 have been developed to accomplish the transfers associated with the creation phase. Spend some time, get organized, and simplify your life, use The Guide.
When you are making a list of assets for your attorney, group your financial statements according to cash, qualified, non-qualified, and life insurance assets. (If an estate has additional trust assets, i.e. Charitable Remainder or Special Needs assets, make sure to keep them segregated from the other holdings.) Secure a three ring binder, punch holes in the statements and place them in reverse chronological order with the most recent statement on top. If the most recent statement includes all of the current years' transactions you may shred the old statements. If any transactions have occurred that aren't reflected on the statements, save your confirms as they may be needed for future tax reporting issues. Also, make sure to keep all fiscal year- end and 12/31 statements. You might want to include a copy of all 1099's in this section as well.
Next, following the statements, insert the written communications. A separate dated log should be established and maintained to help you remain organized for future reference.
Also of importance: in our income tax system, the type of asset is given precedence over investment vehicle when determining probate and tax treatment. For example, an IRA funded with mutual funds is an IRA first and a mutual fund second. In other words, you may hear an IRA referred to as the "type" or "flavor" of the money and the mutual fund is the "vehicle". Make sure to understand the terminology. An incorrect beneficiary, a mis-titled owner or a misfiled document can all confuse a trustee or a custodian and perhaps trigger a tax.
A properly created, funded and maintained estate plan will allow its creators to direct and control their assets well after they are gone. Taxes and probate can be reduced or eliminated, leaving more for friends and heirs, church and schools, pets, beneficiaries and favorite charities.
Section One dealt with getting organized and preparing for the eventualities in the next two phases: Transition and Settlement. The success or failure of an estate plan can rest upon the accuracy and organization of the paperwork. Assets must be properly titled in order that heirs and beneficiaries fully benefit from the time and money that goes into establishing the plan. Section One provides the communication system and documents needed to transfer assets to a living trust. If The Guide is maintained after the transfers are completed it can help with everything from taxes to transitions. It becomes an invaluable source of information for the Successful Trustee.
Chapter Two
Section 2 – Transition of Estate Plan The second phase of the estate planning cycle is the beginning of the actual asset transfer to beneficiaries. It is triggered by a significant event, the death or illness of a settlor, spouse or parent being the most common. Care issues can also trigger the need for implementation of the strategies outlined in the estate plan.
Since it is usually a negative event that triggers the transition phase, it is important that the appointed trustee be organized. There may be considerable stress when handling the other legal, personal and public pressures that can arise at a difficult time.
It is important that those involved in the management of the trust be notified as to their roles in the estate plan. Generally speaking, `no surprises' is the rule of thumb here. It is best to answer any questions and settle any differences promptly without the pressures of a loved one's death or illness. Quite often someone named as a trustee will decline the position. Hopefully, the plan names a list of other potential successor/trustees. If not, the trustees could be in for a surprise at an inopportune time. Unless the trust states how a vacancy in the office of trustee may be filled, a petition must be brought before the Probate Court for the appointment of a successor trustee. Since avoiding the time and expense of probate proceedings was probably a major goal in creating the trust it would be unfortunate to require them after all.
Notification of beneficiaries is a different matter. Revealing who is getting what and when they are getting it is best left to the final or distribution phase.
An exception to this notification process could be gifts left to charity. Depending on the size and nature of the gift; it may be wise to notify the charity without delay. It may be possible to structure the gift so that it will generate an immediate tax benefit. At this point the use of advanced trust planning may come into play, and the services of an estate planning team can be invaluable.
The tax code allows for a number of different types of trusts, (e.g. Charitable Remainder, Charitable Lead, Irrevocable Life Insurance, etc.) that provide for planning strategies that could substantially benefit donor, beneficiary, charity and family.
It is important to keep up to date on any changes that may occur to beneficiaries, settlors and trustees. Death, divorce, disease and changes in dependents are some of the events that can change the people in a plan. As life changes, so must the details of a good estate plan.
Changed circumstances may require entirely new documents, complete with new tax identification numbers. Tax identification numbers or ("TIN"s) for individuals are their Social Security Numbers; for other entities, they are often referred to as EINs, short for "Employer Identification Numbers." even though the Trust or other entity may not "employ" anyone. You must be very careful to assign the correct TINs to the proper accounts. It is often a little confusing when the estate plan uses an A/B Trust strategy, common for a married couple; on the first death a Credit Shelter Trust (also known as a Bypass Trust) is created that must obtain a TIN, and a Survivor's Trust is also created that uses the surviving spouse's Social Security number until the survivor dies, at which time it also must have a new TIN. Special Needs Trusts, Charitable Remainder Trusts, Charitable Lead Trusts, Irrevocable Life Insurance Trusts, etc. will all need separate TINS and separate registrations. Depending on what additional documents are established, the settlor should use titles that are similar yet distinct.
The title should indicate the type of trust i.e. Survivors Trust, Credit Shelter Trust, Irrevocable Life Insurance Trust etc., the trustees, grantors and the date. If the plan being established has more than one trust of the same type i.e. Charitable Remainder Trust it is recommended not to repeat titles and number them sequentially. Why? Banks, investment companies, transfer agents and other financial institutions process thousands of requests each year. A one digit change can be too similar and not distinct enough for a busy transfer agent or bank teller to notice.
The second phase of an estate plan is more complicated than the first; however if trustees have kept The Guide up to date, it will be much easier to meet the trust requirements. Many years may pass between the first two phases, but if maintained, using The Guide will save friends and family countless hours of needless frustration.
Appendix A and B include examples of five letters that can be used to notify most of the individuals or companies that need to be informed on the death or disability of the first settlor. Two very important organizations, the Post Office and Social Security (1-800- 772-1213) cannot be contacted by mail. Each has very specific requirements for transitioning an estate and should be contacted in person by the Trustee.
During the transition phase of the estate plan, the trust goes to work to accomplish the goals of the settlors. Assets are positioned to protect income for the surviving spouse and maximize values for the ultimate beneficiaries. In The Guide Section Two, five different groups are identified as people or organizations that will need to be contacted. Continue to keep The Guide up to date and Section Three, Distribution, will be a far less difficult task.
Chapter Three
Section 3 – Settlement of Estate Plan When people think of being a trustee, Section Three of The Guide is more than likely the phase they are thinking about, probably because it can be the most difficult. If the estate has been properly maintained, as outlined in the previous two sections, the final settlement of accounts should proceed smoothly. "The distribution process or "settlement process" as it is also known, is the same as the creation and transition process: notify, respond and verify. The major differences between this phase and the previous two phases are volume and timing; there is a lot more to do and some filing dates that must be met.
Generally referred to as the "successor trustee", the trustee in the distribution phase will be dealing with a lot more than just assets. (Any trustee taking office after the initial trustee stops acting is a "successor trustee".) There may be utilities to notify, credit card accounts to close out, Social Security to deal with, property to manage, as well as taxes to be filed. The list of responsibilities can be a long one, depending upon the complexity of the estate to be settled. The successor trustee will also have to become familiar with filing dates for the different organizations and agencies. Becoming involved with the whys, what's, when's and wherefores of a settlor's life can be a trying experience. Accepting the task of closing out the financial and personal responsibilities of the Trustor can be a difficult one. There is a lot more to the role than simply passing out assets to heirs and beneficiaries.
What follows is an overview of actions that successor trustees need to take to address their responsibilities. The advisory team (accountant, attorney and financial planner) should be able to produce a more complete and time sensitive list.
However, before the estate can be settled, two important questions need to be addressed.
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Excerpted from Guide for the Successful Trusteeby Richard D. Finley Copyright © 2012 by Richard D. Finley . Excerpted by permission of Balboa Press. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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