The only assets that your clients transfer to their Living Trust are those that are NOT self-executing. Self-executing assets are those that already have existing beneficiary designations, such as insurance policies, IRA accounts, annuities, and bank and brokerage accounts with an existing pay-on-death (POD) designation.
• How does your after-death agent know what assets are in your Living Trust after your death? Perhaps you have made a list of all of your Living Trust assets and inserted that list with your Living Trust documents. However, the most common method that an after-death agent uses to discover your Living Trust assets is to rummage through your business desk and look for your most recent account statements.
Discovering what assets your clients owned at death shouldn’t be akin to embarking on a treasure hunt. Advise your clients to make an updated list of assets annually and to send that list to you. When your clients’ after-death agents notify you of their deaths, you can provide them with the latest asset information that you have.
• Who are the persons to whom the after-death agent transfers the Living Trust assets after your death? Your after-death agent will transfer your Living Trust assets after you die to whomever you have designated.
• Where do you list who gets your Living Trust assets after you die? You describe who gets what, when they get it, and how they get it in your Living Trust document. After you die, your after-death agent opens up your Living Trust, reads the inheritance instructions, and transfers the Living Trust assets to the persons – and in the manner – described in those instructions.
• Who will be your after-death agent? Your after-death agent will be the person(s) you name in your Living Trust as your after-death agent.
Putting this all together – the Living Trust is a signed document in which you authorize an agent to transfer your Living Trust assets to the persons whom you have named as beneficiaries after your death.
You can also describe the Living Trust as a bucket into which your clients transfer their assets. Your clients own and manage the assets in that bucket as the “settlors” (owners) and “trustees” (managers). This bucket comes with a set of instructions that state that the assets in the bucket are held, managed, and used for your clients’ (the settlors and the trustees) benefit during their lifetime – and who will receive those assets in the bucket after your clients die. I have found this to be a pretty good way to inject the use of the technical and alien words “settlor” and “trustee” into the conversation about explaining the concept of the Living Trust.
It’s an After-Death Power of Attorney, but It’s Not
Do not take my simplistic explanation the wrong way. In my seminars, many people ask, “Mr. Condon, if an after-death power of attorney will do the job of transferring my assets after I die, why can’t I just sign one of those and forget about the Living Trust?”
It’s a good question. Here’s the answer: There is no such thing as an after-death power of attorney. It does not exist. Any power of attorney that you sign dies when you die. It does not live on after your death.
But we lawyers, not to be daunted, developed the Living Trust so that it would have the same effect as the nonexistent after-death power of attorney; all we did was change the language and terminology. Instead of using language found in a power of attorney (principal, agent), we used the language found in a trust (settlor, trustee). Whereas you would be considered the “principal” authorizing the power of attorney, you are labeled a “settlor” in the Living Trust document. Instead of you appointing a power of attorney “agent,” you appoint a Living Trust “successor trustee.” Now, here is where we introduce a completely new term – the trust estate. After you – the settlor – die, your successor trustee distributes the assets in your Living Trust. These assets, referred to as the trust estate, are dispersed among the persons whom you have named in your Living Trust as your beneficiaries.
Now that you know everything you need to know about what the Living Trust is and how it works, the big question becomes: Do you need one? The last thing you want is to be sold something you don’t need. To help you make this decision, I refer you to the next chapter.
CHAPTER 3
Do You Really Need a Living Trust?
Or, Don’t Let Someone Sell You Something You Don’t Need
In Chapter 2, I presented you with the best explanation of the Living Trust you have ever heard in your life. By having the Living Trust described as an “after-death power of attorney,” you now understand that the Living Trust appoints someone – your after-death agent – to sign documents after your death to transfer your assets to the beneficiaries you named in your Living Trust. Lovely!
Okay. So where do we go from here? We continue with a series of questions: So what? Who cares about appointing an after-death agent? Why is that fun? Answering those questions in the order in which they just appeared may give you a better sense of the next steps.
• So what? The Living Trust process will save your beneficiaries thousands of dollars after your death because it prevents them from having to probate your assets.
• Who cares? The beneficiaries you named in your Living Trust care.
• Why is that fun? The money you saved for your beneficiaries by avoiding the probate process will provide them with the additional funds they need for that shopping spree, car purchase, dream trip, or whatever else floats their boats.
The Reasons Why a Living Trust Is a No-Brainer
You may have heard – or you know – that the Living Trust keeps your children (and your assets) from having to go through the probate process after you die. That is the number one reason why people establish their Living Trusts. Without the desire to avoid probate, there would be no such thing as a Living Trust.
Probate is the court-supervised process of transferring your assets to the beneficiaries of your estate. Actually, that is a fairly boring legal explanation of probate, and I promised you that I would avoid legal jargon as much as possible. Let me state it in a more accessible fashion.
The purpose of probate is to get the judge to do something. And that something is to sign an order that authorizes someone to jump in after you die and transfer title of all of your assets from “dead you” to your spouse, children, or other heirs.
The someone who transfers your assets is the person you have named as the executor in your will. I sometimes call the executor the judge’s helper. After all, the judge is certainly not going to do the down-and-dirty work of managing and distributing your assets after you die. That’s not what the judge does. Instead, the judge is merely a voice box that gives your executor permission to do what needs to be done: marshal your assets, inventory them, pay off your creditors (if any), and distribute your assets to your beneficiaries, who are the designated people you have named in your will.
Is that it? Is that all probate is – just getting the judge to sign an order distributing your assets? That sounds pretty simple. After you die, maybe your executor can go to the courthouse on his or her lunch hour, flag the judge down in the hallway, show the judge your will, and say, “Please sign this order right here.”
Obviously, this facetious statement is designed to make a point: It is not easy. In fact, probate is time-consuming, with most normal, garden-variety, noncontested probates taking a minimum of six months to complete; and it is expensive because of filing fees and court costs that can run into the thousands of dollars. Perhaps most daunting, probate is a lawsuit. In other words, whenever