2010 Issue 2
WHY ARE SO MANY TRUSTS WINDING UP IN COURT?
You created a trust to avoid probate and the Courts, but we find the trust in a Court action despite this.
 What could go wrong? Plenty!
While it is impossible to foresee every possible problem that could arise, some issues come up time and again and can be avoided. Let’s go over three often seen issues:
Choosing your successor Trustee:
Choosing your successor is one of, if not, the most important decision to make when setting up your trust. Let’s underline the word trust as this is the most important attribute of a Trustee. They should be so trustworthy that they would make decisions to their detriment rather than violate their fiduciary duty. Just choosing your eldest child may not be the best course of action, unless they have the attributes mentioned. Sometimes parents think the solution is to name all of their children as successor Co-Trustees. If your children are not close before you pass away, this often will cause disagreements and a further breakdown of the family.
Explaining an Unusual Distribution Plan:
Many people assume that to be fair they need to distribute their estate equally to their children. That may be fine if the children are all adults and responsible, but what if your family does not fall into that cookie cutter scenario. A trust is flexible enough to provide for almost any situation so that is not where the problems arise. The problems arise when the children or other beneficiaries do not understand why the distribution is set up in a certain way. Let me give you an example: Mother leaves a larger share to one child in a special sub-trust with no explanation why. The child receiving less often wonders why and feels they were treated unfairly. Mother thinks the child receiving less can understand her reasons, but has never communicated them. Had she explained her reasoning, either directly in the trust or in a letter outside the trust, much heartache may have been
averted, not to mention reducing the chance of Court challenges.
Not Funding the Trust:
You have just spent a good sum of money and time creating your estate plan and yet your beneficiaries learn after you have passed that they will have to probate all or a part of your estate—Why? Failing to re-title your property, bank and brokerage accounts, and other assets is one major reason. Other common mistakes include adding or changing banks or brokerage firms and not titling the new accounts in the name of the trust; refinancing your real property if the bank requires that you take it out of the trust as it is often not put back in; inheriting property and forgetting to title it in the name of the trust.
Remember that if you ever have a question regarding your trust or any of your estate planning documents, you may call at any time to discuss them. An ounce of prevention is worth more than a pound of cure when it comes to legal matters.
WHERE DO I INVEST MY IRA?
I hear this question more than once during tax season and once again the answer is—It depends. There are so many factors to consider, that is impossible to give an immediate quick and easy response. Whether you are planning on managing your own investments or are looking for a financial planner to work with, the first step is education. I recommend a wonderful class taught by the team of Lewis & Mathews Investment Management at Foothill College. It is a 6 week class that will teach you the basics of risk, asset classes and economic hedging. After taking this class you will be informed enough to decide what to do next—manage your own portfolio or seek professional advice. Stay tuned to future editions for information on the next class.
TAXING RETURNS...
Why does my tax return look like an ancient, impossible to understand language?
The tax code fills many volumes, enough to fill up 10 feet of shelf space and that only includes the codes and regulations, never mind the private letter rulings, case law, etc.
 That does not mean that you cannot figure out how to manage your own tax planning. Ask your tax preparer to educate you about your return and what you should be looking for during the year to bring to your tax preparer’s attention before the year is over. If you learn a little each year, you will become fluent enough in TAX 101 to assist your tax preparer to be sure that you are paying the minimum amount of taxes possible.
As the famous tax judge Learned Hand said,
"Anyone may arrange his affairs so that his taxes shall be as low as
possible; he is not bound to choose that pattern which best pays the
treasury. There is not even a patriotic duty to increase one's taxes.
Over and over again the Courts have said that there is nothing sinister
in so arranging affairs as to keep taxes as low as possible. Everyone
does it, rich and poor alike and all do right, for nobody owes any
public duty to pay more than the law demands."
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