Top Dog: An Estate Planning "Tail"

August 7, 2018

By Justin R. Markovits, Esq., LL.M. Taxation

Gone to the dogs

Would you disinherit your grandchildren and leave an obscene amount of money in a trust fund for your pet? If you were billionaire Leona Helmsley, that is exactly what you would do. Yes, in 2007 Americans learned in amazement that Helmsley’s will left $12 million in trust for her white Maltese canine companion, Trouble, while leaving nothing to her grandchildren. Astonishment aside, that gesture sent a message to the public that reinforced a commonly-held belief: estate planning is for the super wealthy, the iconoclastic elite, and the entitled.

Estate planning is for everyone.

As an estate planning professional, I know the commonly-cited figure that most Americans are without an estate plan. At the same time, I know that estate planning is not reserved for only the likes of Helmsley, but is absolutely essential for all of us and those that we care about. The question, then, is why are so many of us going without something that is so crucial to our lives and to the lives of those that we care about, and how did our understanding of estate planning get so convoluted that we think it is something only to be utilized by the Helmsley's of the world?

Knowledge is power: Estate planning is important

As in most cases, the truest answer is also the most straightforward: We do not know why it is so important to have an estate plan, because the information needed to educate us on such an essential topic is either (1) not readily available, or (2) needlessly complex, full of industry jargon, and, as a result, unusable. Therefore, in an effort to combat this problem and disseminate worthwhile estate planning information, I will detail some of the advantages of a highly effective estate planning tool, the Revocable Living Trust.

The revocable living trust: Batman and Bruce Wayne

A Revocable Living Trust, as its name suggests, has two main features: (1) it is set up by the person who establishes the trust – known as the grantor – during his or her lifetime, and (2) it can be subsequently revoked by the grantor. Because the grantor retains this ability to revoke the trust, the tax law treats all the income and other tax attributes of the trust as if they were generated by the grantor. So, while the trust may seem like it is masquerading as Batman – a separate and distinct entity from the grantor – in the eyes of the tax code, it is really just Bruce Wayne, as the grantor, dressing up as the caped crusader. And, like Batman, the Revocable Living Trust has a number of very beneficial gadgets, while still allowing grantor Bruce Wayne to retain control over his vast wealth.

Avoiding probate, avoiding problems.

As an alternative to a trust, many people, at the very least, have a will. Unlike a trust, a will must go through probate. Probate – the process of proving the validity of a will – can be unreasonably long, involve large legal fees, and can open the door for potentially disgruntled relatives to contest the will. The Revocable Living Trust is designed to avoid those issues. So long as all of a person’s assets are titled in the name of the trust at the time of his or her death, there is no “probate” property, and the provisions of the trust control the disposition of the funds, without the need to file anything in court. Additionally, it is more difficult to challenge a trust that was set up during the grantor’s life than a will at death. Thus, unlike with a will, for those that decide to create a Revocable Living Trust, money is not wasted on needless legal and court costs, and the funds of the trust are timely paid out to the beneficiaries.

Privacy: stay out of the papers

Many people are surprised to learn that a will admitted to probate becomes a public document. Indeed, that is exactly how we know about Helmsley’s eccentric gift to her dog. Alternatively, a Revocable Living Trust is a private document, only viewable by the beneficiaries listed in the text. Ironically, for all her wealth, had Helmsley utilized a Revocable Living Trust, she would have been able to keep her bequest private. Therefore, should you not want to broadcast you final wishes in a way readily accessible to the public, a Revocable Living Trust fulfils that goal.

Professional and continuous management, protecting family

A grantor can name a corporate co-trustee, such as a Bank and Trust Company, to professionally manage the assets of the trust during the grantor’s life. Should the grantor become incapacitated, the corporate trustee continues to manage the property, and provide the necessary funds for the grantor. Ultimately, at the grantor’s passing, the corporate trustee ensures that the assets of the trust get paid out appropriately, or are held in further trust if the trust so requires. Similarly, a Revocable Living Trust where a successor corporate trustee is named is appropriate if the grantor wants the peace of mind of knowing that the grantor’s spouse will be taken care of at the time of the grantor’s passing. Once the grantor passes, the trust becomes irrevocable, and the corporate trustee professionally manages the funds and administers the trust for the benefit of the surviving spouse and any other named beneficiaries.

Avoiding ancillary probate, avoiding ancillary problems

Without a revocable trust, people who own real estate in two states may need to go through the probate process in both states. If these properties are placed into a Revocable Living Trust, however, probate can be avoided in both states. Snowbirds and people with out-of-state vacation homes are prime candidates for the Revocable Living Trust for this very reason.

Putting it all together

Just as no two people are alike, there is no one-size-fits-all Revocable Living Trust. The aim of this article is to provide some of the advantages of the Revocable Living Trust in order to create a starting point for you to begin a conversation with an estate planning professional. A competent professional should spend significant time understanding your family situation and what is important to you. Ultimately, it is up to you how you leave your property, which may include a bequest to a furry family member.

Postscript: end of the tail

In case you were thinking $12 million seemed like a bit too much to meet the needs of even the most pampered pooch, do not worry, a judge ultimately agreed and knocked the amount in Trouble’s trust fund down to only $2 million. Still not too bad for man’s best friend.

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