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Estate Planning: Some Living Trust Case Studies

Posted by Larry Jones on Jul 1, 2021 9:30:00 AM
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The Tsunami of Death

When a parent dies, or even worse, both parents, a tsunami rolls toward the survivor(s). Along with the emotional strain comes financial concerns, and legal. All of this hits at the worst possible time, a time when the children are least emotionally prepared to take them on. It can be truly an awful experience.

In the last two blogs I've written a bit about revocable living trusts, and how they can be such great stress relievers. Now I'd like to present some practical case studies on their use. (to see the previous blogs see: blog 1, blog 2)


Some Scenarios

Case 1

Doug and his wife Sheila have been married for 25 years. Not long ago they retired to Florida from North Carolina. They have approximately $1 million in assets, which consists of a home in Florida worth $400,000 (owned in the wife’s revocable trust), two brokerage accounts worth $175,000 each (owned in each spouse’s revocable trust), and a joint checking account worth $250,000.

Unfortunately, Doug has a heart attack and dies. His revocable trust left everything to his wife. Sheila consults with her attorney, who informs her that all that needs to be done is to re-title the joint checking account into the name of her revocable trust, then contact their brokerage firm and notify them that her husband is deceased and that she is the sole beneficiary. As such, she can then re-title the brokerage account into the name of her trust. The attorney charges her $1,000 for the consultation and agrees to assist in the re-titling by helping to fill out forms and answering questions.

Three months later everything has been resolved, and Sheila went through almost no additional stress during the process.

Case 2

Bob and Linda have been married for 43 years. They have retired to Florida from New York and have approximately $1 million in assets. These assets consist of a home in Florida worth $350,000 (owned jointly), two brokerage accounts worth $200,000 each (owned in each spouse’s sole name), and a joint checking account worth $250,000.

Bob has a heart attack and dies. He had a will that left everything he owned to Linda. Then she hires an attorney to handle the estate. The lawyer tells Linda that they will have to open a probate for the assets that her husband owned in his sole name. The attorney’s fee for the probate is $5,000 or 2 percent of the probate estate, which is $250,000. He also informs her that there will be various court costs associated with the probate administration, which will total several hundred dollars. Finally, the attorney tells Linda that she needs to re-title the joint checking account into the name of a revocable trust to avoid a probate when she passes away.

Nine months later the probate court closes the probate. Linda has had to deal with over $5,000 worth of unnecessary costs, having $250,000 worth of assets tied up for six additional months, and all the stress that came along with Bob’s death.

Case 3

Sam and Carla have been married for 38 years. They have retired to Florida from West Virginia and have approximately $1 million in assets. These assets consist of a home in Florida worth $250,000 (owned jointly), two brokerage accounts worth $250,000 each (owned in each spouse’s sole name), and a joint checking account worth $250,000.

Not long after moving to Florida both of them die in a car accident. They both had wills that left everything to their only son, Bruce, who lives in New York. He flies down and meets with the attorney, who tells him that all of his parents’ assets have to be probated. The attorney’s fee for the probate is $20,000 or 2 percent of $1 million. The attorney also tells him that the court will likely require a $25,000 bond, because he is not a Florida resident. Additionally, various court costs are associated with the probate administration, which will total several hundred dollars. Finally, the attorney informs him that he will have to petition the court to sell his parents’ home and that it could take several months to get approval.

Twelve months later the probate court closes the probate. Sam has had to deal with the loss of both his parents, the sale of a home, and an arduous court proceeding. Revocable trusts would have prevented many of these costs and saved much time and emotional strain.


Don't Try This on Your Own

 

My hope is that this series of blogs have reinforced the importance of properly utilizing trusts in your estate planning efforts. Even though the initial administrative costs might seem high, they usually are insignificant in light of the benefits gained.

Please keep in mind that none of this information is meant to take the place of good legal counsel, and NavStar nor myself can provide that (although I do have an attorney I work with). Under no circumstances should you try to set up any kind of trust without this counsel.

Until next time,

Larry

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