What you should know about trusts and wills


Trusts and wills are the instruments used to disburse your assets after you die. The intricacies of each are pretty boring to read about so this is a simple explanation of what can be a very complicated process.

When you create a trust you pay upfront and itis expensive. The more complicated, the more it costs. The good news, it is a private document that keeps your business out of probate. The creator of the trust is normally the trustee and when the trustee dies or becomes incapacitated, the successor trustee takes over. When the original trustee dies, the successor trustee disburses the assets per the instructions in the trust. A trust does not go through probate (the courts) and everything in it remains private.

All your assets (cars, house, bank accounts, stocks, etc.) must be titled in the name of the trust. Lawyers have been known to draft the trust and leave it unfunded. I’ve had several clients where that happened. That means you have a document with nothing in it and your estate is now intestate and it becomes a much more complicated probate process.

Financial institutions will verify the successor trustee’s authority and often require a high level of substantiation before releasing funds. However, these same institutions do the same thing when you’re alive. What spurred the Buzz Aldrin family fight was when his son asked JP Morgan to release his father’s funds to him. JP Morgan, in an abundance of caution, asked the courts to settle the issue. The court found for Colonel Aldrin.

Many of us remember when John Ritter, one of the stars of Three’s Company, who died very suddenly at the age of 54 from a torn aorta. Although his widow sued the doctors who treated him, his estate was passed on to his wife and children with little fanfare. He had a trust and the proceeds from the lawsuit will go into a pour over will which leaves any property not mentioned in the trust to the trust. Once in the trust, it is private.

A will is less expensive but the same amount of money will be used to hire lawyers for the probate process. Again, the more complicated the will, the more complicated the process.

The good news — the money is spent after death and I’ve heard many wealthy people say, “what do I care; I’ll be dead.” The will is a public document, ergo, anyone can see the worth of your assets. Wills also are easier to challenge in court — the law is settled and if one ‘t’ is incorrectly crossed the entire document can be challenged.

If you have a trust, no creditors can collect from it unless their specifically mentioned. If you have a will, creditors can file their bill in the Probate Court and will be paid out of the proceeds first.

The wealthier you are, the more you need an estate plan — often including insurance to cover the estate taxes. The best example of this is Joe Robbie, then owner of the Miami Dolphins. He had an estate plan that consisted of a pour over will and an inter-vivos trust. When he died, everything went to his wife, Elizabeth, who would receive trust income for the rest of her life and upon her death the corpus (body) of the trust would go to the named beneficiaries.

Bad news, Mr. Robbie’s biggest assets were the football team and the stadium. At the time of Robbie’s death (1990), nine of his 11 children were alive. Three were trustees of the trust and one, Mike, worked for the Dolphins. Upon the senior Robbie’s death, the trustees fired Mike and sold 15 percent of the team. This infuriated their mother who demanded her elective share. (An elective share allows a married woman to claim 33 percent of her husband’s estate under Florida law). She rewrote her will cutting out the three trustee/children.

The weakness in this scenario is that the trust was set up to defer taxes until after her death. If she were given her “share,” estate taxes would be due and that meant selling a portion of the team and stadium. The fight began. Mrs. Robbie died before its conclusion but the courts gave Mrs. Robbie her elective share which meant the estate owed $47 million in taxes. The team and stadium had to be sold to pay the taxes. Her estate received the equitable share moneys which were shared among her beneficiaries. Joe Robbie’s estate was shared among the nine living children and the football team belonged to someone else. The family is still not on speaking terms.

All of this could have been avoided with a different estate planning strategy that included more complicated trust structures and some life insurance. Had that happened it would still be the “Joe Robbie Stadium.” The postscript to this story is that Joe Robbie was a lawyer: What’s that axiom, an attorney who represents himself has a fool for a client.

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