|
Author: Glenn Dahlke Article source: http://askfinancing.com/. Used with author's permission.
A common problem I often see when working with living trust beneficiaries and trustees is the lack of attention in rethinking income strategies in the event of the grantor's death.
When the grantor of a living trust dies, the trustee (especially a family member or close friend) sometimes feels reluctant to revise the portfolio, feeling it's an affront to the wishes of the deceased. After all, if the investments were sound during life, they should be sound enough upon his or her death.
While the fundamental values of the investments are certainly the same, a number of circumstances have changed and must be dealt with.
The most crucial change is because of the trust itself. There are sections within the trust instrument that deal with income distributions, both during the grantor's lifetime and after his or her death. The trustee should become familiar with these sections and how their differences will have an impact upon investment decisions.
Secondly, with the passing of the grantor, new assets (such as life insurance death benefits) are often added to the trust assets and these new assets must be invested in a way that complies with the grantor's wishes.
Thirdly, assets held outside the trust often need to be considered. For example, the grantor may have held qualified retirement plan benefits that are passed directly to a trust
beneficiary. Utilization of these retirement benefits may need to be recognized and, in some instances, may even be discussed in the trust instrument.
Lastly, the trust beneficiaries may have assets of their own and these asets should be brought into the mix of things.
When revising an investment strategy, the needs of the income beneficiaries are a good place to start. First, determine available cash flow from sources outside the trust. Typically, this could include Social Security benefits, immediate annuities, deferred compensation, qualified retirement plans and, of course, the beneficary's own assets.
Next, fund whatever income deficit is left by assuming a modest rate of yield in the trust. Hopefully, this modest amount will satisfy the needs of the income beneficiaries. If not, you can raise the yield somewhat, but not too much. At some point, you'll reach beyond what yield can be readily achieved with an acceptable risk level, to speak nothing of breaching the trustee's responsibility to act in a prudent fashion.
Because the trustee has a responsibility to all beneficiaries, including those who may ultimately inherit the trust, it may be necessary to balance the income needs of the income beneficiaries and the growth needs of the ultimate beneficiaries. This fidicuary role is paramount to the decisions made by the trustee.
It is also important to note the difference between "yield" and "total return," as applied to a trust. Total return includes capital gains, but those gains are often excluded from the definition of "distributable income" in a trust. Distributions that exceed income will be construed as principal and are often left to a trustee's discretion. A trustee can say "no" as easily as "yes" to principal distributions.
If principal distributions are left to the trustee's discretion, it's a good guess that the intent was not to punish the beneficiary, but to keep the trust out of the beneficiary's taxable estate.
Carrying this one step farther, many financial advisers will argue that, if a beneficiary's own estate is large enough to be exposed to estate taxes, then the beneficiary might be wise to "spend down" his or her own estate and let the trust grow in value.
The inverse is also true. If a beneficiary has a small estate, then he or she may want income from the trust, but he or she may also want the principal to grow in his or her own name so as to get a stepped-up tax basis upon death.
These strategies are very common if the ultimate beneficiaries are the same people.
The role of the trustee can be difficult, but paying attention to the changes in income needs will avoid future problems and inefficiencies in carrying out the duties of administering the trust. Glenn ("Chip") Dahlke, a senior contributor to the Living Trust Network, has 28 years in the investment business. He is a Registered Representative of Linsco/Private Ledger and a principal with Dahlke Financial Group. He is licensed to transact securities with persons who are residents of the following states: CA. CT, FL, GA, IL. MA, MD. ME, MI. NC, NH, NJ, NY.OR, PA, RI, VA, VT, WY.
If you have any questions or comments, Chip would love to hear from you. You may contact him at Dahlkefinancia@sbcglobal.net. You may also contact him by going directly to the Living Trust Network web site located at http://www.livingtrustnetwork.com
Copyright 2005. LivingTrustNetwork, LLC. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without the written consent of the Living Trust Network, LLC.
Mission Statements Improve Goal Setting and Decision Making
A Mission Statement consists of a short phrase or a few sentences that form an overview of your core priorities and guiding principles. It describes what you ar...
How to Get More Mileage Out of Your Media Coverage
There's no denying the value of editorial side coverage, but you can't count on people reading a news or feature item about your company and acting on the
info...
Integrity... Should It Matter?
In our fast paced work culture, manned by technology savvy generation in a globally competitive environment, quality and productivity became the battle cry of c...
Part 2- Charging Higher Prices For Services and Products - Perpsectives On The Bottom Line
Part 2 on pricing for higher profits. Avoid dangerous pitfalls in pricing that can cost you your business. Some pricing methods can make you rich; others will k...
Promote Physical Fitness for Your Child
If your child is to derive the benefits of physical fitness, then physical activity must be habitual and lifelong. Moving should be as routine as brushing teet...
A Word About Sexy Costumes
One of the great things about Halloween is that I can still revert to a boyish behavior and have fun, no matter how old I get.
Gulf of Mexico Formed by a Rotating Hurricane Trapped in the Region
Recently in a coffee shop I met a gentleman who had dismissed himself from University Level Study and had developed some interesting theories on land formations...
Profit from Your Own Information Empire!
Would you like to profit from your own information
empire? Here are a few ways of doing so.
What Are VA Loans?
VA loans are basically mortgages or home loans geared towards ex-military servicemen and women
Medicade Scam; Worse than You Think
You are not going to believe what is going on in North Western Michigan; Check this scam out, typical health care fraud. There is a $3000 allowance per month i...
Parking Business, the Details on Increasing Lot Revenue
If you are in the parking business and own or manage parking lots you may want to think on some additional concepts to increase lot revenues. Whether you are lo...
Experience Mothers Day In A Whole New Way
Mother's Day is the day when sons, daughters and husbands buy gifts and flowers to recognize the incredible work mom has done raising the children. But some mom...
How A Light Bulb Works and Other Interesting Tidbits
In order to understand how a light bulb works you must first understand certain terms. Voltage, watt and amperage are all very important terms related to electr...
Floral Arranging as a Hobby
Learn how to create beautiful flower arrangements for your own home or for gifts for family and friends. Floral design and flower arranging home study courses. ...
Top Things to Consider When Buying Lakeshore Property
If you're considering buying lakeshore property, you could be in the process of making one of the largest and most important investment decisions of your life. ...
Poster, Print or Painting - Where Are You Going To Put It?
If you are redesigning or decorating a room, or house, care has to be taken where your piece of art is to be displayed. Even if you have bought a picture on imp...
House Insurance - Forcible and Violent Entry
What is forcible and violent entry and how does it effect your ability to claim under parts of your contents insurance.
How to Make Your Own Low Fat Vanilla Ice Cream
In this article, I show you how to prepare a delicious low fat vanilla ice cream that you can combine with fresh fruit for a fantastic dessert, or you can have ...
Original Ways To Make Money Fast- She Made $20,000 in 3 Days
If you are struggling right now with money and you don't know what to do. Try this excellent common sense idea from Jack Reynolds.
Data Map Charting for Mobile Businesses
As we study the demographic regional variations for small service businesses we see many things. Let us take a mobile auto detailing business and break down the...
Working With Choices
As a coach, supporting clients through important decisions is a key part of the value you provide. Whilst some people seem to be confronted with endless choic...
What About a Newfoundland Dog
Newfoundland dogs are big, soft and lovable. They also require a different kind of care to stay healthy and happy.
Beating Atherosclerosis Naturally
Beating atherosclerosis naturally
What is Success Really?
We are all trying to reach "success" but what is it?
|
Print this page