ATM Solutions, Credit Card Processors, Merchant Funders:
sources funding business Highest Ratings

Merchant Services NJ

Credit Card Processor Services Information

A list of all trust officers and their bios

Trust Services
for Individuals

Investment Services
for Individuals

Christopher Stoneman's
Articles about Estate Planning

Trust Services
for Businesses

Investment Services
for Businesses

Socially Aware Investing Option

Trust & Investment
Professionals

Trust & Investment
Locations

Planned Giving Association of Windham County

SOME SAMPLE ESTATE PLANS:
#1—YOUNG MARRIEDS

by Christopher G. Stoneman

The first 13 articles have been devoted to explanations of some of the legal principles generally applicable to estate planning and the basic devices which are material to that process: forms of property ownership, probate avoidance, the use of trusts, the basic transfer tax structure, for example. In this and several succeeding articles we will take a look at a variety of estates and explore approaches which may (or, indeed, may not) be appropriate to their planning - recognizing as we do so, of course, that these are merely suggestions which upon closer exploration may require modification to accomodate the particular needs and desires of the individuals concerned.


Let us begin with a fairly simple set of facts - those which pertain to Lydia and Francis Truegood. The Truegoods have been married for six years and live in Vermont, as they have both done all their lives. Both come from large families. Lydia's father is deceased, but her mother and both of Francis's parents are still alive and well. The Truegoods have two children, Emily (4) and Lance (2), and expect a third baby in the next two or three months. Lydia is an accomplished watercolorist and runs a studio out of the family home. Francis is a successful real estate broker and also sells life insurance "on the side" although it appears that within the next two or three years his annual insurance commissions will be greater than those he derives from real estate sales.

The Truegoods live in modest comfort; their combined annual income is usually in the $70,000 to $100,000 range. Their asset picture is as follows (the symbol "(J)" denotes joint ownership with right of survivorship):

LYDIA FRANCIS
Assets       Assets    
Residence $55,000 (J)   Residence $55,000 (J)
Auto 5,000     Auto 17,000  
Life Insurance 40,000     Life Insurance 250,000  
CDs 5,000        
CDs 7,500 (J)   CDs 7,500 (J)
      Camp 10,000  
Tangibles 3,000     Tangibles 5,000  
Ckg a/c 1,000
________
(J)   Ckg a/c 1,000
_______
(J)
  $116,500       $345,500  
           
Liabilities       Liabilities    
Mortgage $30,000 (J)   Mortgage $30,000  
           
Net Worth $86,500     Net Worth $315,500  

When asked about their concerns, Lydia and Francis tell their adviser - as indeed one might expect them to do - that they each want to leave everything outright to the other unless this would be inadvisable because of taxes. The survivor will then have all of the couple's assets (other than the insurance on the survivor's life) to devote to the raising of the two, soon to be three children. They reluctantly admit that they have not really given a great deal of thought as to the best way of dealing with the possibility that both of them will be permanently out of the picture.

One of the first things to note is that the value of the Truegoods' combined estates ($402,500) is significantly less than the estate-tax exemption amount which is currently $650,000 and is slated to increase to $1,000,000 by the year 2006. From the tax standpoint, therefore - as things now stand - there would be no reason not to have the estate of the first to die pass outright to the survivor. The survivor's estate, thus swollen, would not be large enough to attract a federal estate tax or, in Vermont, a state estate tax. This means that the tax-free focus can be on the provisions which must be standing in the wings and ready to come on stage at the survivor's death. Here's one possible approach.

Lydia and Francis set up a "dry" or nominally funded ($10-) trust with themselves as the initial trustees. This instrument has no active function unless and until they both die, at which time the survivor's entire estate (including life insurance proceeds) will pass to the trust and be held for the benefit of the children. This passing will be accomplished by the survivor's will ("If my wife/husband does not survive me, I give my estate to the trustee under the agreement dated , 1999, which my wife/husband and I set up under our revocable trust agreement dated , 1999, with ourselves as the initial trustees") and by a secondary insurance beneficiary designation directing the addition of the policy proceeds to the trust if the insured's spouse does not survive. Since the order of deaths is not known, both wills will need to deal with both contingencies: survivorship by the spouse, and the spouse's prior death.

Each will should designate the person or persons whom the Truegoods wish to have act as guardian(s) for their minor children - presumably, but not necessarily, the same individuals under both wills.

In this fashion, after the first parent's death, the entire family resources (except the insurance on the survivor's life) will be in the survivor's hands and available for use in taking care of the children. When the second parent dies, whatever remains is held in a trust for the children's benefit, together with the proceeds of the insurance on the survivor's life.

The trust agreement, which will now have become the key instrument, may contain provisions for holding (rather than selling) the family home, as well as provisions for housing the guardians' own family if the guardians decide to move in with their own children. It is possible - although not necessarily advisable - to have the same individuals playing more than one fiduciary role after the survivor's death. Suppose, for example, that Lydia and Francis decide to ask Lydia's sister and her husband to act as guardians if the children are orphaned. These same people could also be named as back-up trustees under the trust agreement (i.e., to take over the trust at the survivor's death) and as executors of the survivor's will. Such an arrangement is not uncommon, although it obviously contains the possibility of financial irregularities which would be less readily detectible than if the three positions (executors, guardians and trustees) were filled by separate individuals.

The trust will presumably continue until all of the Truegood children have reached an age at which they are likely to be capable of responsibly handling the remaining trust assets when these are distributed to them - or, of course, until the assets have all been expended. Where the trust is larger - perhaps five or ten years later or in the Truegood example, if fortune favors them - the parents may want to consider having the trust assets as comprised at the survivor's death be divided up into separate shares for the children so that each child has his or her separate and independent trust. Where, however, the initial size of the trust is modest, this may not be practicable - particularly in view of the possibility that some major expense may arise requiring the expenditure of greater amounts than would be held in any single trust if there had been a division. A half-way approach might be to go with the single trust approach and direct that when the trust terminates, the distribution of whatever remains may in the trustee's discretion reflect the respective benefits enjoyed by the children. Suppose, for example, that Lance Truegood becomes seriously ill after his parents' deaths and a major portion of the trust has to be spent on him. Upon termination of the trust the trustee could - if so authorized - reduce his share of the trust (or, indeed, eliminate it altogether) in recognition of his prior, disproportionate benefit.

Next time we will consider the estates of an older couple who have accumulated significantly larger estates.

Christopher Stoneman

The complete list of Christopher Stoneman articles is: