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Details Matter

Scott Martin

FOR THE PAST FOUR years, I’ve been dealing with both a revocable and irrevocable trust that my parents created decades ago. In 2020, I knew little about trusts, and my elderly parents weren’t willing or able to share much information with me. In retrospect, I don’t think they fully understood the details of either trust, instead relying on attorneys and financial advisors.

Since then, I’ve learned a lot about trusts. I’ve come to feel they’re unnecessarily complicated and allow unscrupulous advisors to take advantage of well-intentioned, but financially and legally ignorant, clients. In addition, if the trustee is a financial advisor or bank, the management fees can be significant.

In a previous article, I shared what I went through to be named trustee for the irrevocable life insurance trust (ILIT) that my stepfather and mother created in 1999. Their original financial advisor was disbarred and sentenced to 32 years in prison in 2005 for stealing millions from the trusts and estates of his elderly clients.

The subsequent trustee for my parents’ ILIT resigned several years ago without naming a replacement trustee, and later passed away. It took me 18 months and significant legal fees to get myself named as trustee. The good news: I haven’t found any evidence of wrongdoing involving the ILIT.

My parents’ ILIT was built around a second-to-die universal life insurance policy. My stepfather died in 2021, but the policy’s benefits couldn’t be distributed until my mother passed away last July.

My stepfather told me that the ILIT was created to avoid inheritance taxes. The universal life insurance policy in the ILIT was for $700,000. In 1999, the federal estate tax exemption was $650,000. But by 2023, the federal estate tax exemption had climbed to $12.92 million. While estate taxes might have been an issue for my parents when the trust was created in 1999, they sure weren’t by the time they passed away.

After my mother died, I notified the insurance company and filled out its numerous forms. I also opened a bank account with the name of the ILIT and its tax identification number. The original insurance policy documents listed the trust as the policy’s beneficiary. The trust’s name included the first name, middle initial and last name of both parents, and was dated Nov. 2, 1999.

This all happened in the first week of September 2023. A week later, I received an email message from the insurance company stating that the trust listed as the policy’s beneficiary was simply the last name of my parents, and didn’t include their first names or middle initials. In addition, according to the company’s records, the trust was dated Nov. 3, not Nov. 2.

While these differences might seem minor, they aren’t in the world of trusts and trust bank accounts, where “details matter.” The bank wouldn’t accept any deposit into the trust account because that account and the insurance policy’s payout were titled differently.

I asked the insurance company to send me any documentation it possessed. It turns out the previous trustee—the one who didn’t go to jail—submitted erroneous paperwork in 2016 that resulted in the beneficiary name change.

Throughout this process, I communicated frequently with my attorney, who specializes in elder law. She was as frustrated as I was by this bizarre situation. We discussed going through the expense and time of rewriting the trust to match the insurance company’s documents. That would have cost thousands of dollars and taken several months to get through the legal system.

After several weeks of discussions, my attorney was finally able to get a claims specialist at the insurance company to understand our dilemma. The claims specialist shared this information with the company’s in-house attorneys. They realized the errors made on their forms in 2016 weren’t legal and quickly settled the claim at the end of November.

The lesson: It’s crucial to pay attention to estate-planning documents as we age and go through life changes. Attorneys and financial advisors retire or pass away—or, as I experienced, get arrested for fraud. You can’t create such important documents and then forget about them.

Instead, the documents should be reviewed every few years with a trusted estate attorney, financial advisor or family member—and ideally all three. If you don’t, it’ll be up to your beneficiaries to deal with the potential mess. Unfortunately, those that create the trust may be hesitant to share details with family. 

I’m grateful for the generosity of my parents, and I know they didn’t want the settling of their estate to be so complicated. Still, I’ve had to devote significant time and money over the past four years to sorting things out. Indeed, my experience has prompted my wife and me to discuss our wishes with our adult children and their spouses, and we’ve provided them with copies of our important documents.

Scott Martin is a semi-retired family medicine physician associate (previously known as a physician assistant) and has been practicing medicine for the past 18 years. His previous career was in academia doing research and teaching at the University of Georgia. He and his wife enjoy traveling and spending time with family. Check out Scott’s earlier articles.

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DrLefty
11 months ago

My first HD article last year was about setting up a new estate plan, which includes trusts for us and for our daughter and names a fiduciary trustee. We have a good estate attorney and fiduciary, so we’re comfortable that things were done well. But you’re absolutely right that checking in regularly is the wise thing to do.

Our primary purpose for setting things up the way we did was to provide some long-term security for our daughter, who is about to turn 30. At this moment (in our early 60s), if something happened to both of us at the same time (and we do travel quite a bit, including abroad), she’d not only inherit our house and cash and our retirement accounts but also would benefit from our term life insurance policies. We each have two, and they end in 2025 and 2029. If our plane goes down on our next trip, she would suddenly be a wealthy young woman. (If we don’t die before 2029–less so!)

We have concerns about her managing a windfall and want to look out for her 60-year-old self after we’re long gone*. Having our estates roll right into her trust that will be managed by a trustee and will distribute in increments over time gives us some peace of mind that we’re doing the best we can for her.

*I guess not necessarily, though—when she’s 60, we’d be 93…and my husband’s grandfather lived to 102!

Olin
11 months ago

Thanks Scott for sharing your experience. It’s a good reminder for readers to be cognizant of these situations should they be involved later down the road.

My parents also set up a trust in 1999. Everything was titled appropriately. After the last parent passed away (two years ago to this day) the estate was settled easily. The only delay we had was getting the settlement from the life insurance company.

David Lancaster
11 months ago
Reply to  Olin

I constantly read people complaining about how expensive trusts are, but boy did my sister, who was my parents executor, wish my parents had one. They lived in NH which has a poor reputation for probate. It took a year and an exhorbinate amount of her time to settle their estate despite it being uncomplicated.

After seeing her go through this we couldn’t get to an elder law specialist fast enough to set up our simple trust.

I’m sure my children will thank us when it comes time to settle our estate.

A second huge benefit is privacy.

Last edited 11 months ago by David Lancaster
Jonathan Clements
Admin
11 months ago

It’s important to distinguish between revocable living trusts — which are designed to ease the settling of an estate — and irrevocable trusts that involve the ongoing management of assets. It’s the latter that can be very expensive and that many families come to regret.

Last edited 11 months ago by Jonathan Clements
Patrick Brennan
11 months ago

Thank you for that distinction Jonathan. My father used a revocable living trust for his modest estate (he was a widower when he passed), and it worked great. My sister handled it with his attorney, and there was not one unkind word in the process.

B Carr
11 months ago

Arguably, Norman F Dacey started the trusts-for-the-little-guy craze in the 1970s with his book, “How To Avoid Probate”. I still have my copy in a closet. It included do-it-yourself forms for setting up trusts. Probate at the time was an onerous process in most states. Dacey went on the popular talk show, Donahue, several times to hype his book [and made a lot of money]. But most state legislatures have simplified the probate process such that with TOD/BOD/POD mechanisms, trusts may make little sense for anyone but the uber wealthy.

I set up my mother’s estate using these TOD/POD/BOD techniques and probate of her estate was not necessary at all.

B Carr
11 months ago
Reply to  B Carr

Shame on me for using abbreviations without spelling them out the first time. BOD = Beneficiary On Death; many banks & credit unions will set up your account this way. David Lancaster below identified the other two abbreviations correctly. Apologies.

Laura E. Kelly
11 months ago
Reply to  B Carr

I know very little about trusts so I had to google the “TOD/BOD/POD” acronym. That landed me in the world of “body composition” (“The BOD POD is the world’s only Air Displacement Plethysmography (ADP) system using whole body densitometric principles to determine body composition…”) I assume the mechanisms and techniques you mention refer to something else, but this BOD POD also sounds like it is for the uber wealthy. 😂

Last edited 11 months ago by Laura E. Kelly
David Lancaster
11 months ago
Reply to  Laura E. Kelly

I know two of these are payable and transfer on death, not sure of BOD

Winston Smith
11 months ago

Rather than putting our money in a trust, we prefer to give it to our children now.

It is great to see them and the grandkids enjoy it. Not that the amounts are that large.

JGarrett
11 months ago

After reviewing things over the last several years, I am beginning to conclude that the trait of SIMPLICITY, whenever possible, has many attributes in an estate. For instance, I just unwound some Treasury I bonds….could not imagine the complexity of that being done in an estate. Have now taken steps to avoid trusts as much as possible. The real complexity of all this is trying to plan for what the estate exemption will be in XX years. Easier to predict the weather!!

Jeff Bond
11 months ago

Scott, I agree with your conclusion that regular review of these documents is an absolute requirement. My parents had a revocable trust. My Mom predeceased my Dad, and he didn’t do a great job of closing her estate. When my Dad died, I found that most of their holdings were not titled in accordance with the trust document requirements. I had to reopen my Mom’s estate and close it before I could close my Dad’s estate. I’m sure that if my parents had conducted a regular review with the attorney who created the trust, all of those issues could have been easily addressed.

Rick Connor
11 months ago

Scott, thanks for the interesting and informative article. I still find trusts one of the most confusing topics in personal financial planning. I’ve been very involved in settling 5 estates, none of which had trusts. The probate process was not a burden nor very expensive. Proper wills and beneficiaries are key.

Patricia Moore
11 months ago
Reply to  Rick Connor

You bring up a great point – simplicity. But there’s always the possibility of bad things happening, and I’ve seen a few doozys where something incorrectly titled went to the wrong person at the exclusion of offspring. As the title of this article states, details matter. For my husband and me, we do have a trust because if I croak before my hubby, I’m pretty sure his next wife won’t be as detail-oriented as me. Or maybe she will be, which could be worse for our adult kids. The future is hard to predict and complexity aka, a Trust, is sometimes the price for covering as many bases as possible.

Scott Martin
11 months ago
Reply to  Rick Connor

I appreciate your comments Rick. I have come to the same conclusion. I find trusts to be a barrel of fish hooks. I have a three ring binder full of hundreds of pages of legal jargon for the revocable trust. The only important information, in my opinion, is how the assets should be distributed to charities and the beneficiaries (1 or 2 pages max). Fortunately, I have not found the probate process to be overly cumbersome or long here in Georgia.

Ormode
11 months ago

If you go to one of these attorneys, you may pay tens of thousands in fees, and come away with an estate plan fit for Warren Buffett or Bill Gates.

My advice: write a will, go through probate, pay the taxes. You will probably come out ahead financially (unless you ARE Bill Gates) and it will be a lot less trouble.

Jo Bo
11 months ago

Scott, thanks for the message to carefully review and revisit estate planning documents.

My father died with an unfunded trust and pour-over will, which took two-plus years and several court petitions to resolve. The attorney was ill-suited to the task and I, as the executor and in another state, resorted to reading as much as I could find on matters and calling him to suggest approaches. My father’s tax accountant was somewhat more helpful but very poor with deadlines. In the end, I manually drafted the estate tax form and the accountant finessed the final product with his software. We filed it just a few days before the extended due date. In reading the drafts of both the accountant and the attorney, I found mistakes.

I would not wish these experiences on anybody! For me, they coincided with increased responsibilities at work, making the necessary time for careful review even more stressful. Somewhat strangely though, I now look back at that time with satisfaction. The efforts succeeded, I learned a lot, and my self-confidence grew greatly. Plus it prompted me to have a simple will and end-of-life documents that I review periodically. Like you, I have gained from a bad experience.

Last edited 11 months ago by Jo Bo
Scott Martin
11 months ago
Reply to  Jo Bo

I can identify with your frustrations. One would expect better results from attorneys and accountants that are being paid for their expertise and supposed attention to detail. I have also learned a lot throughout this process. Thanks for sharing.

Nick Politakis
11 months ago

Wow, thanks for giving us a heads up!

Edmund Marsh
11 months ago

Scott, thanks for sharing your experience. It’s a good reminder to keep our financial lives as simple as possible for ourselves and our families.

Scott Martin
11 months ago
Reply to  Edmund Marsh

Thanks Edmund. I have believed in the KISS (keep it simple stupid) principle for a long time.

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