To prepare for the idea that someday I may no longer be alive, but also as a matter of general organization, I have created a revocable living trust. The primary benefit of this type of trust is to avoid a hassle for those who may be dealing with my estate after I die. No, I don’t have a large piece of property somewhere in the south of France. My estate is just my assets — bank accounts, investments, business interests — as modest as they are. Without a trust, the process of probate could be expensive and disorderly, but with a trust, probate can be avoided altogether.

I met with an estate attorney last month, and we discussed the terms of the trust. Yesterday, the documents were complete, and I visited her office to sign the documents, including a Last Will and Testament, in front of witnesses. The general consensus is that at the age of thirty-six, I’m a somewhat ahead of the curve. People generally don’t begin to consider these things until later in life.

But I’ve been writing about personal finances for ten years; it’s time I completed some of the more fringe tasks of managing my own money.

A revocable living trust doesn’t necessarily provide any protection for your assets. Unlike an irrevocable trust, the owner (trustee) still retains control of the assets. Thus, assets in a trust still reachable by a court and they’re still counted in your total net worth when government programs determine whether you qualify for benefits. The trust is a legal document that defines what happens to your assets in a variety of situations, but is much more flexible than a will.

The benefits of a trust apply only to those assets that are placed within a trust. And that means re-titling or changing your accounts so the trust is the owner. This is a process that can be straightforward and easily completed or it can take some time, require specialized witnesses to signatures, or deal potentially with customer service representatives unfamiliar with the process.

Moving bank accounts into a trust

My first order of business is to consolidate my variety of bank accounts. At the height, I owned several dozen bank accounts. That’s not normal. I had so many open bank accounts because I’ve used my own money to test and review bank accounts for Consumerism Commentary readers, like this review of the American Express savings account. This has left me with small amounts of money in bank accounts all over the country.

I’ve been slowly closing these accounts over the past year, but I want to ensure there’s nothing left that’s not in just a few accounts. For now, those accounts are going to be Capital One 360 (formerly ING Direct), Wells Fargo (where I recently received a new debit card declaring me a “customer since 1989″), and Chase Bank (a branch opened up a few years ago within walking distance).

Capital One 360 makes transferring accounts into a trust simple. It requires a one-page form which can be scanned and e-mailed, faxed, or sent via standard mail. Other banks may have a more involved process. I’ll be visiting my Wells Fargo and Chase branches to determine what is necessary to move assets into the trust. Sometimes, banks need to see the legal document, but the attorney who draws up the trust should be able to create pages that include what the bank needs to see without sharing personal details, like how you want your assets to be distributed. That information isn’t necessary for the bank’s process.

Moving investment accounts into a trust

My primary brokerage account is held at Vanguard. I’ve closed almost all of my other investment accounts, but I still have some shares of my former employer held with E*TRADE. To move assets into a trust at Vanguard, the company requires a two-step process. First, I must open a new account at Vanguard under the name of the trust. I will receive a new account number. Then, I simply transfer all assets from my personal account to the account within the trust.

One of the forms requires a signature guarantee. This isn’t as easy to find as a notary public. This requires me to sign the document in front of someone who has a special certification, and this is a service available in not many places other than investment banks. Luckily, I found a local bank branch that does offer signature guarantees for its customers, if the particular employee who has the authority happens to be in the branch on any particular day. I’ve done this once before for a Vanguard form; I will need to do it again to move my stock and bond funds into my revocable living trust.

Moving retirement accounts into a trust

I have IRAs at Vanguard, Fidelity, and TIAA-Cref. I’ve avoiding moving these accounts from one company to another. My preference would be to consolidate them at Vanguard, and this is something I might attempt to do some day. The IRAs consist of Roth IRAs and traditional IRAs. Some are rollovers from 401(k) accounts with former employers. I have an SEP IRA from when I considered myself self-employed. I have an Individual 401(k) from when I was saving for retirement with income from my business.

You can’t put retirement accounts into a trust. With retirement accounts, however, you can name beneficiaries, and while it’s possible to name the trust as a beneficiary, one reason prevents me from doing this with my IRAs. When a trust is named as a beneficiary to an IRA, the trust must begin making withdrawals from the IRA account when the funds come into the trust. This could create a tax problem for the trust’s eventual beneficiaries. In order to avoid this, I must name individual beneficiaries for the retirement accounts. This allows the beneficiaries to roll over the IRA they receive from the estate into their own IRA, avoiding any required distributions, additional unexpected income, and the tax consequences of that income.

Moving a house into a trust

My primary residence is an apartment that I rent. If I owned a house, or any properties as investment, I would be going through the process of changing the ownership. More precisely, I’d most likely be allowing the attorney to handle those transfers. Since my trust is established before I’d be purchasing property, I may be able to buy a house as the trustee immediately, rather than purchasing the house as an individual and changing the title and transferring the deed later.

Moving a house into a trust doesn’t seem to be a difficult process, but it may be worthwhile to allow an estate attorney handle the paperwork.

Moving insurance into a trust

When you name a beneficiary of an life insurance policy, on the event of your death, the beneficiary will receive the proceeds of the policy and will avoid probate. But if the beneficiary is a minor, you may wish to name the trust as the beneficiary. Your trust can have language that allows a new trust to be established for any beneficiaries under an age you may specify — twenty-one and twenty-five are popular choices. This newly formed trust, coming into existence when you die, can set specific rules for how the life insurance proceeds (or any other assets inherited by the minor) can be used.

I do not have a life insurance policy. I’m currently the only individual being supported by my income, so life insurance is not a concern for me at the moment. That might change in the future. In fact, there may be many changes ahead. If I have children or get married, I’d be changing much of the terms of my revocable living trust. This type of trust gives me the flexibility to amend or restate the trust at any time.

While a revocable living trust can help with estate planning, its benefit is organizational. It can’t help you shelter all your assets from the estate tax. It can’t hide your wealth from creditors or the government. But it can give you an infinite amount of flexibility. You can be very specific about who receives the benefits of your estate and under what circumstances. Your trust can establish other trusts, exclude specific assets from your otherwise comprehensive plan (like a work of art someone other than your regular beneficiaries might appreciate). It can dictate your charitable desires with more flexibility than just a Last Will and Testament. And, in combination with other documents, can prepare your assets for circumstances other than your death.

Photo: Flickr

{ 11 comments }

After putting this aspect of my finances off for the duration of my entire adult life, I finally found a recommendation for an attorney who focuses on estate planning, and we had our initial meeting earlier today.

A few months ago, I had some concerns that my tax accountant, who had done a good job helping me optimize how my business incorporation and taxes, might not have done the best job handling the tax consequences of the sale of my business assets. I sought a second opinion that confirmed my concerns. I recently filed amended tax returns for the year affected, and I feel much more confident that my taxes are now being handled properly. The new accounting firm offers many services, so I described my desire for help with estate planning. They gave me their sales pitch for their asset management division, but they also provided a recommendation for an estate planning attorney.

Having an estate plan was one of my goals for 2012, so although I’m a little behind, I’m glad this aspect of my financial planning is beginning to coalesce. Plus, it bothered me that I have been recommending others to visit an estate planner while I had yet to do so myself.

Our initial consultation was earlier today. I provided the attorney the details of my financial situation and shared basic personal information about my life and goals. These were my goals going into the meeting:

• To make sure there would be no confusion about my wishes would be for my assets.
• To have a legally binding document in place that avoided the probate process.
• To ensure my philanthropic interests are considered, including possibly a foundation that will extend my pursuits.

She asked questions designed to give her the information she needs to draw up the legal documentation that will help me plan for my eventual demise — an event I hope is far in the future. Her advice was to consider this possibility: if I had died yesterday, what would I want to happen to my wealth (such as it is) today? And she offered additional points for me to consider beyond what I consider typical estate planning issues, like power of attorney and living will issues.

The issue of mortality always makes me somewhat uncomfortable. It’s been worse recently, as my mom is currently in the hospital on the other side of the country, and while she should be home within a week, it’s a reminder that health and life is something to be thankful for every day.

But the thought of there being disputes or confusion — or the chance that someone along the line, a relative or a state government, would mishandle or delay the process — means this is a necessary discussion. The discussion encompasses more than just the possibility of death, but on who will be able to handle decisions while I am in disabled and who can handle business for me if I am just unavailable.

One of the attorney’s suggestions is to create a revocable living trust. Almost all of my assets will be titled to the trust, the trust will be the beneficiary of my retirement accounts, and how the trust is designed will determine what happens to my assets when I eventually pass away. As of right now, federal estate taxes are only slightly a concern, but state estate taxes can be an issue. As we discussed though, the “tax tail shouldn’t wag the dog.” Minimizing tax consequences is always a great idea, but tax shouldn’t be an issue that defines whether an investment is good, whether to buy a house, or whether to make any financial situation.

Revocable trusts don’t do much to reduce estate taxes, but I have to assume I still have many years in front of me. I know that the plan I create today might differ from the plan I would make a year from now, as my life situation changes, and could be drastically different just a few years in the future, so the ability to make changes to the plan is important.

The attorney now has most of the information she needs to draw up the documents. I’ll be forming a trust and titling my assets under that trust. I’ll have a living will that will indicate what should happen should I be incapacitated, as well as a power of attorney document that will define who can handle certain matters for me. In a few weeks, I’ll meet the attorney again to review the documents.

My job isn’t done, though. Once the trust is established, my plan will be to change ownership of my bank accounts and investments so they fall within the trust, of which I will be the trustee. My cash funds are distributed among a number of banks, even though I’ve made some efforts to simplify my finances; I have about half the number of bank and investment accounts I had at the peak of my opening accounts for review on Consumerism Commentary, but I’m dealing with many more financial institutions than necessary. This doesn’t necessarily matter from a financial perspective, but if someone would need to access my cash, the volume of accounts would make maintenance more difficult for that person.

With my retirement accounts, my beneficiaries are all over the place, if they are defined at all. Again, once the trust is established, I will need to file paperwork with Vanguard, Fidelity, and TIAA-Cref, the companies holding my variety of retirement accounts, to assign the trust to be the beneficiary. The attorney mentioned a five-year distribution rule for inherited IRAs, something she would take into account when writing up the paperwork.

After arriving home from the meeting, I researched this five-year distribution rule for inherited IRAs, and I don’t like the idea of inherited IRAs needing to be fully distributed within five years, so I’ll have to ask the attorney more questions at the next meeting.

My particular attorney charges a flat fee for putting together all the legal documentation rather than charging by the hour. I can call with questions at any time without incurring any fees, though there are certain fees for making changes once the documentation has been prepared — and I expect I will make changes in time. The pricing model makes sense to me. Working with other lawyers — as well as other financial professionals who charge by the hour — I know how expensive this can get. And when it comes to professional services, I tend to be frugal-minded; something my accountants knew when they recommended this estate planning attorney to me in the first place.

I should have gone through the process years ago. I got lucky. I’m alive, and I still have an opportunity to take care of this. The hard part is deciding what to do with whatever is left of my assets after I expire, with the intent of being fair and reasonable, as well as leaving as much of a legacy as possible within the issues I am passionate about.

Even if you don’t have assets, it’s worthwhile to visit a trusted estate planning attorney. Having a living will and power of attorney can make life a lot easier for you down the road and prevent others from taking advantage of you when your wishes might not be able to be expressed in time.

{ 5 comments }

Choices play the biggest factor in success in life, financial success or otherwise. It took me a long time to come to that conclusion, but once I started accepting the facts that I could choose how I spend my time, I could choose how hard I work, and I could choose how to react to other people, I was able to take responsibility for my results and change my future by changing my behavior and attitude. For a while I looked for ways to blame the world around me for my life’s circumstances — losing a job, an apartment, and a girlfriend in the span of two months over a decade ago — and it wasn’t until after that time that I better understood the role my choices played in that mess.

I don’t like looking to the past very often, but it’s hard to talk about what you can control through choice without coming back to that pivotal moment in my life. Those experiences led me to become a better person, I believe, and I can look back and blame no one but myself for my negative circumstances. Time and distance always provide new perspectives in self-evaluation. I developed a new attitude, focusing on making the best choices for myself and my future, opening myself up even more to trusting others who I thought shared my goals, ambitions, and passions, and I firmly believe that the decisions I made about how to focus my time and efforts resulted in my success in life so far, however it may be measured and qualified.

This past year wasn’t exactly smooth sailing for me. With every open door, I’ve faced different obstacles that have tested my patience and resolve. For a decade, I made the best decisions I could make and accepted responsibility for the outcomes. If something wasn’t working right, I adjusted my choices. I was is control of my life and my finances, and it started with my acceptance of this philosophy of choice, espoused by the director of the same organization that I parted over a decade ago, and a budding interest in managing my own money inspired by online discussions.

Financial success only comes when accepting that you control your financial condition through the choices one makes when dealing with money. Even if I had not started writing Consumerism Commentary, which eventually turned into a source of revenue (for me as well as for those who worked for me), I would be in a much improved financial situation than I would have been otherwise, due entirely of this shift in approach to my life.

Yet I am still unwilling to accept the idea that we can control everything simply by making the best choices. There are many forces well beyond the control of one individual human being, and many can adversely affect any person’s financial situation. You can choose, however, how to react to uncontrollable events, and in some cases, you can even plan for them in advance.

Acts of nature

Since the beginning of man’s existence and for the foreseeable future, humans cannot control nature. The struggle and fight of man versus nature has given the world exciting literature and entertainment in epic proportions, but watch out for the spoiler: nature always wins. The drama plays out in real life. Tsunamis wipe out entire islands. Hurricanes and flood waters wash away rich cultures, homes of the wealthy and poor alike, and destroy businesses. Tornadoes whisk away young women (and their little dogs, too) to frightening worlds.

Choice still comes into play, though the choices are easier if you start from a better financial position in the first place. We choose to live in regions prone to flooding, hurricanes, earthquakes, tsunamis, or tornadoes, though those with the least wealth often have the least choice for changing their situations. We choose to insure against the problems that might arise from natural disasters, but without means, insurance can be out of reach.

People will continue to rebuild in the same locations even when their homes are destroyed by natural weather disasters. it’s a choice: the quality of life they benefit from outweighs the risk — in their opinion — of the next act of nature. It’s a fine choice to make, but there are consequences. And that doesn’t help those who choose to live in locations where certain acts of nature are unlikely but still deal with them. I think I’m avoiding disastrous earthquakes by living on the East Coast of the United States, but earthquakes are not entirely possible, and I doubt most insurance plans for homeowners in this region even address the problem.

No matter where you live, there are going to be natural threats. Take those into account in your planning and prepare as best you can, and you’ll be in a better position to withstand the financial consequences should those treats become real.

Acts of human violence, maliciousness, and fraud

Not everyone shares the same values. It shouldn’t surprise anyone that some are willing to lie, cheat, steal, and harm others for their own gain, financial or otherwise. Does the threat of an incredibly unlikely attack by terrorists prevent you from traveling? Perhaps sometimes. Despite the harrowing experience of September 11, 2011, I still travel to New York City. I’m not concerned about traveling to London and Paris, also terrorist targets in recent years.

Yet, perhaps a location more foreign to me, I’m concerned about traveling to locations in the Middle East, given that region’s history of violence, despite many stories of people visiting and living their peacefully in contrast the message delivered by news media. Violence comes in less grand forms, however.

Being mugged on the street — violence with at least a little financial consequence — can happen anywhere in the United States, though more likely in urban locations, but I don’t avoid them. I try to make smart decisions. Avoid walking in poorly lit areas, don’t carry a lot of cash or credit cards. That helps minimize the damage.

Maliciousness and fraud may be more difficult to avoid and more of a concern in terms of statistical probability. Bernie Madoff, who we now perceive as being one of the biggest financial fraudsters in recent years, operated in an environment where fraud is common. We wonder how pension fund managers and savvy investors like those working for the New York Mets fell for Madoff’s shenanigans, and we say these investors should have seen the signs had they just asked the right questions, but human nature often prevents good, logical decision making.

The legal system is available for seeking justice, but it can also be a tool for malicious people to destroy the success of others. Making the right decisions isn’t always protection enough; protect your wealth by making sure your agreements are solid and your liability is restricted, but prepare for the possibility of people trying to take advantage when you open yourself to others.

Acts of human accidents

One car accident, if you survive in the first place, can damage your finances forever. While on the one hand, you’re sure to be thankful you’re alive, but you’d be more thankful with health insurance and disability insurance to help you keep any wealth you have accumulated. You can prepare for the financial realities by being properly insured, but there are situations where your condition destroys your plans to build wealth for your family. Life insurance is another option that could help your family when your income stream is disrupted, but these precautions do not cover every possible financial consequence of accidents.

If an accident is due to negligence, there might be an opportunity to recover from a related financial loss by using the civil courts, but that can be an expensive proposition — you’ll often need to be able to afford the best lawyers, particularly if your loss is due to the actions of a much larger entity.

You cannot control what other people do. Everyone is an individual with his or her own brain and own motivations. Yet, the actions other people take, whether maliciously or accidentally, can affect you and your financial situation. And no man has won against nature. So in circumstances like these, where you can’t control your outcome by your choices alone, you have to use your decision-making skills in the areas of reducing the likelihood of occurrence before the fact and reducing your exposure to damaging results after the fact.

• Properly insure yourself without over-insuring or under-insuring. Paying too much for coverage you don’t need prevent some long-term financial growth, but it’s a small price to pay for the results of being under-insured. Make the best choices about insurance coverage, working with companies with good track records in dealing with claims, not just the cheapest providers.
• Arm yourself with people on your side. If you run your own business, you without a doubt need connections to lawyers who can help you with the day-to-day realities of owning a business, but those who can put you in touch with other types of attorneys should the need arise — and in business, dealing with other people, the need will most definitely arise at some point.
• Choose how to react. The effect on your life and your finances in the event of a conflict can be determined by the first choices you make in a stressful situation. Different situations call for different reactions, so it’s hard to generalize. Even in stress, the decisions should always be made with your ultimate goals and values in mind.

Even though there are many things in this world you can’t control, some of which can have an adverse effect on your finances, you can use the choices you make before and after to give you a better chance of financially surviving, and perhaps thriving, external actions.

And remember to be happy you’re alive and have the option to deal with disasters at all.

{ 8 comments }