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Jewish World Review Sept. 8, 2003 / 11 Elul, 5763

Jan L. Warner & Jan Collins

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Consumer Reports

Can the kids block our cash flow?; childless couple agonizes over whether to use powers of attorney or a living trust to manage our assets | Q: My wife and I want to transfer all of our assets to a irrevocable living trust to protect the survivor when the first of us dies. But we have one problem: Our lawyer says that the survivor can receive the income from the trust, but principal can be withdrawn only with the consent of the trustee. Our children will be the trustees after the first of us dies. We're afraid that they will not allow us to have the principal. Are there ways around this?

A: Absolutely. However, your concern that your children will not make distributions of principal to the survivor does not bode well for a good future relationship. Consider a corporate trustee instead of your children.

Principal can be distributed under a number of scenarios. For example, principal distribution can be made based upon an "ascertainable standard" -- that is, based upon the survivor's particular needs. In conjunction with or instead of this provision, a set amount of principal can be distributed every month or each quarter.

Or, you may want the survivor to receive distributions based on the total return of the trust. The trust could provide the survivor with, say, 7 percent of the trust balance each year.

We suggest you and your wife list all of your assets and income sources. Assets such as IRAs and pensions won't be distributed into your trust, meaning that distributions from the trust will be used to supplement the survivor's available income stream. You must also decide whether to place your primary residence into the trust. To some extent, this will be based on whether you will lose the homestead property tax discounts that otherwise will be available. Sort out your options with an experienced professional before making a final decision.

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Q: My wife and I (a retired, childless couple) are agonizing over whether to use powers of attorney or a living trust to manage our assets. Each option appears to have several crossover benefits and drawbacks. We each have a pension, an IRA and have purchased long-term care insurance. Which is the better way to go?

A: Properly drafted and used, the durable financial power of attorney can effectively help manage assets for incapacitated people. Unlike the living trust, the durable power of attorney doesn't require current transfers of assets or annual fiduciary income tax returns. Because seniors are more likely to be incapacitated, they should be especially motivated to sign a durable power of attorney. The document should be comprehensive and detailed enough to meet your precise needs, because once you become incapacitated, you may not be able to amend the provisions. Experienced lawyers can create powers of attorney that meet any planning need.

However, living trusts can meet the needs of folks who are sufficiently disciplined enough to transfer their assets into the trust and keep up with the bookkeeping. Living trusts do not provide tax benefits, but based on your circumstances, a living trust could be helpful. Once again, good draftsmanship by an experienced lawyer is essential. Depending on your needs, you might want the trust to become irrevocable at the first death so that the survivor won't be taken advantage of. In circumstances that involve financially naive spouses, the use of corporate trustees might be wise.

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JAN L. WARNER received his A.B. and J.D. degrees from the University of South Carolina and earned a Master of Legal Letters (L.L.M.) in Taxation from the Emory University School of Law in Atlanta, Georgia. He is a frequent lecturer at legal education and public information programs throughout the United States. His articles have been published in national and state legal publications. Jan Collins began co-authoring Flying SoloŽ in 1989. She has more than 27 years of experience as a journalist, writer, and editor. To comment or ask a question, please click here.


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Can we stop our brother from swindling us?
What Gifting Will Disqualify You From Medicaid
The 'magic' language for a power of attorney agreement
Is care insurance a healthy choice?
Is there protection against Medicaid costs?
Long-term care insurance comes up short
HIPAA -- too much privacy?; nursing home doc could care less
Private pay nursing home residents pay more
Separated families should use care managers
What Makes Up a Caregiving Team?
Who is the client, parents or children?:

© 2003, Jan Warner