// BLOG
What Is A Trust?
March 7, 2010
I was recently asked this question by a friend and thought . . . you know, that’s a good question. There are many, many misconceptions about trusts (more on that topic in a future post). I think a lot of the misconceptions result from not truly knowing what a trust is, what you can do with them, and how they can benefit in almost any situation. So here we go . . .
A trust is an agreement – a contract – between the creator of the trust (often referred to as the Grantor or Settlor) and the trustee (an individual, group of people, or company). What do they agree? They agree that that the trustee will hold title to the creator’s assets for the benefit of the beneficiaries. Simple enough, right? The creator and the trustee agree that the trustee will hold title to the assets for the benefit of the beneficiaries.
There are a couple of major categories of trusts. The first major category is based on when the trust comes into existence. In this category there are living trusts and testamentary trusts. A living trust is created while you are living (wow – a term in the law that actually makes sense!), whereas a testamentary trust is contained in, and created by, the terms of your will (so it becomes effective after you are dead). When considering a testamentary trust, keep in mind that you give up one of the main benefits of a trust – bypassing probate – by choosing a testamentary trust. Because it is contained in your will and does not become effective until your will is probated, it reasons that your assets will still go through the probate (court) process.
The second major category deals with the ability to change the trust after you create it. In this category there are revocable trusts and irrevocable trusts. Simply put, a revocable trust is one that can be revoked by the creator of the trust (typically while he or she is still living), and an irrevocable trust is one that cannot be revoked. A revocable trust typically allows the creator to change the trust as well (rather than completely revoking it). One additional misconception to note – you do not give up control of your assets in the typical revocable living trust arrangement. Why? Because you are the creator, the trustee, and the beneficiary. In that case, having all the roles means that you aren’t giving up the control.
These different types of trusts are not mutually exclusive of each other, so for example, you could have a revocable living trust, or an irrevocable living trust, or a revocable living trust that later becomes irrevocable (usually when the creator of the trust dies). The only one that would really tough to have is a revocable testamentary trust . . . it’s awfully tough to revoke something if you are dead. The most important thing to remember is to have the appropriate assets properly titled in the name of your trust, no matter what type of trust you have.
So there you have it – a brief explanation of trusts. You likely are wondering why you should chose a trust over a will – or as I typically get asked, a “simple will.” I will answer that question in my next couple of posts. Please let me know if you have any questions!
The Creative Business Lawyer™ and How You Can Use it to Grow Your Business
March 2, 2010
In my previous post I shared how, as a Creative Business Lawyer™, my approach to practicing law is different from the traditional experience. And now I want to share how the “rubber meets the road.” So I have a different approach, but what does it mean to you, the business owner? I think the Creative Business Lawyer™ Client Pledge sums it up nicely. Let me know your thoughts!
Creative Business Lawyer™ Client Pledge
As your Creative Business Lawyer, I pledge to:
- Learn as much about you, as a person, as you are willing to share.
- Encourage and support your greater good.
- Never surprise you with an invoice.
- Tell you if I don’t know the answer to your question and then find the answer you need.
- Bring in help if and when I need it.
- Return calls and emails promptly and proactively keep you informed on issues relevant to our relationship.
- Recognize we are all human and can make mistakes.
- Introduce you to people I think might be able to help you.
- Have your back if you’re ever threatened.
- Celebrate your successes as if they were my own.
- Love you like a member of the family.
See the difference? And there’s so much more. I’m excited about this new approach and I enjoy any opportunity I get to share more about it and learn more about business owners. If you would like to learn more, contact us to setup a LIFT Small Business Review.
What Is a Creative Business Lawyer™ and What Does it Mean to MY Business
February 28, 2010
As you may have read in my previous post here, I recently received the designation of Creative Business Lawyer™. You may be wondering “what does that mean” and “why should I care?” Well, I think you should care a LOT if you are a business owner or are looking to start a business – or if you know someone in either of those positions Why? Because it’s an approach to business formation and counsel that walks alongside you as the business owner to help you make the best decisions for your company – to help, not hinder, in a proactive way. And, contrary to the typical relationship with a business lawyer, this relationship is not based on time. No “billable hour.” Hard to believe? It shouldn’t be. Why shouldn’t you get the same type of service from your lawyer as you get from suppliers and your other service providers?
In this post I’ll share what drives a Creative Business Lawyer’s™ passion for what we do. And the best way to understand it is to share with you the Creative Business Lawyer™ manifesto. I encourage you to share your thoughts here or email me and let me know if you have questions, comments, or suggestions. The next post will explain the Creative Business Lawyer™ Client Pledge – a radical, and improved, way of viewing the lawyer-client relationship.
CREATIVE BUSINESS LAWYER™ MANIFESTO
Creative Business Lawyers™ believe:
- Our job is to help business owners reach their goals, not stand in the way.
- Our job is to help business owners understand and manage risk, not eliminate it. Risk is what makes life and business fun and worth living.
- People and relationships are ultimately more important to the success of a business than documents and numbers, but magic is made when they all work together.
- Hourly fees impair relationships, service, and trust.
- We must strive to earn the honored description of “Trusted Advisor.” It is better to be a “Trusted Advisor” than a “Hired Gun.”
- People were not meant to live/work in cubicles.
- The spark of creativity and entrepreneurism exists in every human.
- Everyone is worthy of respect.
- Our clients know more about themselves and their companies than we do.
- The right Trusted Advisor can see and help people move through entrepreneurial and personal blocks.
- People generally have a positive motivation for their actions and actions taken from this perspective add to the world.
- There is more value in problem definition than in problem solution.
- Creative micro-businesses are the future of the world.
- Simple solutions are better than complex strategies.
- All disputes and conflicts can be solved with creativity.
Probate, Movies, Priorities, and Tax Season
February 21, 2010
How on earth am I going to make this blog post concise with THAT kind of a title! Rather than write a series of posts, I thought it would be beneficial to share with you some recent occurrences and how they all seem to tie together.
A friend recently received a document from the probate court and asked me what it was all about. It was a notice of intent to close the estate for failure to file the continued administration forms What does that mean? Basically, if a probate goes on for more than a year you are supposed to file a continuation statement with the probate court. If you don’t, the clerk of the court may close it with notice to the interested persons followed by a waiting period. Why, I wonder, had it come that far? It turns out that there are c0-Personal Representatives and they are not talking to each other. Because of that and their unwillingness to hire an attorney to handle the matter, nothing is getting done and nobody is getting anything from the estate. She then shared with me that, “during her life, mom always said, ‘equal shares for everyone, a third, a third, and a third.’ Now my one sister (co-Personal Representative) wants it all and she’s not talking terms with me or my other sister (the other co-Personal Representative).” Here is the statement that cut to the heart for me . . . “I just don’t understand. Things were fine while she was alive – now that she passed away (over a year ago) and there’s money at stake, nobody gets along.” Sadly, this is not the first time I’ve heard or witnessed this type of situation.
And yet, it is still difficult to get people to plan for these situations. In passing conversations many people tell me, “that won’t happen to MY family.” How do you know? I’ve been very surprised by some of the families I’ve seen torn apart after one or both of the parents pass away. In many cases it was directly a result of poor (or no) planning.
So, what does that have to do with a movie, priorities, and tax season? Well, I recently watched the movie “The Ultimate Gift,” in which a VERY wealth grandfather plans his estate in such a way that his grandson has to perform certain tasks to find out what, if anything, he gets from the estate. The tasks are designed to teach him a lesson and give him an intangible gift (e.g., gift of work, gift of friends, etc.). It was a great movie, (although some of the law wasn’t quite right).
And so with those two situations as a background, I come to the topic of priorities. You may have read my previous post about priorities here. Planning really comes down to priorities. Although the mother in the first example put a basic estate plan in place, she did not place priority on planning for as many possible outcomes as she could have. Maybe she didn’t think the family would have the problems they are now having, maybe her attorney didn’t talk about those issues, maybe, maybe, maybe. There is no way to know. What I DO know, is that you do the things that you place priority on. I’m not saying one priority is right over another, just that I think we all (myself included) need to think a little bit more about our priorities in the grand scheme of things. A great example is when you have children – your priorities better change or things will not go well. I know mine changed for the better, and a cherish every moment I get with my kids.
And now tax season is upon us. You either love it or hate it – you either get a rebate or have to pay. And priorities come to the forefront. How? Well, the most common phrase I hear when someone I know gets a tax refund is, “wow, what should I do with it?” I know folks who have bought cars, big-screen TVs, saved some of it, paid bills, took a vacation, and numerous other things. Those may not be bad choices, but here’s one more for you to consider – get your estate plan in order. Whether that means putting a plan in place based on YOUR most important objectives (rather than the one the government wrote for you), or having your existing plan reviewed to make sure it still works, you should consider this as an important option for those tax rebate dollars. What better way to use the rebate than to plan for your family’s future and their protection – to know that if something happened to you or your spouse, your children would be taken care of by who you want in the way you want and that your financial planning would be used for their benefit. Although cliche, I believe that is “priceless.”
Some Estate Planning Effects of the President’s Proposed Budget
February 14, 2010
I just read a really good article on some items in President Obama’s budget that may affect estate planning. Better yet is the emphasis the article places on some incredible opportunities in your estate planning that you can take advantage of now. It’s at Yahoo! Finance and you can read it here: http://bit.ly/daQI3d. When Steve Leimberg speaks on the topic, you know to listen. He is an estate planning “institution” in this country.
Here is my “short version” of the article (for those who enjoy “cliff notes”):
- Requirement that the basis of property in the hands of the person who receives it can be no greater than the value of the property as determined for estate or gift tax purposes. The article gives a good explanation of basis, so I won’t rehash it here. And you can look forward to more paperwork for you to do or for you to pay a CPA or Attorney to do, in an effort to ensure that the new rules are followed.
- A category of “disregarded restrictions” designed to curb the use of certain valuation discounts in planning. Watch this one closely because it could be a game changer for some very popular planning techniques, depending on how it is enacted.
- Grantor Retained Annuity Trusts (GRATs) would have to last a minimum of 10 years. Ouch! Depending on the age of the person using this popular planning technique, the mortality risk may take this option off the table.
As pointed out by Mr. Leimberg, these are just proposed changes and they are a long way from being law. Keep in mind, however, that with the current economic and budget situation, changes such as these that we didn’t think we would see may just have a chance of becoming reality.
