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AMBRECHT & BRITTAIN, LLPExperiencing the Family TrustBy Marion Murray Dentzel |
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Marion Murray Dentzel is a freelance writer who has lived in Santa Barbara, California, for over 20 years. She has a degree in Law & Society from the University of California at Santa Barbara. We appreciate her permission to post her wonderful article relating her own personal experience. (c) Marion W. Murray, Santa Barbara, CA, 1992
Bill was an attorney whose chosen specialty was estate planning, trusts and wills. He was the founder and first president of the San Fernando Valley Estate Planning Council many years ago. A graduate of Georgetown University Law School he was highly respected by his colleagues. He favored Family Trusts long before the recent popular trend as an easier way to plan for a family's well being. His enthusiasm was contagious and I eagerly approved of the idea for our family and, in fact, still do in spite of the rather amazing labyrinth of pitfalls and procedures. A labyrinth is defined by Funk and Wagnall's as "a system of intricate, confusing passages or paths; a maze. Any intricate or perplexing set of difficulties." A fitting description of a Family Trust, I quickly discovered. When Bill established our Family Trust he went over the articles, sections and paragraphs very carefully with me. For some reason we both felt I had a general grasp of what it was all about. Of course, it was always much clearer in his mind than in mine. Nonetheless, I was familiar with such terms as the QTIP, the Bypass, the marital deduction, the disclaimer, and the successor trustee to name a few of the terms and phrases that would dance in my head in the nights to come. But my "grasp" was a delusion. In spite of earlier assurances of simplicity not only from my husband but, also, from magazine articles, television ads and trust officers, as well as an old friendly retired probate judge, I entered the infamous and fog-shrouded labyrinth of "Trustland" with fear and trepidation. Now, a year and several attorneys, three CPA's, and one bookkeeper later, I am beginning to see how simple it all is! Uh huh. I hope that excerpts from my journal of these past months may shed some light and serve as a lay language road map through the leviathan labyrinth of the Family Trust from "D" Day to the "Filing of the 706 Day" and beyond. I often use "D" Day for the date of death. The overwhelming sense of loss is ever present especially in the first year after the death of a loved one. I found it very hard to refer to the actual date of death of my husband as though it were some impersonal calendar event. Unfortunately the government agencies are, by nature, impersonal and business like and eager to proceed. As all assets are appraised from that actual date of death, the term is used often. Reference to that day can be a signal to relive the first hours of one of life's saddest moments and can be accompanied by a deep and hard to control emotional response. So I often just say "D" Day. It helps a little. From my point of view, there are four major areas of concern through which the successor trustee must travel and which I will try to share in terms of my own experience. They are, in chronological order, as follows: 1) Directing yourself to a competent attorney specializing in Tax and Trust. (If you are not already in his or her hands.) 2) Listing and acquiring appraisals of all (and I mean, ALL) of the decedent's assets. Community property and separate property. (Note, NOT separate property of the successor trustee). 3) The #706. This is the magnum opus. 4) Funding the Trusts. This is the bottom line of what Trusts are all about. The Attorney Generally, and in most cases, the attorney who prepared the Family Trust will be immediately available. You will, doubtless, call upon him or her as soon as possible without any help from outsiders. But you may have moved and attorneys move, too, and in some cases have passed on when your need arises. Don't delay in selecting a competent Tax/Trust Attorney. See him or her. There seems to be the notion that when you have a Trust you don't need to bother with the tedious, onerous and expensive probate, and therefore you don't need to do anything other than eventually change the name on a few bank accounts and the car registration. THIS IS NOT SO. Failure to act may red flag your name with the Internal Revenue Service computers for years to come, not to mention penalties, Federal liens and worse. The number one major imperative after "D" Day, then, is to find, call and go see a competent Tax/Trust attorney whether you think you can afford him or her or not. Laws are changing very rapidly in this area and you can't afford to be misinformed. At first I responded to several different attorneys who had been good friends of ours. Trusts were not their specialty but they were compassionate and wanted to help. I was unsure of my next step. Then I was directed to a Trust attorney through a trust officer of a local bank who came to see me at Bill's office where I was handling other family business. After two and a half hours of Trust review he finally said, "Marion, you need an attorney who is a Trust specialist." He gave me several names. I selected one and have been very grateful for his competent advice through these past months. Fortunately for me, my attorney works with a computer at his side and sent me home on my first visit with a 17-item printout that became my Bible in the months to follow. Don't leave your attorney's office without such a summary of procedures regarding the steps you must take to satisfy your number one beneficiary, Uncle Sam. The only relative who, no matter how he may squander your money or how outrageously he may act, you cannot disinherit. The Listing and Appraisal of Assets This is a much bigger task than it might seem at first. My advice is, don't fight it, as I did. Yes, it is an intrusion into your private life. However, there is no getting around it. It is a must. Accept what you can't change, and you can't change the I.R.S.'s number one raison d'etre. That is, "Tell me what you have so we know what we can take." That is the price for living in the greatest country on Earth. The appraisals must be done accurately and honestly. As assets fall into different categories the modus of appraisal varies, also. For example: a) For bank accounts and stocks and bonds the date of death figure including any accrued interest from the last statement is necessary. Call banks and brokers for the exact vestment of the accounts and the account numbers which are required. Lucky you if there is only one bank account, one stock and one bond. Of course, that will not be the case. b) For all real estate a licensed appraiser must be hired to do a date-of-death or six-months-later appraisal. He or she will charge according to size, zoning and location of the property. You have your choice of the higher or lower appraisal ("D" Day or six months later). That is an individual matter based upon your need or wish to sell or hold property among other things. c) For automobiles, a Blue Book date-of-death appraisal is required. Most banks have a copy of an up-to-date Blue Book. d) For art collections or any collection of value if over $3000.00 a licensed appraiser is required. I called a former Museum Director I know for advice but the yellow pages may do as well. e) For household furnishings you may inventory and do it yourself or you may have a licensed appraiser. f) For significant jewelry and antiques, a licensed appraiser. g) To complete the picture of assets you must itemize all "D" day debts. This is tedious and includes everything you can think of such as gas bill, electric bill, credit card bills, telephone, medical, cable TV, etc. In addition, all funeral expenses and eventually all estate expenses such as attorney and accountant fees. In other words all the unpaid bills outstanding on the exact date of death and all estate expenses. Get a nice little notebook and plan on a few months to get this done. You cannot move on to your next destination without it. The 706 The 706 form is your next destination. "The 706" is a term that may well overwhelm you with paranoia no matter how accurate and honest, sincere and willing you may be to share all your family secrets with the IRS. The "706" is a very intimidating 33 page form that must be filed nine months to the day following the date of death. (You may/should get a six month's extension.) Do not worry about this invasion of your privacy or your ability to follow the instructions on this seemingly awesome bit of bureaucratic nonsense. (I bet you and I could put together the same form in three pages or less and give them the same information.) Your attorney and CPA will keep you on track and see that it is correctly filled in. Again, DO NOT WORRY ABOUT IT! Do not, however, fail to file it on time! Final Destination- Funding the Trust You cannot (should not) fund the Trusts until you have filed the 706. Or at least have come to your final set of figures. The Family Trust per se ceases to exist at the moment of death of the first of the original Trustees to die. The Trust then "trifurcates" into separate Trusts which will probably be the Bypass Trust (the, at present, $600,000 [update] exemption or non-taxed gift to your heirs), the QTIP or Qualified Terminal Interest Property Trust (which is now an irrevocable Trust representing the decedent) and the Survivor's Trust which continues to be revocable or amendable. From now on each separate irrevocable Trust will require a separate Income Tax filing every year. They must be properly funded in accordance with the intentions and exact wording of the Trust and in a manner that will please the IRS and convince them beyond a scintilla of doubt that you have accurately divided the assets with scrupulous fairness. This is not for sissies, whimps or the weak minded. This is the real bottom line of what Trusts are all about. The best of attorneys and CPAs win roll their eyes in their heads at the mere mention of it. Why? Because unless every asset is completely liquidated making trust funding a five minute exercise with a calculator, you are face to face with a new dilemma. You now must grapple with the concept of pro rata vs. non pro rata distribution. [Update.] In other words, how do you cut a house in half, or do you? Well, not exactly, but with real estate and tangible assets there is more than mathematics involved. There is sentiment, preference, location, and demographics to name a few. The IRS itself vacillates and sends out different signals as to how this should be done. In turn, attorneys and trust advisers all over the country are attending weekend seminars on this subject. It is almost becoming a cottage industry. I even spent $170.00 to attend such a seminar in Los Angeles and when it was over I didn't have a clue. Each panel member had different views and experiences to warn about. Take your pick. Your attorney and his or her, or your, CPA should work together with you on making these decisions and properly recording the assets into the different Trusts. Then one day a letter will come saying it has all been approved by the IRS and you can finally relax. My philosophy is, just do your best and say your prayers. In addition you might repeat the following mantra a young friend of mine gave me shortly after Bill died. I am doing everything right. Good luck. Remember, it's only money.
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