Volume 11 Issue 1
What Do I Do With These? (Part 3)
© by Tax & Business Professionals
This is the last in a series of newsletters outlining practical approaches to
answering your clients estate-planning questions, even if estate planning is
not your forte. Incidentally, the prior two newsletters on estate planning (and
other issues) are on our Web site at www.tax-business.com.
Would you buy
a car without a motor? Of course not. You may be surprised that some of your
clients may have Revocable Living Trusts, RLTs (see the November/December 1998
issue of Tax & Business Insights for a description), that are without assets
and could be dubbed essentially motorless. Heres why.
Lets say you have as clients a couple in their 70's with a large farm and
some securities, all jointly held. An RLT is prepared for each of them, but the
farm and securities are not retitled to reflect the RLTs as owners. Often, the
Husband dies first and, then, the Wife becomes the sole owner of everything.
When she dies five years later, without, of course, funding her RLT, all of the
marital assets go through probate and may, eventually, go into the Wifes
Obviously, the Husband and Wife had some dispositive wishes and
planning objectives in mind when they had the two RLTs prepared, probably the
desire to avoid probate and to use properly both spouses lifetime exemptions.
Both of these objectives would likely have been defeated in the above-mentioned
Remember, the estate and gift tax lifetime exemption will gradually become
$1,000,000 by the year 2007. The proper use of the exemption by two spouses can
protect $2,000,000 of assets from this tax. In addition, annual lifetime gifts
of $10,000 to each recipient ($20,000 if a married couple is making the gifts)
are excluded from the lifetime exemption calculation and can, if properly used,
further, and substantially, reduce the estate tax over a series of years.
Check For Funding
Is it unusual to discover unfunded RLTs? No. It is, in fact, rather common.
Why? Many Grantors (creators of RLTs) dont appreciate the need to fund RLTs and
some estate planners dont push hard enough for RLT funding. There are also many
other reasons, too numerous to mention in this newsletter.
observation among lawyers is that you can tell a new attorney from an
experienced attorney by their respective approaches to reading court decisions.
An inexperienced attorney will usually read from the beginning. A seasoned
attorney will generally read the conclusion first to determine if he or she won
There is a parallel when reading RLTs. Many RLTs have
schedules attached which list the assets that have been transferred (titled) in
the name of the Trust. Rather than attempt to read an entire RLT, you may
instead make your first effort checking for schedules attached to the RLT.
Why check for funding? Unfunded RLTs are "motorless" in the sense that
there is nothing under the hood until the Grantor(s) dies. Then, if there is a
provision in the Will of the decedent that directs funding of the RLT after
death, assets will be transferred to the Trust. Will provisions of this type are
said to cause probate assets to pour-over to a RLT, hence, the name Pour-Over
Even if you do not have the ability fully to second guess those
crafty estate-planning attorneys, you can determine if your clients have funded
their RLTs. However, dont assume that assets have not been transferred to an
RLT just because there is no list of RLT assets attached. While RLT asset lists
are helpful, keep in mind that with land, bank accounts, securities, etc., the
concept we called passing by operation of law (discussed in the
September-October issue) is controlling. For example, a new deed is needed to
transfer land, most often from some form of joint tenancy, to the RLT as owner.
Sound complicated? It isnt, really. Such deeds can, or should be, routine for
firms doing estate planning.
Weve Provided Sample Wording
Want to see sample wording for instruments of transfer, like deeds,
securities, bank accounts, etc.? Click here for a one-page
sample of suggested wording for conveying assets to RLTs, as well as a sample
RLT and Pour-Over Will. If further help is needed, call us about this or related
estate planning issues.
Previous Article | Next Article
List of Articles by Tax & Business Professionals
Published jointly by The Tax & Business Professionals, Inc. and the law firm of Newland & Associates as a service to their clients.
If you are a tax professional and would like more information about the subjects covered in this newsletter or any other tax and business matter, please call the Tax & Business Professionals, Inc. at (800)-553-6613, e-mail us at
, or visit our web site at http://www.tax-business.com.
For a full range of business law and tax-related services, call the law firm of Newland & Associates at (703) 330-0000.
If you are reading this newsletter but are not on our mailing list, and would like to be, please contact us at (800) 553-6613.
While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.
Redistribution or other commercial use of the material contained in Tax & Business Insights is expressly prohibited without the written permission of Tax and Business Professionals, Inc.
You can search for information in the entire Authors Row section,
or in the entire site. For a more focused search, put your search word(s) in quotes.
Tax & Business Professionals Main | Authors Row Main | Home