Client Profile:  Mr. and Mrs. Case are both 64.  They have been married 42 years this coming fall.  Neither one has been married before.  They have two grown children.  The oldest boy will be 40 this year and the youngest boy will be 37.  The youngest son lives outside the United States and the oldest son lives in another state.

Each son has children; the oldest has two children and the youngest has three.  In the latter case, there could be more children in the future.  Both children have been married only once and each marriage seems to be solid.  The youngest son has always been in a strong financial position, but the oldest has from time to time suffered long periods of unemployment.  The oldest is just now attempting to get his own business off the ground.  It looks like it should be a success and, if so, will give him financial security.  Still, that is uncertain as of the moment.  Although the siblings are not close geographically or emotionally there is a great deal of respect and affinity for each other.

Mr. Case has always managed the family finances.  However, in recent years, Mrs. Case has managed her mother’s financial affairs with input from Mr. Case.  When Mrs. Case read, “So You Want To Be Your Own Trustee”, her immediate reaction was “Why would I want that job!”  Mr. Case wants the job.  He wants control.  Both Mr. and Mrs. Case expect to leave their estate to their children, if living, and if not living, to their grandchildren.  After reading “So You Want To Be Your Own Trustee” they talked about who should be the trustee.  They briefly discussed one or both of the children.  But, because, one is living abroad and the other needing to focus on his own financial affairs (and he lives along way away), they decided this would not be a good option either initially or as successors to the Cases themselves.

Although the Cases do not always agree on what’s right and appropriate for their children, they have a high degree of confidence in each other; especially with regard to decisions about the children and grandchildren.  They also have a high degree of faith and confidence in their marriage relationship.  They discussed the risk of leaving their estate out right to each other.  They decided that they could trust any decision made by the survivor about the ultimate distribution and disposition of their estate. They trust that whatever the decision, it would be right and proper and in conformity with what the deceased spouse would have chosen if alive at the time.  This included the possibility of the remarriage of the surviving spouse.  They agreed that they could trust the other to protect the desire of each of them to be sure their children inherited their estate.

Both Mr. and Mrs. Case are abundantly aware of the risk of living to the age of their incapacity.  Mr. Case’s father was in the financial services industry and lived to be 89.  The last 6 months of his life, Mrs. Case was his caregiver and Mr. Case had to manage his financial affairs.  Mrs. Case’s father lived to 91 and her mother is now 91.  Her mother is legally blind, although she still lives on her own. Mrs. Case and her sister are actively involved in her care and the management of her finances.  Having someone to move in and help with or take over their financial management if they become incapacitated is important to the Cases. 

The Financial Facts: The Case’s estate is not large, but is adequate to provide the retirement income they now need and to provide for the income needs of the survivor.   Still, there are no excess assets that could be sequestered into non-income or low income producing accounts.  Their greatest financial objective is to have adequate income now and in the future; jointly or severally.  Their estate is broken down as follows:

Personal Assets:  $   420,500 (includes cash accounts)
Retirement Assets  $   979,000
Investment Assets  $   763,000
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Total Assets   $2,162,500

In addition to the above assets there is $300,000 of life insurance on Mr. Case’s life and $100,000 on Mrs. Case’s life. 

If Mr. Case were to die today his estate would be valued at $2,281,200 (including the life insurance) and it would all go to Mrs. Case, so there would not be any estate taxes at this first death.  If Mrs. Case were to die today her estate would all go to Mr. Case and be valued at $1,346,894.  Again, there would not be any estate taxes.  At the second death, assuming no growth in the value of the estate, the estate would be valued at $2,562,500.  This is under the current estate tax threshold so there is no reason to fund the Decedent’s Trust at the first death.  However, if the estate tax threshold reverts back to $1,000,000 in 2011 there will be a good reason to fund the Decedent’s trust.  So, depending on the timing of each death and what Congress does with the estate tax laws, there may not be a need for the Decedent’s Trust.

As mentioned above, regardless of whether everything is left outright to the surviving spouse or one or more trusts are set up, the surviving spouse will need (want?) the income from any and all such trusts. 

The Key Issues: The key issues are not monetary and they are situational to this case.  They are as follows:

1. The Cases have had a long and happy marriage and they have a high degree of trust and faith in each other’s judgment.
2. There are no sibling rivalries or conflicts.  Their two sons have stable marriages and families.
3. Mr. Case likes and wants financial control.  Mrs. Case can manage the finances, but doesn’t want the complexities of being a trustee.
4. Each spouse comes from long-lived families and expect to live to need outside care, of at least their finances, if not, their persons.
5. The Cases are more concerned about having sufficient income in their later years, than a growing estate to be left to children.
6. There is no certainty that there is a need for a Decedent’s Trust to avoid estate taxes at the second death.
7. It is difficult to know just what the estate planning needs will be at the time of the first death.

Given the description of the Client Profile, the Financial Facts and the Key Issues how have the Cases chosen to structure their estate planning documents?

First of all, they have read and discussed the section entitled “So You Want To Be Your Own Trustee”.  Mrs. Case’s immediate response was, “Why would I want that job?”  Mr. Case said that while it might be complex, he wanted to have the control and, therefore, the job of trustee.  The Cases have a Revocable Living Trust currently in place so they made an appointment with their attorney to review and discuss all the items in the previous sections.  They made the following decisions and restated their current trust to reflect them:

1. During their joint lifetime, if either one of them should become disabled or incapacitated, the other could appoint a corporate trustee as co-trustee or as their agent or resign in favor of the corporate trustee who would then be sole trustee.  They named a specific corporate trustee to take over, unless or until they named another in its place.  They also allowed for both of them to make the same decision jointly, if they wanted to turn over the management of their Revocable Living Trust to this same corporate trustee just because they had grown tired of managing their finances during their joint lifetimes.
   
2. At the first death, the estate of the deceased spouse goes outright to the surviving spouse.  The surviving spouse has the right to disclaim part of this inheritance up to an amount equal to the estate tax exemption amount at the date of the first spouse’s death.  If this disclaimer is made, the disclaimed amount will go into the Decedent’s Trust.  The surviving spouse can also disclaim assets into the QTIP Trust as well, if that should be the recommendation of the advisory team at that time.  The expectation is that if there is still an estate tax in place at the time of the first death and the total estate exceeds the threshold for estate taxation, this disclaimer privilege will be exercised.  The surviving spouse is given the option of doing so or not.
   
3. Whether or not the Decedent’s Trust and QTIP Trust are established at the first death, the surviving spouse has been given the right to remain as sole trustee of any and all of the trusts that are brought into existence at the first death.  This includes the Survivor’s Trust as well, which might be the only trust in existence, depending on whether or not the disclaimer privilege is exercised.  However, the surviving spouse has the privilege at any time to appoint a corporate trustee as Co-Trustee or as the spouse/trustee’s agent.  Also, they may resign in favor of the corporate trustee as the sole trustee of any or all of the trusts that may be brought into existence at the time of the first death.
   
4. In the event a corporate trustee ever becomes the sole trustee of any or all of the trusts that are in existence, they have appointed a Trust Protector who has the right to fire the corporate trustee.  This is because the Decedent’s Trust and QTIP Trust are irrevocable and the trustee can not be fired otherwise.  So, it is important to build this option into the trust in order to protect against the corporate trustee ever becoming out of touch with the needs and wants of the income beneficiary; the surviving spouse.  The Cases decided to appoint their oldest son as Trust Protector.
   
5. The Cases have also appointed an Investment Advisor  to the trustees of the trust set up at the first death.  The investment advisor is to be put in place regardless of whether there is a corporate trustee or the surviving spouse is trustee.
   
6. The language of the trust(s) has been changed to override the application of the both the Uniform Income and Principal Act and the Uniform Prudent Investor Act.  The Cases primary investment objective is income for the surviving spouse rather than growing the estate for heirs. 

Therefore, they have directed the trustee to:

• Invest the assets of all the trusts to emphasis “income with growth secondary”.
• Charge all expenses and taxes against the principal of the trust(s).

These are the primary actions taken by the Cases in light of their circumstances and the Key Issues listed above.  The Key Issues were the primary drivers of their decision.  Everyone’s circumstances will be different and even if the facts might be similar the Key Issues might well be different.  Unfortunately, there is no “pat” answer or template to follow in making decisions about your estate planning.  I hope that this series of articles will help you frame the Key Issues that are important to you so that you can develop an estate plan that you and your surviving spouse can live with and, as a result, more fully enjoy the fruits of your success.