I had a meeting recently with a client whose spouse had set up an irrevocable life insurance trust (ILIT). The client is the beneficiary of the Trust. The Trust owned a substantial life insurance policy on the spouse. The spouse died 15 years ago, and the insurance policy was promptly paid to the Trust. The client is the Trustee, and established a brokerage account with the funds. The client receives the annual income, but wants to get more assets from the Trust. What’s the problem? The client can’t find any copy of the Trust document! We don’t know the terms of the Trust. We don’t know what’s allowed to be done. The brokerage is asking the client for a copy of the Trust document because they can’t find the copy they took when they opened the account 15 years ago! The Successor Trustee says they can’t find a copy either. And the law firm that prepared it has no records because its computer system crashed at some point and they couldn’t retrieve back-up records. The client doesn’t even know who’s supposed to get any remaining funds if the client dies. There isn’t even an electronic copy (PDF/scan) of that signed Trust document.
And here’s another type of situation I’ve had. Clients have created revocable living trusts but didn’t transfer their assets into the Trust. Years later they are updating the estate plan, and we discover that the plan they thought they had in place was never put in place because they didn’t transfer their assets into the name of the Trust. In other situations, the client did put their assets into a revocable living trust, but can no longer find that trust document. Usually, the law firm that prepared it has a computer copy, but still ……..
What’s the message? Trusts are a useful and important part of many family protection plans. The Trust document spells it all out. The document might be within a Will, or it might be a stand-alone Trust that’s revocable or irrevocable. Hang onto those records, and create an electronic copy. Trusts must be managed and monitored, and sometimes changes are needed, because life brings with it plenty of twists and turns. A Trustee might refuse to serve, or might become incapable due to dementia or other issues. A Beneficiary might become disabled and the Trust could create problems for their eligibility for public benefits. The creator of the Trust as well as the Trustee needs to review these issues on a regular basis to make sure that everything is functioning the way it should. If there’s a problem to be solved, the law usually provides a pathway for the remedy. But if the document is lost, it’s a real problem.
Careful planning can prevent a crisis. For a review of your trust plan or discussion of how you can protect your family, call for appointment ……….. 732-382-6070.