Here is an interesting article by Charles Arthur, one of my list members. You can find a link to his new book on the left menu under Offshore Matters.
Inheritance Scam
Passing wealth to your Beneficiaries is tricky business. With much to know, and no training, most parents or grandparents make decisions based on limited information. For example, using a Living Trust to leave your meager or substantial goods to your children avoids probate. What does that mean, exactly? Getting into the legal jargon of probate brings up another word: Intestate? What is that? Are you lost already? I have only just begun.
If you die without a Will, you have died “intestate.” Your assets are up for grabs and a Probate Court decides who gets your “stuff.” The court gets a chunk of the estate’s value through fees for this service. Avoid dying intestate if there is anyone in your life who may benefit from receiving your wealth, even if it is, by your standards, not much.
Wills and Probate
If you take the time to write a Will with instructions about what heirs get your worldly goods, finances and property in your name at death still must be reviewed by a judge. He or she issues an order approving those entrusted with your goods to release them to named Beneficiaries. This is costly. Your lawyer and the courts get their share before heirs get theirs. Using a Will, though, removes confusion about who gets your assets, even if it takes three to five years for heirs to benefit from your Will.
You can also set up a Testamentary Trust in your Will. After you die, this puts all your assets into a Trust for your heirs, with instructions to Trustees about distribution and wealth management. Either the court names these Trustees, or you do. The Probate Court takes it cut for this service. If it chooses the Trustee, you gamble with the funds left to your Beneficiaries. A stranger has less interest in their welfare than a person you trust.
Living Trust and Forget-me-nots
The basic inheritance tactic is to avoid Probate Court by creating a Trust while you are alive. This is most often done through a Living Trust, where you keep control of all your assets until you die. When you die, this setup allows your chosen representative to get the money and deliver it to named Beneficiaries without going through Probate Court. This “successor” has co-signed on all Trust documents and the financial accounts. This means you give him or her the authority to write the checks and transfer real estate before you leave this existence. Your representative is the Successor Trustee while you are alive, and then becomes the Trustee. This works just fine only IF your Beneficiaries agree with how you setup your estate. If one Beneficiary challenges your Trust, all your assets, investments and cash become subject to probate anyway.
This most basic Trust has troubles. All of them due to lack of information. For example, the Trust accounting for this Living Trust must be kept separate from personal accounting. Since the cash can be used by the Trustee or Trustees, usually the parents, it becomes the Trustee’s personal pile to spend. Hardly anyone realizes that setting up a Living Trust earmarks the assets for the Beneficiaries, and the Trustees MUST keep accurate accounting records. After the Successor Trustee becomes the Trustee, he or she is legally responsible to the Beneficiaries to produce these records if the Beneficiaries want to see them.
Because often mom and pop have no idea that creating the Living Trust limits their ability to give assets away, they continue to live their lives spending to their hearts content. Their contingent Beneficiaries, the ones who get what is left, await their passing to get the house, car and anything else. Meanwhile, these uneducated Trustees (your parents), having reached old-age forgot they named you as their heir.
Unfortunately this is a common problem. Fearing the care giver will abandon them in their last hours, these Trustees bribe this aid by giving away your inheritance to him or her—this includes the house, the car, and the savings account. This reality is so rampant that new probate laws past last year limit what care givers can get.
Now the Trustees of this Living Trust pass, and you fight to get these assets, given as bribes, returned. The good news is you can prove they are yours because you are the named Beneficiary. The bad news is the assets in the Trust go to pay the legal fees, and so when you reclaim the precious “stuff”, the cost may be more than the asset’s value.
Limited Wealth Building
Make no mistake, this valuable missing information is deliberate. By limiting your ability to build wealth, the little piles of assets gathered in your family are washed away by thoughtless spending, court fees, old-age forgetfulness, as well as internal family squabbles. It takes training, and substantial education to pass on wealth—a fact most people have hardly considered.
The next step up is a Revocable Trust, it performs much like a Living Trust where you keep control until you die. Use a Revocable Trust when complex investments and real estate require serious attention. Often, an Independent Trustee is employed. At any time, though, the Trust Settlor, the one setting up the Trust, can change his or her mind, revoke the Trust or fire the Trustee.
The Trick of Taxes
Up to this point, those people setting up a Will, or a Revocable Trust are taxed on the earnings of the Trust. In the Living Trust, these earnings can include working for others. Depositing one’s paycheck into the Trust checking account identifies these funds for the Beneficiaries, even if the Trustee (mom or pop) spends the money.
The next Trust category is Irrevocable. Assets, funds, investments are transferred into a Trust with usually two Trustees. They manage the wealth under the name of the Trust for the Beneficiaries, and the Trust pays the taxes. The Settlor’s name is not on any financial records. If created with well thought out plans, the Irrevocable Trust gives the family its best advantage. It can also bring you face-to-face with the major financial power games of our planet. Those who control wealth discourage passing it on.
King of the Mountain
Children often play a game titled King of the Mountain. Find a mound of dirt somewhere, and there is a scramble to see who can get on top first. Once there, the bully pushes the rest down. This “reigning ruler” becomes nearly impossible to dislodge.Irrevocable Trusts are divided into two types. The first one is Statutory, the second one Private. It is the later where the power games are put in place to rule this world.
True wealth rolls forward generation after generation. Each one adds to the stockpile of cash, assets, and power. Only a particular irrevocable setup holds this level of wealth, for it must create substantial agreement among Beneficiaries who have a vested interest in keeping the game going. The design of the Statutory Trust usually ends it after three generations, while the Private Trust, operating via renewable contracts, can continue its wealth building tactics for hundreds of years.
This article cannot go into the depth of these inheritance setups, but clues you into the vast amount of information you might be missing. When setting up a Will or a Revocable Trust, you would be smart to incorporate long-range tactics used in Irrevocable Trusts to setup your family for generations._____________________________
Charles Arthur is the pen name for the group which authored The Art of Passing the Buck: The Secrets of Wills & Trusts Revealed. For more information, please see
http://passingbucks.com/adv/fo04.html
Note:
This article can be reproduced in its entire form only and the Charles Arthur tag and link MUST remain in place.
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