It’s a challenge every financial advisor faces at one time or another.
Wonderful, wealthy couples who have been your most loyal clients pass away at a ripe old age. All the wealth they’ve accumulated is now transferred into a trust for the benefit of their children.
Best case scenario: The kids know you very well and are happy to let you continue managing assets in the trust.
Worst case scenario: They’re entitled brats who’ve never met you, don’t want to, and will fire you as soon as they get their collective act together.
You are a successful advisor. Like any superstar athlete practicing the fundamentals, this article adds a few extra tools to keep your winning. I have ADD, so each section lists the device in the first sentence.
We are not your grandparents trust company.
This blog will cover the history, evolution and simple approach about and on client service. As an advisor friendly trust company, we view client service as an evolution through successes and failures.
A Life insurance trust holds a life insurance policy.
At the death of the creator, it will pay out a death benefit. In order to receive the death benefit, the owner of the policy must pay a premium. A life insurance policy that is already previously held by the grantor can be transferred to the trust to create a life insurance trust. Once the policy has been created and is held by the trust, it is no longer included in the individuals gross estate. Life insurance trusts are a great vehicle to protect from debtors and creditors.
So, what happens if you decide to terminate life insurance trust, or need to make changes to the life insurance trust? One easy way to terminate a life insurance trust, the grantor to stops making the premium payments, known as gifts, to the trust. If the grantor stops making payments to the trust, then the policy will lapse. This causes the purpose of the trust to be eliminated. If you are looking to making changes to the life insurance trust rather than terminating, there are a few options.
The three most common ways to change a life insurance trust are:
Decanting
Non-judicial Settlement Agreement
Transferring an ILIT
When an Irrevocable life insurance trust is created, it is sealed and the material of the trust document cannot be changed. Oftentimes, trusts that were created a long time ago do not have the proper language implemented to reflect the situations of today. Decanting a trust is typically done when there is an irrevocable trust that is difficult to amend or revoke. Decanting a life insurance trust is similar to upgrading to a new phone, but not erasing the content of the old phone. In the terms of the trust, you are upgrading unhelpful provisions of a trust, but not changing the interest of the beneficiaries of the original trust. Decanting can be useful for a number of reasons. For example, creditor protection. If a beneficiary is set to receive the proceeds of a trust at a certain age, the distributions could be subject to creditors. However, if the trust is decanted, the new trust terms could extend, and the assets would be preserved from the creditors. South Dakota has ranked #1 for the last 6 years for their decanting statutes.
Generally, if you are wanting to change the contents of the life insurance trust you might have to jump through a few hoops to get there. This can make the process expensive, and long, especially if you have to go to court. Depending on the state, you might have an option to use a non-judicial settlement agreement. A non-judicial settlement agreement is a way to modify or address issues in trust that might need to be change or are silent. One important factor to note is not every state statutes is created the same. States like South Dakota, allow interested parties to use a non- judicial settlement agreement to make changes to the trust. For example, if a beneficiary of a life insurance trust lives in a high tax state, then they can have their assets depleted by Uncle Sam. They governing law might state that the life insurance trust must be administered in the state that it resides, and this can make the beneficiary feel stuck. The good news, if that state has statue granting them to use a non-judicial settlement agreement, then they can potentially change the governing law to a more tax friendly state like South Dakota.
There are certain circumstances where a old trust can be merged into a new life insurance trust, but it is limited and requires a special legal document. An option more common is for a new life insurance trust to be created which fixes any problems and have it purchase the policy. The policy can be sold at its fair market value. Since the policy is never owned by the insured, there is no issue with the inclusion rule, and the death proceeds avoid paying the estate tax. It is important to understand that the transfer of the life insurance trust must meet certain exceptions to keep the proceeds free from paying income tax. Transferring the life insurance trust might be a better option than terminating the trust and paying a termination fee.
Today's life insurance market place is complex and ever changing. This is a big reason why less and less corporate trustees are interested in managing life insurances trusts. Sadly, the few that are willing, often administer life insurance trusts poorly. This serves as a disadvantage when a beneficiary wants to make a choice. Usually, if a beneficiary wants to take an immediate distribution of the death benefit of the life insurance trust, they will have to pay a termination fee. These fees can range from 1% up 3% of the death benefit of the life insurance trust. Some trustees use this as a way to keep you invested. It is important to understand what the termination fees might be for your corporate trustee to make the best decision.
Delegated and Directed trust are the most common types of trusts. When deciding to make changes to a trust, for instance changing a trustee, depending on the type of trust this can sometimes be difficult. Understand that not all trust law is created equal. Depending on what state you reside in, changing a trust can be an easy process or a difficult one. In this article we will discuss the differences between delegated and directed trust when needing to change a trustee.
There are different types of trustees. Over the next decade, trillions of dollars will be passed to future generations. Trusts have become a common strategy for estate planning. Naming the right trustee is crucially important. This should be a business decision, not an emotional one. The trustee has an array of responsibility and risks. Understanding your responsibility as trustee or the responsibility you designate is crucially important.
Advisors have the option to use a trust fund company that does not compete against them. There will be an avalanche of asset transfers between generations over the next 30 years. This blog provides information on the past, present, and future of trust law and the trustee industry. This information will help advisors to make informed decisions on clients’ generational planning choices, and to attract and retain assets.
Asking for money from a corporate trustee usually becomes an unhappy experience. It does not have to be.
Everybody has stories about these situations. These trust distribution requests usually become complicated by corporate trustees. It does not have to happen.
Why does it happen?
This question goes back 400 years. It starts with a trustee's job of protecting the trust assets and stodgy belief that paper only processes always yield better client results than balancing digital and paper. Corporate trustees love paper and all things manual.
We decided to push the trust industry into the digital age. (more…)
A south dakota trust company has 3 trust company business models to offer. The traditional corporate trustee offered the choice with limited control for clients. Over the last 20 years, newer corporate trustees offer two additional trust company business models. Wealth Advisors Trust, a south dakota trust company, offers two corporate trustee solutions. These solutions place the advisor and their clients back in the driver's seat. For the last 400 years the traditional trust company had the monopoly of trustee services. Today, control and choice are options for corporate trustees who operate as a south dakota trust company.
South Dakota’s dynastic trust laws allow every family to potentially become wealthy among the leagues of the ultra-rich. Why limit yourself to keeping up with the Jones when you can be the Jones?
The attractive benefits of South Dakota dynastic trusts include the strength of preserving wealth for future generations, protecting those assets as they descend through the generations, and most importantly, the immense income tax savings.
The repeal of South Dakota’s Rule Against Perpetuities allowed for the creation of dynastic trusts. This allows for the money to largely avoid heavy tax burdens and be shielded away from creditors forever.
When thinking about creating a South Dakota Dynastic Trust remember WAS: Preserving Your Wealth, Protecting Your Assets, and Potential Tax Savings. Your money WAS, is, and forever will be protected by South Dakota’s trust friendly laws. (more…)
