By Lee R. Phillips

I had a client bring a “living trust” to me last week.  The client thought the trust was going to solve all of his estate planning problems.  NOT SO!!  It was done by an insurance agent, and this guy had set him up with an “irrevocable personal residence trust.”  The agent had made himself the trustee with one of the client’s children as a co-trustee.  The client had no clue why this trust was created.  I thought it might be for asset protection, but the client was actually retired when the “living trust” was established.  He had almost a zero chance of lawsuit.

The mess the insurance agent / estate planner extraordinaire had created was truly extraordinary.  An irrevocable trust isn’t a “living trust.”  Actually, if you want to get technical, it is a living trust, because it was made when the client was living, but it isn’t the living trust people use for estate planning.  Because the irrevocable trust was “irrevocable” and someone other than the client was named as the trustee, the IRS is going to treat it differently.  The standard living revocable trust aka living trust has you as the grantor (guy who creates the living trust), you as the trustee (guy who manages the living trust), and you as the beneficiary (guy who gets all the benefits from the living trust).  If the living trust is revocable and same guy holds all three positions in the living trust, it is know as a “grantor trust.”

With a grantor trust (the standard living revocable trust) the IRS ignores the trust.  You file your 1040 tax form using your social security number, and the trust is “invisible” to the IRS while you are alive.  When you move your house into the living revocable trust, you still get the tax benefits, i.e., deduct the interest, sell the house after living there 2 of 5 years and get the profit tax free, etc.  However, if the trust is an irrevocable trust, plus you don’t hold all three positions, the IRS says NO, NOT your house.  It’s just a house owned by a trust that you are living in.  You don’t get the tax benefits.  This is true even if you have a revocable “land trust.”  If you don’t hold all three positions you are toast in the IRS’s eyes. (more…)

By Lee R. Phillips

We receive lots of queries from people who are struggling with the important issues of asset protection and estate planning. Periodically, we answer some of those questions for everyone to learn from, or at least help you see options that you need to discuss with your own trusted advisors.

Best Way to Pass Your Home

Q.  My girlfriend’s mother is in her early 60′s and has placed her house and another piece of property in her three daughters’ names. Her fear is that she may become ill and have to go in a nursing home and have to sell these. Their current value is approximately $600K. She wants the girls to inherit the properties. I am wondering if a Revocable Trust would accomplish this as well and protect the mother if one of the daughters were to get in trouble financially prior to her death so that the mother could always remain in the home. This situation is in Virginia. Chris (more…)

By Lee R. Phillips

Brittany Murphy’s death has certainly come as a shock to the world.  In a way, it is even more shocking to learn that the death was “due to natural causes,” according to the Los Angeles coroner.  Her husband, British screenwriter Simon Monjack, is in shock and is quoted as stating, “I am feeling beyond devastated.”  The shock and grief associated with the death of a loved one can never be prepared for or softened.

The death of one as young as Brittany Murphy reminds us all of our fragile mortality and punctuates the uncertainty of life.  As an individual, I see a personal tragedy on several levels.  As an attorney, I hope she had her legal ducks in a row.  Her death reminds us of our obligations that need to be attended to.  It makes a huge difference.

Michael Jackson also died this year.  His death was also a personal tragedy, but he had done his legal homework, and his estate lives on.  You might remember that after his death the media squared off to have a heyday reporting on the financial dealings of his large troubled empire.  After the first week, it was disclosed that the foundation of his empire was a living revocable trust.  The trust had been maintained. (Just having a trust document isn’t enough.  It has to be used and “maintained.”)  I imagine the media gave a great groan, when they learned the trust was in place, because they were shut out of the juicy details of Michael Jackson’s estate. (more…)