hardie plank siding best siding install vinyl siding lakemoor hardie siding siding installation niles .. Chicago Drug testing

Living Trust Investing: Income Considerations when the Grantor Dies

A common problem I often see when working with living trust beneficiaries and trustees is the lack of attention in rethinking income strategies in the event of the grantor's death.

When the grantor of a living trust dies, the trustee (especially a family member or close friend) sometimes feels reluctant to revise the portfolio, feeling it's an affront to the wishes of the deceased. After all, if the investments were sound during life, they should be sound enough upon his or her death.

While the fundamental values of the investments are certainly the same, a number of circumstances have changed and must be dealt with.

The most crucial change is because of the trust itself. There are sections within the trust instrument that deal with income distributions, both during the grantor's lifetime and after his or her death. The trustee should become familiar with these sections and how their differences will have an impact upon investment decisions.

Secondly, with the passing of the grantor, new assets (such as life insurance death benefits) are often added to the trust assets and these new assets must be invested in a way that complies with the grantor's wishes.

Thirdly, assets held outside the trust often need to be considered. For example, the grantor may have held qualified retirement plan benefits that are passed directly to a trust beneficiary. Utilization of these retirement benefits may need to be recognized and, in some instances, may even be discussed in the trust instrument.

Lastly, the trust beneficiaries may have assets of their own and these asets should be brought into the mix of things.

When revising an investment strategy, the needs of the income beneficiaries are a good place to start. First, determine available cash flow from sources outside the trust. Typically, this could include Social Security benefits, immediate annuities, deferred compensation, qualified retirement plans and, of course, the beneficary's own assets.

Next, fund whatever income deficit is left by assuming a modest rate of yield in the trust. Hopefully, this modest amount will satisfy the needs of the income beneficiaries. If not, you can raise the yield somewhat, but not too much. At some point, you'll reach beyond what yield can be readily achieved with an acceptable risk level, to speak nothing of breaching the trustee's responsibility to act in a prudent fashion.

Because the trustee has a responsibility to all beneficiaries, including those who may ultimately inherit the trust, it may be necessary to balance the income needs of the income beneficiaries and the growth needs of the ultimate beneficiaries. This fidicuary role is paramount to the decisions made by the trustee.

It is also important to note the difference between "yield" and "total return," as applied to a trust. Total return includes capital gains, but those gains are often excluded from the definition of "distributable income" in a trust. Distributions that exceed income will be construed as principal and are often left to a trustee's discretion. A trustee can say "no" as easily as "yes" to principal distributions.

If principal distributions are left to the trustee's discretion, it's a good guess that the intent was not to punish the beneficiary, but to keep the trust out of the beneficiary's taxable estate.

Carrying this one step farther, many financial advisers will argue that, if a beneficiary's own estate is large enough to be exposed to estate taxes, then the beneficiary might be wise to "spend down" his or her own estate and let the trust grow in value.

The inverse is also true. If a beneficiary has a small estate, then he or she may want income from the trust, but he or she may also want the principal to grow in his or her own name so as to get a stepped-up tax basis upon death.

These strategies are very common if the ultimate beneficiaries are the same people.

The role of the trustee can be difficult, but paying attention to the changes in income needs will avoid future problems and inefficiencies in carrying out the duties of administering the trust.

Glenn ("Chip") Dahlke, a senior contributor to the Living Trust Network, has 28 years in the investment business. He is a Registered Representative of Linsco/Private Ledger and a principal with Dahlke Financial Group. He is licensed to transact securities with persons who are residents of the following states: CA. CT, FL, GA, IL. MA, MD. ME, MI. NC, NH, NJ, NY.OR, PA, RI, VA, VT, WY.

If you have any questions or comments, Chip would love to hear from you. You may contact him at Dahlkefinancia@sbcglobal.net. You may also contact him by going directly to the Living Trust Network web site located at http://www.livingtrustnetwork.com

Copyright 2005. LivingTrustNetwork, LLC. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without the written consent of the Living Trust Network, LLC.

In The News:

China Syndrome

There has been great condemnation recently because China has been... Read More

An Old Proverb for Investing

"If you don't know where you are going, any road... Read More

Trading Stocks ?Never Forget About A Past Trade

We all know that emotions control every decision that an... Read More

Its Snowing

The Winter Games for the Olympics are coming up soon... Read More

Are You A Stockaholic?

Today's society gives special recognition to alcoholics, sexaholics, binge-aholics, shopaholics,... Read More

Social Insecurity

Just about everything you have been told about Social Security... Read More

How to Read an Annual Report

Every publicly traded company is required by the SEC(Securities and... Read More

Direction

It is difficult to make money in a bull market,... Read More

Investing in the Stock Market

From the book 'The Stockopoly Plan' by the author Charles... Read More

You Don?t HAVE To Be Trading

As a novice trader, you'll often feel the need to... Read More

Invest In The Stock Market For The RIGHT Reason, Using The RIGHT Choices

Invest in the stock market for the RIGHT reason, using... Read More

Discover the Retirement Breakthrough the Federal Government Created for You - The Roth IRA!

If you don't know what a Roth IRA is then... Read More

Stock Market System ... ONLINE STOCK TRADING ... Beyond Day Trading Basics & Tips

Day trading is all about making buy and sell decisions.... Read More

Does Japan Matter?

For the last 12 years we have seen the Japanese... Read More

Why Change Funds?

On November 17 I bought 7 different mutual funds and... Read More

You Wont Like This

Why? Because I am going to shatter your conventional wisdom... Read More

How To Make, And Keep, Money Trading Stocks

If you are serious about making and keeping money by... Read More

Evaluation II

As I said in Part I everyone in the insane... Read More

Mutual Funds: The Modern Den of Thieves!

Mutual funds were created with the idea that one person... Read More

Market Timing?

The recent criminal fiasco in the mutual fund industry is... Read More

Buy and Hold Investment Philosophy

Wall Street has been preaching the doctrine of Buy and... Read More

How to Pick Winning Stocks

There is nothing more exciting than finding an undervalued stock... Read More

Mutual Funds are Dead

You may have wondered why your mutual funds have been... Read More

A Common Misconception about Stock Prices

I cringe every time I hear a novice investor tell... Read More

Stocks: Understand What You Buy!

"There is nothing more frightful than ignorance in action!" Johann... Read More

street lighting fixtures philips induction lighting Pete's produce ..
street lighting fixtures philips induction lighting Pete's produce ..