hardie siding cement board siding installing vinyl siding install vinyl siding bloomingdale hardie plank siding .. 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:

Why Investors Use Financial Planners

Do you have a financial planner? Does one of your... Read More

Stock Market Education; Day Trading for Beginnners; How to Pick Stocks

The trading method you employ to approach the stock market... Read More

Fake Money

Reach in your pocket and take out that big roll... Read More

Why Buy and Hold?

Since I can remember, and that's a long time ago,... Read More

My Neighbor Got A New Car

I don't know what kind it is, but I saw... Read More

Paddle Your Canoe

At some time in your life you have been on... Read More

Dont Fight The Fed

One of the great truisms of Wall Street is "Don't... Read More

Trading as a Business

What can I expect to make my first year of... Read More

What Our Investment Advisor Wont Say Off The Bat

Most advisors will tell you they can beat the market.... Read More

Trading Baskets II: The Crapolio, A Roll of the Dice in the Stock Market

In a previously written article, we expanded the use of... Read More

This Market Is Different

All of the talking heads have been telling us that... Read More

The I Word is Coming to a Town Near You

Hello Inflation, it has been awhile, I see you on... Read More

Dont Buy Stocks based on P/E Ratio alone

I use the P/E ratio as a secondary indicator for... Read More

Low Tide

When you stand on the ocean shore and watch the... Read More

A Penny for Your Stocks

According to Investopedia Inc. the penny stock market has seen... Read More

Option Spread Trading

Spread trading is a technique that can be used to... Read More

How We Eluded The Bear Of 2000

The date October 13, 2000 will forever be embedded in... Read More

Lies, Damn Lies and Mutual Fund Returns

How many times has this happened to you? You're at... Read More

Discipline

One of the great "secrets" of successful people is discipline... Read More

The Next Bull Market

We are already in it, but you can't see it.... Read More

Momentum

One of the basic laws of physics states that a... Read More

401K-itis

Are you one of those many people who dread reading... Read More

Its A Bull, Its A Bear, Its Suptertrader!

The higher the market goes the more confusing are the... Read More

The Right Mutual Funds For Baby Boomers

If you are a baby boomer, time is not on... Read More

Stock Market Investments

If there is one term over-used when talking about making... Read More

broken street light led street light Pete's produce ..
broken street light led street light Pete's produce ..