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Senior Living, Retirement Planning, and Making a Will Part 3

SENIOR LIVING, RETIREMENT PLANNING, MAKING A WILL, SENIORS AND MONEY: Afraid of running out of money? Ever thought about your money, going …going… gone, once you’ve passed? If so, maybe you should!*

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Arranging your affairs before death? Getting your estate in order? Preparing a will? Want to protect principal or preserve capital? If so, you might want to know that there’s another kind of principal protection and capital preservation. (Blog #5 of this series)

Vol. 12, #16.7 – Feb. 18, 2020– ALLAN GOLD’S BLOG

 

By Allan Gold, lawyer, lecturer and author.

  1. OPENING

As you know, my current subject is money. More precisely, it’s on “capital preservation.” This is defined as “a strategy for protecting the money you have available to invest by choosing insured accounts or fixed-income investments that promise return of principal.” (Source: https://financial-dictionary.thefreedictionary.com/Capital+preservation). However, I’m using this notion differently – not from the perspective of the investor, but rather, from that of the will-maker (known as a Testator, if male or Testatrix, if female); and this, with a view, following decease, to preserving some or all of the principal arising from his/her estate. (Of course, such raises the primordial question as to whether or not one should now try to do that. But I shall let each of my readers to answer that very good question for himself (or herself.))

Before going any further, I must make the point that one’s current expenses/debts are elastic. Indeed, I liken one’s perception of the amount of money required therefore, to the view of an oasis mirage by a person, dehydrated and exhausted, after a long and lonely trek in the desert. In other words, that perceived sum is never quite met, but instead, is continually advanced just beyond one’s reach. This is because that line on the horizon of income/savings over expenses and debt repeatedly gets pushed higher and higher, leaving you continually pining for that elusive amount needed to put you completely over the top. You see, revenue & costs are relative to your standard of living. And as you earn more, you typically want more and need to spend more in order to live in the style that you say that you now deserve. This forces such threshold up and up, thereby showing itself to be on an escalating sliding scale, never quite achieved.

If you don’t buy this proposition, I assert that nearly everyone has at one time or another, said something to the effect, “If I only had $X thousand dollars, I would be over my hump and then well on my way to easy street.” But soon after having gotten such a sum, a funny thing would typically happen on the way to the bank. There would be a change of tune and one might say, “That’s great, but if I now had $Y thousand dollars, then I would really be over my hump and truly living on easy street.”

This said, if you’re thinking about making or remaking a will and have concerns, worrying about the loss of capital after your demise, you may want to take a few precautions. If intent on protecting principal and preserving capital, I assert that teaching your adult children (and making gifts) might be helpful, but it’s not the full solution. So without further ado, I will now address my last strategy

THESIS & ARGUMENT.

B.5 COMMENTARY:

Should you desire principal protection, extending post death, here is the KEY strategy of my 3-fold approach.

Strategy #3 – Creating a “Layered” Trust By Will

You’ve heard the expression, “Too little, too late,” but now after hearing about these lottery winner stories, I think that you might agree with me when I say that there’s also a serious situation of “Too much, too fast.” As a result, if concerned about too much money being pocketed by your future heir (called a legatee under a will) immediately after you die, you might want to consider reshaping your will.

Provided that it’s warranted taking into account your family and estate circumstances and conditional upon it being feasible, the third method is to employ a ‘trust. In legal terms, Wikepedia defines a trust as “a relationship where property is held by one party for the benefit of another party. A trust is created by the owner, also called a “settlor”, “trustor” or “grantor” who transfers property to a trustee.[1] The trustee holds that property for the trust’s beneficiaries.[1] ” (Source: https://simple.wikipedia.org/wiki/Trust_law) On the other hand, article 1260 of the Civil Code of Quebec states, “1260. A trust results from an act whereby a person, the settlor, transfers property from his patrimony to another patrimony constituted by him which he appropriates to a particular purpose and which a trustee undertakes, by his acceptance, to hold and administer.1991, c. 64, a. 1260.”

This legal device may be established by way of a Last Will and Testament (Will). I propose what I call, a ‘Layered’ Trust. In essence, this is where the Testator/Testatrix would make a bequest of money or property (called a legacy) to ultimately benefit a certain physical person (called a beneficiary), but in the interim to be held and administered by another party (called a trustee). On your death, the trustee would be obliged to conservatively invest the funds, typically disbursing income under certain terms and conditions, (although able to encroach on the principal where necessary), remitting the capital in graduated increments at ascending age points, but withholding the bulk until the heir reaches a higher, pre-set age level.

However, should you be making or remaking a will and before jumping up and establishing a trust, KNOW:

  • That when making any legacy, you should keep in mind that there are no sure-things. While you might choose and put in place one device or another and include certain check & balance provisions, there aren’t any moves that are absolutely ‘fail-safe.’
  • That in average situations, excepting cases of minor children, it’s probably better to bequeath the money in a lump sum, simply & purely, unto the heir (legatee).
  • That in the instance of an estate comprising important sums, some people might think that it’s better to use a trust. But trusts are not for everyone. One issue is whether there’s enough money in the estate and/or trust, to warrant the establishment of a trust. You see, a trust costs good money to establish; and it costs more good money to administer, be it in the payment of trustee services, bookkeeping costs, fees to law firms, CPA-CA offices for accounting and tax filings, etc. A further issue of course, is the character of the beneficiary. It’s not just if he or she is irresponsible with money and has an inclination to becoming an ‘out of control’ spendthrift. It’s also how far he or she might go upon learning about the trust. You see, a trust isn’t iron clad. It can be contested for reasons of fraud, errors, coercion, etc. to name a few. Furthermore, a beneficiary could attempt to circumvent or neutralize a trust, inter alia by borrowing money from a lender eyeing the trust as the means of repayment. Another consideration is that a trust needs to be established with great care. A big “No, No” is for a testator or testatrix, to use a trust in order to exercise some control over the heir (legatee) from the grave.
  • That on the other hand, should you attempt to keep funds invested outside a trust and limit the access by the heir (legatee) or use thereof under a certain age or ages, be informed that such might not be a good idea. Whilst this may seem reasonable in theory, I contend that age condition legacies are problematic as such may be voided in court and the assets ordered made over unto the beneficiary on reaching the age of majority;

C. CLOSING.

I repeat the questions put at the outset. Interested in senior living, retirement planning, making a will, seniors and money? Afraid of running out of money? Ever thought about your money, going …going… gone, once you’ve passed? Arranging your affairs before death? Getting your estate in order? Preparing a will? Want to protect principal or preserve capital?” If so, I submit that you need to confront the risk of an heir (legatee), obtaining in one shot, by way of a bequest (legacy) from a will, more money than he or she has ever before touched all at one time. Whether it’s an eye-popping sum or not, it’s a windfall any way you slice it. For some, the hard reality is that on receiving his/her inheritance, he or she will do things without fear or proper thought and burn through the capital like there’s no tomorrow! And in short order, he or she might be heard saying, “I’m toast!” Of course, the foregoing lottery winner case histories are food for thought. Indeed, you might cringe from the narrative swirling around these seemingly hapless people. Their stories might be stomach churning, but you need to know about them. And amongst my strategies and included ‘golden’ rules, while some might be hard to digest, there are no ‘half-baked’ ideas in any of them. Teaching is always in season. Gifting has its benefits. But when it comes to a trust, think hard and if you decide to do it, take great care beforehand in order to do it right! KNOW THAT IF THE TRUST ISN’T SUITABLE FOR YOUR ESTATE OR BADLY DONE, IT WON’T JUST UPSET A STOMACH OR TWO – IT WILL BE DOWNRIGHT POISON!

Today, my final word is “hope.” I hope that your money won’t do a disappearing act ‘after you go’ and once in the hands of an heir. While companies may rise and fall, I sure hope that financially speaking, your heir doesn’t ‘yo-yo,’ and ultimately fall short. Instead, my hope is that you’ll address capital protection in the fullest way possible so that after you’ve passed, your heir will live well enough in an on-going comfort zone. Now that’s a good use of your hard-earned money, isn’t it?*

D. PREVIEW OF NEXT IN THE ELDER LAW BLOG SERIES.

I believe that with this blog series, I may have started you along the way to being more aware of elder law. I will continue on with the subject of retirement planning, more particularly, estate planning, but now, seeing that we’re in Registered Retirement Savings Plan (RRSP) season, I will address some RRSP issues in the forthcoming blog. Interested? Want to get more information about the current topic, retirement planning or other areas of elder law written by an “avocat,” one of the family law lawyers, family lawyers Montreal, practicing in the elder law field? See you next time. It won’t take too much time. Remember my byline – it’s “Gold’s Legal Minute*GLM*!” And please don’t forget to join my professional community by entering your e-mail at the prompt.*

E. NOTICE – CAUTION –DISCLAIMER.

The material provided herein is of a general nature, strictly for informational purposes. The interpretation and analysis is not to be misapplied to a personal situation with a particular set of facts. Under no circumstances, are the herein suggestions and tips, intended to bring a reader to the point of acting or not acting, but instead, the hope is that they are to be a cause for pause and reflection. It is specifically declared that this content is not to be a replacement of, or a substitution for, legal or any other appropriate advice. To the contrary, for more information on these presents, related subjects or any other questions, it is the express recommendation of the author that everyone seek out and consult a qualified professional or competent adviser.

* ©/TM 2020, 2019, 2015-2018, Allan Gold, Practitioners’ Press Inc. – ALL RIGHTS RESERVED

** ©/TM 2006, 2008, 2018 Allan Gold, Practitioners’ Press Inc. – ALL RIGHTS RESERVED

 

 

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