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Q&A: Inheritances

May 05, 2014 | | Comments Comments Off

Dear Liz: You’ve been writing about people who expect inheritances they don’t get. Here’s another situation. My elderly dad thought he’d tied up everything in a trust, but his surviving elderly second spouse regularly invaded the principal instead of just receiving the interest. She would simply call her broker and ask for whatever she wanted. The broker, not being a knowledgeable trust officer, would send her the money. Finally, to soothe a fretting sibling, my husband and I paid for an estate lawyer to move the trust from Stepmom’s broker to a good third-party trust institution. It took more than a year plus paying a fee (OK, a bribe) for Stepmom to relinquish her direct access to the trust. She continued to receive the interest and was quite well off. She never did understand why we thought she was doing something wrong.

Answer: People set up trusts for a variety of reasons, but the type you’re describing is usually used to preserve an inheritance for the children while allowing the surviving spouse to live off the income. These trusts typically allow the survivor to tap the principal for certain purposes (“health, education, maintenance and support” is the usual phrase used). A trustee who’s asleep at the switch may allow the spouse to dig too deep, which not only reduces the children’s inheritance but also endangers the whole structure of the trust, which is designed to save future estate taxes. Your investment in hiring a competent trustee could save a lot of expense and hassle in the long run.

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Categories : Estate planning, Q&A