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Call an Attorney When a Loved One Dies – Even When You Have a Revocable Trust

When Arthur died, his investment accounts were properly titled into his revocable trust, “Arthur Client, Trustee for the Arthur Client Trust dated October 2, 2017.” His financial advisor, Mike, consulting with Arthur’s widow Vicky, retitled Arthur’s investment accounts into Vicky’s trust.

“You don’t have to call the attorney,” Mike told Vicky, “I already took care of everything.”

Except he made a huge mistake that could have cost his malpractice policy had I not learned what happened and intervened.

You see, Arthur and Vicky were in a second marriage and each of them had children from a prior marriage who were the ultimate beneficiaries of their respective estate plans. Arthur’s investment accounts were to be held in a continuing marital trust for Vicky, then upon Vicky’s death they were to be distributed to Arthur’s children.

If everything remained comingled in Vicky’s trust, Vicky’s children would have inherited not only her investment accounts, but Arthur’s too. “I thought that Arthur left his investment accounts to me!” Vicky said, shocked.

I explained that Arthur’s trust continued for her benefit but weren’t to be distributed outright to her. What her financial advisor, Mike, had done was to illegally disinherit Arthur’s children. They certainly would have filed a malpractice lawsuit had the transaction not been reversed.

“What if I just added Arthur’s children as beneficiaries to my trust?” Vicky asked.

“There are a number of problems with that,” I answered. “While you’re entitled to the interest and dividends from your accounts and from Arthur’s, you’re supposed to exhaust your own assets for your care before invading the principal of Arthur’s accounts. Also, the values of your respective accounts are different, so keeping track of the relative percentage interests that should be distributed to each family upon your demise would be impossible to calculate.”

What about those in first marriages who have separate trusts and the same beneficiaries? Can’t those couples just combine all the accounts in the surviving spouse’s trust at the death of the first spouse?

The answer is that it depends.

Often couples have separate trusts to protect the assets. If the surviving spouse were to remarry without a nuptial agreement, for example, the new spouse would be entitled to any assets held in her name or in her trust. The new spouse would not be entitled to assets held in the decedent spouse’s trust.

Another scenario is where the surviving spouse were to have a significant liability such as a car accident, mortgage foreclosure or significant nursing home expenses. Retaining a separate trust for the surviving spouse as opposed to combining the trusts might lead to better outcomes for the ultimate beneficiaries after the surviving spouse passes.

Finally, for wealthier individuals, there are tax reasons to retain separate trusts. While the first decedent spouse’s unused estate tax exemption can be added to the surviving spouse’s exemption, (but you need to first file a Federal Estate Tax Return Form 706 or that exemption is lost forever,) the unused generation skipping transfer tax (GSTT) exemption cannot be transferred to the surviving spouse. The only way to use the first decedent spouse’s GSTT is to maintain separate trusts.

A knowledgeable estate planning attorney will know what to do in the event of a spouse’s death. There are certain legal requirements that must be met in a trust administration. Among them: having the successor trustee publish a notice with the court who he or she is and where one can reach them, to actually “fund” the testamentary trusts for the surviving spouse or other beneficiaries, obtaining new tax identification numbers and naming the new trustees on the accounts, providing accountings and making outright distributions, and filing tax returns, among other things.

Sometimes a financial advisor or CPA will try to play a hero role to look good and save the client legal fees. Remember that those professionals aren’t licensed to practice law, and a trust is a legal instrument. If you care to look, there’s an entire chapter of the Florida statutes, (Chapter 736) devoted to trust administration matters, and entire chapters of the federal tax code (Subpart E of Chapter 1, and Chapters 11, 12, 13 and 14) that all may influence a deceased loved one’s trust administration.

Making snap decisions that are difficult to undo, especially if the mistake isn’t caught for some time, can cost the estate several multiples of legal fees to fix, in addition to the cost of potential for lawsuits filed by beneficiaries whose inheritance was affected. Call the attorney, even if your financial professional or CPA says they can handle it alone.


© Craig R. Hersch – learn more at

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