Having Your Cake and Eating It Too

By Dave Zumpano, Estate Planning Law Center

Bob and Mary are 75 year-old couple who lived their life working hard and always saving a portion of what they earned.  Fortunately for them, they are able to maintain a comfortable lifestyle in retirement.  While not considered wealthy, their $500,000.00 of assets is sufficient to generate income, combined with their Social Security and pension, to ensure they remain independent. 

They have three children, and are proud of their family.  Not unlike most other families, however, it’s not perfect.  Their oldest son, Bob Jr., is a doctor and married with four children.  He is financially successful and has a strong family.  Their middle child, Maria, is a school teacher and married to Jim, who was a very nice guy, but is on his third business.  The businesses seem to work for a little while, but eventually fall apart.  Their youngest child, George, is married but has no children.  While diagnosed with multiple sclerosis, he shows no current symptoms, but understands later in life, it will appear.  Bob and Mary are not fond of George’s wife.  George and his wife live paycheck to paycheck, and never really seem to be able to make ends meet, but they are happy. 

Bob and Mary went to see an estate planning attorney.  In their initial meeting, the attorney asked a simple question:  What is it that you would like us to help you accomplish?  Just like many other clients that walk through the attorney’s door, Bob and Mary expressed how they had worked their lifetime, built what they had, and they wanted to make sure it was protected from the government, nursing homes, lawsuits, and other predators. 

They also indicated it was very important to remain in control and stay independent. They never want to become a burden to their children.  So, in essence, they wanted to remain in complete control and have 100 percent protection of their assets. They wanted to have their cake and eat it too.  Lucky for them, there was a solution.  The attorney reviewed the key estate planning issues to identify which were most important.  After identifying their goals and objectives, he recommended an iPug™ Protection Trust. 

An IPug™ trust is an irrevocable trust that, while is a separate legal entity, is not a separate taxable entity; it uses their Social Security Number.  The advantage is Bob and Mary can put their assets in the trust without any tax consequence and retain a favorable tax treatment after death that would not be available if they transferred the assets to their children during life.  In addition, since it is an irrevocable trust, their assets are protected from lawsuits, predators, creditors, and yes, even the nursing home. 

Bob and Mary were shocked to learn they could maintain full control of this trust by remaining trustee and they had the ability to retain the right to change beneficiaries, timing, manner, and method of distribution, all the administrative provisions in the trust.  The only caveat was, they had to agree they could never again access the principal.   

The iPug™ trust also permits Bob and Mary to retain all of the income from the trust, and have the entire principal available for the children, grandchildren or other family members, if needed.  In fact, it could be available to anyone, except them.  While they initially did not like the idea of giving up access, they were much more comfortable staying in control.  The reality was, they didn't want the money for themselves anyway but merely for the family. 

Bob and Mary were confused as they always were told if they create an irrevocable trust, they would not be able to control it or change it.  The estate planning attorney explained that for the last several decades, estate tax laws required those restrictions, but with the new laws, it is totally permissible.  Bob and Mary were thrilled, and immediately began planning to protect their lifetime of assets for their needs, and those of their family.

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