Last week I had the opportunity to both present and learn at The Estate Plan’s annual Advanced Institute, and this year it was held in Nashville, Tennessee. While there are always huge opportunities to learn about cutting edge estate and tax planning issues, we were fortunate enough to arrive early and do a few non-work things. On the Saturday before, we stopped off in Lynchburg to tour the Jack Daniel’s Distillery and see their world famous “Tennessee Whiskey” being made. We were also fortunate enough to get the guided tour from Dusty, a grandson of the second Master Distiller whose mother and brother also work at the distillery.

We also learned a few interesting facts about Jack Daniel himself, including that he was only 5’ 2”, never married, and ended up dying after kicking the company safe in frustration and getting an infection in his toe that spread. It was also interesting to learn that his nephew Lem Motlow, who took over and owned the distillery during Prohibition, avoided becoming a bootlegger and instead helped overturn Tennessee’s laws by instead becoming a state senator. And while Lynchburg resides in a “dry” county where sales of alcohol remain illegal, there was a special provision created by Tennessee legislature that allows Jack Daniel’s to be sold at the distillery, but only in special commemorative bottles that can not be found outside of the state. While we were able to get some pictures, photographs were not allowed in most of the distilling areas. For a free tour, it was well worth driving out of our way.

On the Sunday before the conference we were able to spend some time with staff members from The Estate Plan, including CEO Geri McHamm and new marketing specialist Zoe Avery and her husband Rodney. What Kathy and I thought would be a quick breakfast turned into lunch because we happened to go to The Loveless Café, which has been sometimes dubbed the world’s most famous breakfast restaurant. Our timing wasn’t the greatest and we ended up waiting for an hour and a half. Once I tasted the fried chicken, I decided that it was well worth the wait, and it is no wonder it is considered “world famous”. It truly is one of those American small business success stories that managed to stay local. The original owners started out selling friend chicken to people traveling along the highway, and once word caught on they had to rearrange their house to provide several eating rooms and establish a few motel units. Today, they also have a country store and several other shops (that incidentally make the waiting for a table much more bearable). While many people commented that The Loveless Café should “go franchise” and establish restaurants across the country, a group of Nashville citizens wanted to see the Café never lose its charm. They ended up buying the restaurant from the Loveless family with the stipulation that it remain local. Thankfully, they do have an online store where you can get things like dry rub and chicken seasonings, and while it’s the end of Summer, I plan on grilling well into the Fall with them.

While it was nice to take a few days off, Monday morning came early and the programs started. While there were plenty of sessions and I could bore you with details on every one, there were three that have particular relevance to many of my clients—IRA Trusts, Trust Funding, and Special Needs Planning.

What should be one of the most used estate planning tools in recent years has been largely ignored, and I was pleased to be able to share the concept with the attendees. One of the reasons I wrote The IRA Trust: Turning Inherited Retirement Accounts Into a Financial Dynasty is because there is very little knowledge in this area and my one page, legal pad drawings only left clients intrigued but with questions. In outlining the concept for the advisors and attorneys, I went through the different options with avoiding probate and expanding tax opportunities for clients. The basics are:

  • Your clients can name their revocable living trust as a beneficiary of their retirement accounts (usually each other as the primary beneficiary if a couple and the trust as the contingent beneficiary, or with the trust as the primary beneficiary if not part of a couple.) This means that all of the different contingencies, age limits, and beneficiary protections from creditors, divorcing spouses and Medicaid apply. However, all of the taxes have to be paid in a short amount of time and the money now has to be placed in taxable investments.
  • Your clients can name their beneficiaries directly without the trust, and now they have the tax option to place the funds in an Inherited IRA and take distributions over their lifetime and pay the taxes on the distribution. Meanwhile the investments that remain in the Inherited IRA grow tax-deferred. However, all of the all of the different contingencies, age limits, and beneficiary protections from creditors, divorcing spouses and Medicaid that come with the trust are lost. Also, there is nothing to prevent the beneficiary from taking all of the money out early despite any tax consequences.
  • The third option is to create a separate IRA Trust and name that as a beneficiary, and the beneficiaries you choose are now beneficiaries of the trust. The trustee of the trust controls the distributions so it will not be wasted, and now all of the different contingencies, age limits, and beneficiary protections from creditors, divorcing spouses and Medicaid also apply. And if the beneficiary legitimately needs money for an emergency, the trustee can provide it. Basically, your heirs get the best of the asset protection and tax worlds for the beneficiaries.

Sounds like a great opportunity for clients with significant retirement assets, doesn’t it? It is, and this is one of the things I’ve been discussing with trust clients in annual review meetings this Summer with many setting one up. Between the presentation at the Advanced Institute and the review meetings, I’m out of my entire stock of books and had to place a large order with my publisher. The book can be purchased online at .

The second relevant presentation was done by Eli Combs, a financial advisor from Texas who shares my concern about trusts being properly funded. (He also shares my love of White Castle, which we were able to get after the conference but before his flight back, but Jeff and Eli Go To White Castle is another story for another time.) In short, funding revocable living trusts is making sure that all assets are properly titled and/or have the right beneficiary designations assigned to avoid probate. Each asset is different, but unless all of the assets are handled properly, the revocable living trust will not avoid probate for those assets.

The story I usually tell to illustrate this point is a gentleman created a revocable living trust in California through an attorney affiliated with The Estate Plan. When he found out he was dying of cancer, he liquidated everything (or so we thought) and placed all of his money into a savings account in the name of the revocable living trust. He then moved to North Carolina to spend his final days with his daughter. Once he passed on, I was called in by the daughter to help settle the trust. I reviewed the trust and discussed that his savings account was his only asset, so I was able to tell her that all she had to do was get three cashiers checks to close the savings account so she could pay herself and her two brothers. She said (paraphrasing) “That’s great! That’s wonderful! What about the three stocks Dad had and liked to look up online every day. Those weren’t in the trust.”

While the savings account had more than $600,000 in it, the stocks had a collective value of about $12,000, so, relatively speaking, it was a minor asset. However, it then took eleven months to get the account through probate, the three stock companies were a nightmare to deal with, and we ended up having to charge $3,500 for our services (and, believe me, we low-balled those fees because we felt bad). In addition, the stocks were tied up and unavailable for sale during the market crash of 2008 so they lost about a third of their value. In all, the family got less than $4,500 of the $12,000 because these three stocks were not in the trust. It probably would have taken a few hours to retitle the stock accounts in the name of the trust, but by ignoring the “minor” assets probate and the market took almost 2/3 of the value away.

To help our clients’ families avoid these problems, we are now aggressively trying to get all of our trust clients to come in once a year to review their assets and update them on changes in the law. As an encouragement, we are also only charging $100 for these one-hour meetings, which is less than half of our usual hourly rate. While we have already contacted clients by letter, if you have not taken the opportunity to meet with us yet, then please call 919-844-7993 to set up a time for this review. The peace of mind alone is worth the time and cost.

The third presentation with quite a bit of relevance was special needs estate planning, and it was presented personally by The Estate Plan’s CEO Geri McHamm. While special needs estate planning has been a mainstay of my law practice for many years, it was good to get a concise overview and update from The Estate Plan’s top officer. In explaining the two main kinds of plans to clients, it is probably best to go back in time to a previous article I wrote in April of last year:

  • “There are two main routes to take in creating a protection for a special needs beneficiary through a trust. The first is ensuring that special needs trust provisions are created through overall life and estate planning documents such as wills or a revocable living trust. The second is by creating a separate special needs trust for the beneficiary. Depending on who will be giving money to the support the child, one or the other method should be utilized.
  • In creating a complete plan for the parents, special needs trust provisions can be incorporated into the revocable living trust or last will and testament so that any funds left to the special needs child will be sheltered. The trustee appointed, typically a sibling to the child or other close relative, will control all of the funds left to the child after the parents have both passed on. Now the assets are available to buy the items and services the child needs without cutting off support from the government. In creating a complete plan, however, the parents are also outlining how other assets will be distributed to other beneficiaries as well as creating financial powers of attorney, healthcare powers of attorney, living wills and other healthcare related documents. The main drawback with this set up is that only the parents can leave assets to the child through this trust, at least until they have both passed on. This is because the trust provisions are not active until the parents have passed on. If there are grandparents who wish to support the special needs beneficiary, they would have to create their own plans and documents.
  • The second route allows for more flexibility in who can leave money to the special needs beneficiary because it creates a trust that is active right away. The provisions are similar to those contained in the special needs section of a revocable living trust, but it is its own separate entity. All of the general life and estate planning documents for the parents must still be done, but instead of the provisions of the Will or Revocable Living Trust creating the trust, they simply name the separate special needs trust as the beneficiary instead of their child. And now grandparents, siblings, or anyone else can name the special needs trust as a beneficiary in their own Wills and Revocable Living Trusts rather than incorporating the special language to protect the inheritance.”

When discussing special needs planning with my clients to protect their loved ones, it becomes all the more relevant in a down economy to make sure that benefits are not jeopardized by incorrect planning. This is especially true since the right planning solutions are actually a lot more stable and consistent over time than the eligibility rules ever were or will be.

While the conference seemed to come to a close too quickly, I think everyone left with a renewed sense of purpose in making sure they did everything they could to make sure that their clients had the right documents in the right place at the right time.