SENIOR MOMENTS: Re-thinking Your Living Trust

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By Phil Shigekuni
(First published in
 The Rafu Shimpo on Dec. 13, 2011.)

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Laurie, our recently turned 50-year-old daughter, was a featured speaker at a conference in Las Vegas at the California Club a couple weeks ago. She is an attorney who has practiced in the area of wills and trusts for the past 15 years.

We love going to Vegas, and as you might imagine, it didn’t take too much thinking for Marion and me to decide to join Laurie. She and one of her associates, Fanny Wong Tagawa, spoke at the 11th annual conference of the Alliance of Asian Pacific Administrators (AAPA).

The organization is made up of active and retired school teachers and administrators for the L.A. Unified School District. AAPA has raised and awarded over half a million dollars in scholarships to students of L.A. Unified. I served as a high school counselor for many years and have been retired from L.A. Unified for 17 years. It was fun to talk again with some old friends.

As many of you are aware, the JA community is small and interrelated. So many people we have met are either friends of others we know, or are somehow related to those we know. The president of AAPA is Dean Tagawa, Fanny’s husband. Dean’s mother is Georgia Tagawa from Phoenix. Georgia is the sister of our recently deceased dear friend, Adeline Shoji, who was a beloved school administrator.

It so happened that Marion and I took a trip to South America a few years ago with Adeline, her husband Butch, and Georgia. Reconnecting with Georgia brought back fond memories of Adeline and the good times we had together.

So all this is to lead up to the subject of Laurie’s presentation. As she pointed out in her opening comments, loving parents take the time and effort to create wills and trusts to make sure their loved ones are adequately provided for after their passing.

Many of those attending the conference already had their wills and trusts in place. However, Laurie noted that living trusts created a number of years ago should be reviewed.

I’ve asked Laurie to review this next part for accuracy and, though it shouldn’t be taken as legal advice, she tells me the following is basically right.

When Marion and I had our first trust written, one major consideration was to make sure our beneficiaries would pay as little or no estate taxes, if possible. Twenty years ago, if a couple’s assets—that is, all their money, as well as the gross value of their home—added up to more than $600,000, the amount over $600,000 was assessed an estate tax at death.

So how did we handle this? We created an “A-B” trust, also known as a split trust or bypass trust. Our trust at that time provided for our assets to be split at the time one of us died, with half flowing into an irrevocable, separately taxable bypass trust. This arrangement would have allowed us to take the $600,000 exemption from estate tax twice: once for each half of our assets, so we would not pay estate tax if we had less than $1.2 million overall.

For those who died a few years ago with A-B trusts, this worked very well for their estates. However, Laurie explained, when a couple’s assets are split in half under the A-B rules, only half the assets remained under the control of the surviving spouse. The money in the deceased spouse’s half – the irrevocable part – was typically held in trust with severe restrictions.

For example, only the interest from the money could be used for the surviving spouse to live on. In many instances, this amount was not enough to live on comfortably when combined with the savings in the surviving spouse’s trust.

That’s the bad news. The good news for estate planning is that, in more recent years, the $600,000 limit on the estate tax exemption has been significantly raised, currently to $5 million. So for now, a couple with any ordinary level of assets does not have to worry about dividing assets for estate tax reasons.

Since Congress continues to change the estate tax limit almost every year, the better type of trust is a more flexible disclaimer trust. This type of trust allows the surviving spouse to decide after the first spouse’s death how much, if anything, to lock away in an irrevocable trust. The surviving spouse can choose to retain full access to all of the couple’s assets, unless tax reasons at the time of the death call for a different decision. Therefore, there is more control and flexibility given to the surviving spouse in regard to the assets by their beloved.

Another topic covered by Laurie and Fanny was long-term care and its implications for Medi-Cal. Not to be confused with Medicare, Medi-Cal is the California form of the federal Medicaid program, designed for low-income individuals. Medicare is the federal health program designed for everyone over the age of 65.

You might ask, what does Medi-Cal have to do with one’s living trust?

Well, you can become low-income surprisingly quickly by staying in a long-term care facility. The cost for a year’s stay can cost up to $80,000. Even with long-term care insurance, a person receiving such care can end up having to apply for Medi-Cal. A properly drawn living trust and power of attorney can preserve some assets for the rest of the family when this happens.

A properly drawn living trust and power of attorney can allow you to pass on your home to heirs despite receiving Medi-Cal assistance. Usually after the death of a person who received Medi-Cal, the state can recover funds paid out by making a claim against the equity on the family home. Most people have worked hard to own their home. Passing it on to your children is much more preferable than giving it to the state. It makes a lot of sense to plan your estate so your heirs can receive your home.

Working with many clients over the years, Laurie notes that many people lose track of the details of their trust, which may have been drawn up many years ago. In addition, to being a more dated trust, there have been significant changes in the law that would affect a trust.

Laurie and her associate, Fanny Tagawa, have an office in Pasadena. If you would like to have more information on living trusts, or would like to have them examine the trust you already have, the office offers a half-hour no-cost examination. Laurie may be reached at 800-417-5250 or by email.

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Phil Shigekuni can be reached by email. Opinions expressed in this column are not necessarily those of The Rafu Shimpo.

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