JEFF REED'S

WEEKLY RANT!

 Issue 16                                                                           August 27, 2010
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A Bit of Insight.....

A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it starts to rain.
 
Mark Twain
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Tiny Man

B Trust Basics

Well, maybe not so basic. 

This is the first of a three part series on B Trusts, Life Insurance, Modern Portfolio Theory (MPT), and playing nice with others.  As usual, I will keep it as brief and to the point as possible.

First, the B Trust. Also known as a Credit Shelter Trust, this is the trust that holds the assets destined for the next generation, and is also used to provide income for the surviving spouse during their lifetime. Typically funded with an amount equal to the current Unified Credit, this trust is outside the taxable estate of the surviving spouse.  For more on this aspect of our discussion, click here.

So far, very simple, and you are all more than likely well versed in this fundamental aspect of Estate Planning.  Things become a little more complicated, however, when we start to take a look at the trust assets, and how to manage them.  The two goals of current income for the surviving spouse and preservation or growth of the assets for the ultimate beneficiaries appear to be in direct conflict, and it is up to you as the advisor to assist the trustee in navigating these treacherous waters.  Just what are they up against?  The Uniform Prudent Investor Act (UPIA).

The UPIA was drafted back in the 1990's and has begun to attract attention recently based on case law finally hitting the courts.  The Cochran case out of Indiana has provided reams of analysis on the topic.  The bottom line is that there is now a much clearer set of guidelines for trustees to follow if they want to meet the definition of fiduciary duty to the trust beneficiaries.  Now just imagine the potential for conflict if the surviving spouse is the trustee?  While we all think that every family will get along famously, enough of us have seen evidence to the contrary.  Click here for more on the UPIA and the Cochran case.

My last thought for today is to re-visit a long standing sales idea - owning life insurance inside the B Trust to leverage the asset.  This is something we have been doing for years, and is a great way to increase the amount passed to the beneficiaries.  Click here for a summary of the concept.  The question now is what impact, if any, does the UPIA and recent case law have on this idea?

Great question, and one we will answer next week.  Here's a hint - Modern Portfolio Theory will help guide us along the way.

Look for a special mid-week edition of the Rant next week as we continue this discussion.

Jeff Reed
President
Reed Insurance Consultancy

Marketing Director
Cavalier Associates
Co-Founder
Insurance Analytic
858-427-1643
jeff@cavalierassociates.com
10601 G Tierrasanta Blvd. #346 San Diego CA 92124