
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.
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