Beyond the Basics: Estate Planning Mistakes Part 3

When a publicly traded conglomerate offered $20 million for my clients’ landscaping business, they asked me to accompany them to a private, white-glove luncheon in the apex ballroom of Orlando SunTrust Tower. A top-level bank executive wined & dined us while extolling the “benefits” of appointing SunTrust as corporate Trustee of my clients’ funds. When he paused to take questions, I asked, “So, if SunTrust was the Trustee, how exactly would you manage my client’s $20 million”.  My jaw literally dropped open when the executive host enthusiastically proclaimed that they would “naturally” invest a significant portion of it in SunTrust stock. 

My advice: Charging you a fee to invest your money in things that make them a profit is an expensive and avoidable conflict of interest. Never appoint an advisor, bank, brokerage or trust company as your successor Trustee when they also manage your trust assets. John and Ellen each had a Living Trust, but for asset protection purposes, their assets were all held Jointly as Tenants by the Entireties. The plan was to transfer everything into the surviving spouse’s trust upon the first death, but John died at an unexpectedly early age, and Ellen passed away shortly thereafter. The residence, bank and brokerage accounts, and cabin cruiser were all probated, and the Hamptons vacation home was subject to probate twice; first in New York and then in Florida.

My advice: Don’t wait to transfer ownership of your assets into your trust. And if asset protection is a priority, seek guidance from a specialized asset protection attorney to incorporate it into your estate plan.  Alice passed away owning a $1 million life insurance policy that named her son Brad as beneficiary.  As owner of the policy, the entire death benefit was included in Alice’s gross estate. And, since the estate tax exemption was only $600k at that time, $400k of the death benefit - and everything else  Alice owned - was subject to federal estate tax.

My advice: Examine the benefits of a life insurance trust.  Lenny and Glenda owned a $3 million business on a $3 million parcel of land in Sarasota. As far as they were concerned, their estate plan was pretty simple; the son who was employed at the company would inherit the business, and the daughter would inherit the land. It quickly became less simple when I pointed out that the business didn’t currently pay rent, which was very likely to change when the daughter becomes the son’s landlord and she wants some actual income.

My advice: Business owners must find a plausible dovetail between business and personal.

Author: Michael T. Koenig, CFP®, J.M., the Founding Partner of FirsTrust, LLC, candidly shares his experience as a financial advisor to advocate truth and transparency for financial service consumers.  His education and experience includes a bachelor’s degree in psychology from the University of Maryland, a master’s certificate in finance from George Washington  University, a Juris Master of Law.