Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, December 19, 1994 TAG: 9412190015
SECTION: BUSINESS PAGE: A10 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Medium
I have already paid the probate tax on half the value of the house, but I have not yet set up the official trust fund. My sons are to be the trustees, and I understand that they must personally appear at the county courthouse to draw up the papers. This is a difficulty because they both work. One is in California and the other in Washington, D.C.
What is involved in setting up the trust? Is there no way this can be done without their personal appearance? How do they handle the trust once there are actual monies involved? Would I be better off naming an institution as trustee, and what happens then if I move out of the area?
A: N.A. Ammar Jr., an estate and tax specialist with the Roanoke law firm of Wetherington, Melchionna, Terry, Day & Ammar, suggested a completely different course of action for you.
He said your husband's will established a testamentary trust, which presumably will benefit you for your lifetime, and then be divided between your two sons. Because the only asset that will fund the trust will be a half undivided interest in the personal residence, Ammar said you may wish to consider alternatives to avoid needless estate administration.
Otherwise, he said, you will have to have your sons qualify unless they waive their right to serve in favor of another individual or possibly a bank or trust company. Since the only asset is the personal residence, it probably would not be appropriate to appoint a bank or trust company because of the size of the trust. An individual who is a Virginia resident may be appointed in order to avoid the requirement of nonresidents posting surety on their bonds when they qualify.
The best solution may be for you to disclaim any interest in the trust (assuming you do have a lifetime interest), thereby transferring your husband's one-half undivided interest in the property directly to your two sons. Thereafter, Ammar said, each of your sons would own a one-quarter undivided interest, and you would have the other one-half undivided interest.
To be effective, Ammar said, the disclaimer must be made within nine months from the date of your husband's death. The Virginia statutes dealing with disclaimers must be followed so that the disclaimer instrument is properly filed with the court in which the estate is administered.
Ammar said the effect of the disclaimer would be to have the property pass as though you had died before your husband. Therefore, if the trust were to provide for distribution to your sons upon the death of the survivor as between you and your husband, then the distribution of the interest in the property would pass to your sons without the need of any administration, since the disclaimer will relate back to the date of your husband's death.
Always a risk
Q: Are annuities risky like mutual funds? I'm very much interested in information regarding annuities.
A: Mutual funds are a type of investment, but annuities are an investment structure in the same sense as an Individual Retirement Account is. Just as you can invest your IRA money in a mutual fund, a bank certificate of deposit or almost anything else, you can buy an annuity and make a choice about how to invest the money. Your annuity might be invested in a stock fund or in a contract with a guaranteed return of interest.
Annuities have some advantages. Like an IRA, earnings on an annuity accumulate on a tax-deferred basis until you withdraw the money. And when you retire, you can elect to receive payments for a specific number of years or for the rest of your life, no matter how long you live.
A disadvantage is that you must lock up your money for a long time because annuities have stiff penalties for withdrawing the funds in the early years of the contract. Check these terms on any contract you buy. You must invest only money that you are sure you will not need before retirement.
The greatest risk factor is the soundness of the insurance company from which you buy the contract. Policyholders of the former Executive Life Insurance Co. can tell you about threats to their financial security after the company foundered. Do not buy unless the company has top grades from two or three rating services. Ask for this information before you buy, because you are depending on the company to insure your funds.
Don't be deceived by a high initial rate; the higher the rate, the more likely it is to fall fast after the introductory period. Ask about the rates being paid to existing policyholders. Demand and evaluate as much information as possible. Remember that the bank, broker or insurance agent selling you the policy will earn a commission on the sale.
by CNB