Last week I presented (along with the wonderful Deborah Radin) at the Avenidas 2023 Conference on Housing.  It was a great conference put on by a fabulous organization.  My presentation focused on how to build a team of professionals, family members and friends to support us as we age.  I liberally stole some material from an earlier blog post I wrote -  Who's on the Trust Team?  - but updated it with an overall framework for creating the team.

In building a team, it's good to start with the basics - Who, What and When:

Who do you trust?  Obviously, you should trust all of your team members, but you will have stronger relationships with some.  This person or people may not do all the heavy lifting, but they should be central to your team.  This may be a family member, a friend or a long-time professional advisor.  You may want to structure your team with this person or people in a role that oversees or approves the actions of others.  In other words, they may not DO the work, but they should be AWARE of the work and be able to intercede if necessary.  That can be a formal role like Trust Protector or Durable Power of Attorney for Medical Care, etc.  

What do you need done?  What are your strengths?  Where do you need help?  This is where you can supplement the team with specific skills: financial, medical, tax, caregiving, technology, etc.  Perhaps you've never been strong in one of these areas.  Perhaps you feel like your skills or knowledge are out of date.  Perhaps you've simply lost interest in managing this part of your life.  In any event, this is your opportunity to add a team member who can help.

When will you need help?  The reality is that most of us will need more help as we age.  Your teambuilding plan should take that into account.  Choose your team members before you need them.  Keep a list with contact information so that your team can quickly contact each other and work together.  

We can't plan for every eventuality.  But we can make some educated guesses about what we may need as we age.  A little proactive planning and communication can set you up for most situations, provide peace of mind and increase the chances of enjoying life in your later years.

One of the great joys of living and practicing in the Bay Area is that I get to work with people from different cultures, belief traditions and approaches to old age.  My local family is mostly Irish (with a few Italian cousins), my mother is from Spain and I married into a Texan family with deep roots in the American South.  My brothers-in-law are Jewish and Greek.  Even within that European heritage, I can see different perspectives on aging and how to care for our elders.  And in my practice, I see much wider variations across cultures from around the world.

The first thing to know is that any blanket statements should be taken with a large grain of salt.  The particulars of family dynamics trump cultural differences every time.  Tolstoy wrote "All happy families are alike; each unhappy family is unhappy in its own way."  What that means in practice is that when things are working well in a family, elder care tends to be taken for granted.  Although there are always some issues and friction, some families just take care of business, with different people taking different roles and working together to support their parents, grandparents, etc.  When there are deep rifts in a family, they really show up when the family is put under the stress of taking care of an elder who may not be able to care for themselves any more.  That's true in every culture.

That being said, I have noticed a few broad cultural differences in my clients and their families.  In many Western cultures, such as in the United States and Europe, there is a focus on individualism, independence, and self-sufficiency. Older people are often encouraged to maintain their independence for as long as possible and may choose to live on their own or in assisted living communities. There is also a strong emphasis on the role of the family in caring for older relatives, but this responsibility may be shared among siblings or other family members rather than falling solely on one person.  When there are no children and siblings are not nearby or are also older, I am sometimes asked to step in to manage the client's financial affairs and/or to administer their Trust.

In some other families, particularly with Asian or Latino heritage, there is a greater emphasis on interdependence and the importance of family relationships. Older people are often expected to live with their adult children and play an active role in the family, such as providing childcare for their grandchildren. In these cultures, there is often a sense of obligation to care for older relatives.  I often work with children or nieces or nephews in these cases to provide specific help, with the relative working together with me.  In other words, I am part of a team, not working alone.  In these cases, I might be a resource for the family in some particular area (typically to manage financial affairs or to help with caregiving and household staff).

Bear in mind that none of these approaches to aging is inherently better than others.  I have clients who are fiercely independent and accept support only grudgingly.  I have others who are more comfortable leaning on family (and/or me) to manage some or all of their needs.  As an important part of their team, it's my job to support them in the way that makes the most sense for their values and traditions.

One of the initial tasks of my engagements as a professional fiduciary is to "marshal the assets" of my clients.  That means finding all the bank accounts, insurance policies, investments, real estate, credit cards, etc. that are held by my clients.  Some of those assets may be held in a trust.  Some may be held in a deceased spouse's name.  Some provide statements, some do not.  It can take months, even years, to find everything.  And even then, there's some lingering doubt that we've found everything.  It's a kind of forensic accounting scavenger hunt (the most boring kind of scavenger hunt).

Some of these accounts are so small that the cost of finding them, contacting the financial institution, generating the required documentation and consolidating the funds can outweigh the value of the asset.  But they legally have to be hunted down, consolidated and treated as part of the trust's assets in any case.

One of the process improvements I've implemented in the last few years is to work with my older clients to "tidy up" their financial lives.  This not only makes things easier in the short run, in terms of documentation for taxes and keeping track of of all the accounts, but it makes it much easier when it is time to execute the terms of the trust.  It lowers costs for everyone involved and reduces the chances of errors and omissions.

What does "tidying up" mean in practice?  It might be helpful to go through the list below:

• Create a list of all financial accounts and assets.  
• Add any pertinent information:
• Contact information for the institution
• Account numbers
• Name of any person that you worked with at the institution
• Rough estimate of value
• Username and password (this should be kept separate from the information above)
• Identify assets and accounts that are not providing value as a separate asset.  Some of these may be left over from a previous employment or from an investment that made sense at the time and that you simply haven't had the time to unwind.
• Consolidate these assets into the most appropriate accounts (take into account the tax implications of selling appreciated assets).  The goal is to reduce the overall number of accounts and assets.

If you or your client has been lucky enough to have accumulated some wealth AND are in a situation where you are in a high-income tax bracket at the moment, you may want to investigate Donor-Advised Funds (DAFs).  They offer a way to donate to the charitable causes of your choice while taking advantage of immediate tax deductions.  A DAF is simply a private fund administered by a third party and created to manage charitable donations on behalf of an organization, a family, or an individual.  The graphic below may help.

My clients have a wide range of concerns about their estates but one of the most common is what will happen to family heirlooms (or any items of sentimental value).  They want to pass those precious items down to future generations and they don't want their heirs to fight over them.  

Fairly dividing items of high emotional value is tricky.  It is made even more complex by family dynamics and shifting memories ("Mom said I could have it because I reminded her of Aunt Mary!").  There are a few tricks to getting through the process as painlessly and fairly as possible, as long as everyone agrees to certain ground rules.  

Decide Who Gets What, Then Write it Down

The cleanest approach is to make these decisions with a clear head long before any crisis.  Inventory the most important items, list them and clearly note who is to get what.  You don't need to justify or explain your decisions - that can lead to unintended hurt.  Once you have gone through that process, share the list with your heirs.  Your decisions may cause some awkward conversations but far better to do it when everyone is in a stable place than surprising somebody after your death, when they will be emotionally fragile.

Appoint an Independent Trustee

Even with your best intentions, there will likely be some items that are not listed (perhaps you didn't realize the attachment your heirs have to an item or you simply left it off the list).  In that case, it's best to have somebody as objective as possible to adjudicate the distribution of items.  If you have a professional trustee, it is typically that person.  Or it can be a family member or friend who is not part of the group receiving the heirlooms.

Put a Process in Place (and Stick to It)

There are a couple of classic processes that professional fiduciaries use to fairly divide items that have not been specifically designated by their clients for one of their heirs.  They aren't fancy by design and sometimes look like playground techniques for choosing teams, but they tend to work better than more complex schemes.

Pick Out of Hat

Simply inventory all the items and write them down on slips of paper.  You can put them all in the hat at the same time, or roughly categorize them into groups of equal value and have several drawings.  Each heir pulls from the hat and the trustee keeps track of who drew what in a master list.  In some versions, heirs can "trade" heirlooms to accommodate the different values that they may place on the items.

Round Robin (or Draft)

In this version, heirs draw numbers from a hat to determine their picking order.  Then each heir, choosing in order, selects the heirloom of their choice until all of the items are chosen.  A slight variation is for the draft order to "snake."  That is, the last picker gets to choose twice, then it goes to next-to-last and then backwards through the list.  For example, the first three rounds for a group of four heirs would look like this:

First >> Second >> Third >> Fourth

Fourth >> Third >> Second >> First

First >> Second >> Third >> Fourth

Auction

Assign each heir a set number of points (for example, 1,000 pts).  Then present each item and have each heir provide a sealed bid (that is, not public) for that item.  This is somewhat more complex and prone to problems, but has the advantage of allowing each heir to independently value each item.  For example, perhaps Mom's pearl necklace is worth lot to one daughter, while the other daughter places more value on Mom's handwritten recipe book.  This method removes some of the luck element of the other methods and allows each daughter to bid what each item is worth to her.

No matter which method you choose, the most important thing is to be transparent and clear.  Nobody should feel like they have been left out or didn't know what was going on.  Overcommunication and inclusivity are your friends in this process.

The term "Dynasty Trust" conjures up visions of landed estates being passed down through the generations, with perhaps a staff of groundskeepers and butlers staying on to teach life lessons to the little rich kids.  Real Downton Abbey stuff.  Or perhaps it reminds you of the early 80's TV series (it truly was not the Golden Age of television).  

But, in reality, Dynasty Trusts can be used to pass down and protect assets in a variety of situations.  Fundamentally, they are just trusts that name someone in the family other than the grantor's children as the beneficiary.  The most common scenario is to name the grandchildren.  They were originally created for very wealthy families, to avoid the Generation Skipping Transfer Tax (GSST), which Congress enacted back in 1976 to close a loophole that allowed families to avoid estate taxes.  The GSST is pretty steep, at a flat 40%, so there is a strong incentive to avoid it.  However, the GSST estate tax exemption is $12.06M (in 2022) so most of us don't have to worry about it.  For those who do, though, a Dynasty Trust can be helpful.

What does a Dynasty Trust look like?  The graphic below may help. Throughout the life of the trust, the trust provisions control who can benefit from the trust and to what extent.  That is, there can be limitations on the ability to draw income, access principle, what the money can be spent on, etc.  This can be a useful tool if the grantor suspects that one or more of the beneficiaries may be a spendthrift or otherwise use the assets in some way contrary to the wishes of the grantor.

There are any number of areas where human ingenuity runs wild.  Art, warfare, sex, the Marvel Universe, sports statistics - all these subjects compel crazy creativity and obsession.  Based on my experience as a fiduciary, I think we can add tax avoidance to the list.  Literally millions of hours are spent annually on complex schemes designed to keep as much money as possible out of the hands of tax authorities.  People will go to great lengths to shave even a tiny fraction off their tax bill.  For some it's a principle ("It's my money and the government shouldn't get any of it"), while for others it seems to be more of a game, where it's fun to manipulate the rules and find loopholes.  I've been at conferences where financial professionals trade schemes on tax avoidance that, when you pencil it all out, may or may not save 1% in taxes on an estate, while exposing the client to potential audits and liability.  It's clever, but a little pointless.

There are, however, a number of situations where a smart tax strategy can legitimately help people extend their retirement savings, live a better quality of life, leave more to their beneficiaries and help out a worthy charity.  The most common scenario where I live (in the Bay Area) is dealing with highly appreciated assets (typically property or tech stocks that have been held a long time).  Some of my clients are facing potential tax liabilities on $2-5M of appreciation, while having relatively little in income and liquid assets.  They are counting on that appreciation to fund them through the end of their lives and to leave something to their heirs.  In these cases, a Charitable Remainder Trust may make sense.

I recently attended a great seminar presented by Anita Gat, Sean Buxton and and Dan Berris on Charitable Remainder Trusts.  That prompted some more deep diving on my part.  The simple summary is that a trustor can place a highly-appreciated asset into a charitable remainder trust with a designated charity as the remainder beneficiary.  Upon the sale of that asset within the Trust, the trustor avoids any capital gains tax.  Interest on the proceeds of the sale accumulate tax-free.  The beneficiaries are entitled to the income from the trust at their normal tax rate.  At the end of the Trust (typically upon the death of the trustor/primary beneficiary) the charity is entitled to the remaining assets of the Trust.  

Tax attorneys and accountants love their acronyms.  Some seem deliberately designed to confuse the rest of us.  For example, QTIP trusts.  They have nothing to do with ear cleaning or model airplane construction.  QTIP stands for Qualified Terminable Interest Property and a QTIP trust is simply an instrument designed to pass on property (in a limited way) to a surviving spouse without triggering the Federal Gift Tax.  The recipient spouse has an income interest in the trust and does not have a power of appointment over the principal.  Upon the recipient spouse's death, the principal is included in his or her estate for estate tax purposes.

Why would someone want to set up a QTIP trust?  The most common situation is when the grantor (or creator of the trust) wants to provide a home (and any income deriving from the home) for a surviving spouse during that spouse's lifetime, but wants to direct the final gift of the property upon the death of the spouse.   QTIPs are often employed for second or third marriages, when the owner of the property wants to provide for the current spouse but wants the property to ultimately go to one or more of the children from the earlier marriage(s).  But there are other scenarios, as well, including leaving the remaining principal in the property to a charity or somebody else altogether.

Those of us who help older clients (or who simply have older relatives for whom we care) know that the amount of work and the number of skills needed to do it well can be overwhelming.  No one person, no matter how brilliant or well-intentioned, can do it alone.  It requires a team of specialists and family members, all working together to make sure that the client has the highest possible quality of life and, after death, that their beneficiaries receive all to which they are entitled.

I recently had a conversation with a very experienced fiduciary and she told me that much of her value is her extensive network of other professionals, all of whom she has validated over the years.  Her database of contacts allows her to quickly solve problems with trusted providers.  Most family members, if asked to manage care or the estate at short notice, would waste a tremendous amount of time simply sourcing these services (and relying on Yelp, Google, Nextdoor or word of mouth for a quality assessment).  Think about it - do you know a quality person for each of the roles below?

The list below doesn't cover every possible role - just those that come up the most frequently.  You can easily imagine situations that would require even more narrow specializations.  A good fiduciary can help you navigate this difficult transition with a minimum amount of work, stress and expense, while providing confidence that tasks are being handled professionally and ethically.  

Medical and Personal Care

Family members

Care manager

Homecare provider

Housekeeper

Assisted Living Facility staff

Medical team (including doctors, dentist, ophthalmologist, therapists, audiologist, etc.)

Finance and Legal

Estate attorney

Licensed professional fiduciary (to build and coordinate with all the rest of the team)

Other attorneys (litigation, small business, family law)

Daily Money Manager (to pay bills, move money, etc.)

Tax advisor

Bank

Investment advisor

Court employees

Real Estate

Real Estate Agent

    Title Company

    Staging company

Contractor

Tradespeople (plumber, electrician, etc.)

Moving company

Junk removal

Housecleaner

Landscaper

Estate seller (furniture, art, collectables, etc.)

Property Manager (for rental property)

Other

Auto mechanic

Family mediator or arbiter (to resolve any disputes if the team above cannot)