Financial Tips

Published 12:00 am Wednesday, July 19, 2000

Alan Moore / L’Observateur / July 19, 2000

By the time successful individuals retire they have usually acquired a sizable investment portfolio which may include stocks, bonds, mutual fund shares, real estate, a tax-deferred fund or shares in a closely held business. While these assets can all help provide a financially soundretirement, they can also leave the retiree with a considerable management burden.

For that reason individuals nearing retirement needs to consider carefully how to best manage their finances in the future. While financialmanagement may not be a problem for someone who is under age 70, it could become increasingly difficult in later years.

From a more positive perspective retirees with ample income generally travel frequently and may divide their year between two homes. Suchtravel can complicate investment decision making and cause costly delays.

Financial affairs may also simply demand more time and energy than a well-off retiree cares to give them.

The Professional Care Option Many retirees resolve questions about their of future financial management by using a professional manager to protect their assets and gain freedom from the time demands of investing. That is easily possiblethrough a simple investment management arrangement, but using a Living Trust can be a more desirable choice. With a Living Trust an individualgives a professional trustee full-time responsibility for the care of any assets that are placed in the trust. The trust is normally made revocableallowing the grantor (retiree) to cancel or change it at any time and for any reason.

Living Trust Advantages A Living Trust assures continuous professional management of the assets that are placed in the trust, yet the retiree can retain overall financial control. As the trust’s beneficiary the retiree continues to receive incomefrom the trust assets. The trustee is responsible for investing the trustassets and for all the recordkeeping that it involves. And the trustee willcontinue managing the trust assets regardless of the retiree’s health or his/her availability.

The trust document specifies the terms of the trustee’s management responsibility. The trustee may have full investment responsibility tofollow the overall investment goals that the retiree establishes for the trust. Alternatively, the retiree can remain more closely involved byappointing a co-trustee with the professional manager to make final decisions on investment changes. With a co-trustee arrangement thetrustee can take full responsibility quickly if the retiree becomes disabled or seriously ill at any time.

The trust’s assets will pass directly to a successor beneficiary after the retiree’s death. The successor beneficiary is often the retiree’s spouse,but it can be anyone else the retiree names. Instead of passing the assetsto another beneficiary the retiree can choose to have the trustee continue caring for the trust assets during the life of a surviving spouse.

A Revocable Living Trust Doesn’t Save Estate Taxes To save estate taxes, an individual must give up assets permanently. Anirrevocable trust is one way of accomplishing that. But a normal revocableLiving Trust has no effect on estate taxes. After the retiree’s death, theassets in a Living Trust become part of the retiree’s taxable estate because the retiree had full access to those assets and could have revoked the trustee’s control anytime. A Living Trust also has no effect on incometaxes. The income from a Living Trust is generally taxable to thebeneficiary.

Please contact your Financial Advisor if you want to know more about incorporating a Living Trust into your retirement plan. You should seekprofessional tax and legal advice before entering into a trust agreement.

ALAN S. MOORE, who writes this column every Wednesday in L’Observateur,is a financial advisor of Legg Mason Wood Walker, Inc., a diversifiedsecurities brokerage and financial services firm that is a member of the New York Stock Exchange, Inc.

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