Financial TipsAlan S. Moore / L’Observateur / October 25, 2000By 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. Whilethese assets can all help provide a financially sound retirement, they can also leave the retiree with a considerable management burden.

Published 12:00 am Wednesday, October 25, 2000

For that reason, individuals nearing retirement needs to consider carefully how to best manage their finances in the future. While financial managementmay 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. Such travelcan complicate investment decision making and cause costly delays. Financialaffairs 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 possible through a simpleinvestment management arrangement, but using a Living Trust can be a more desirable choice. With a Living Trust, an individual gives a professionaltrustee full-time responsibility for the care of any assets that are placed in the trust. The trust is normally made revocable allowing 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 record keeping 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 to followthe overall investment goals that the retiree establishes for the trust.

Alternatively, the retiree can remain more closely involved by appointing a co-trustee with the professional manager to make final decisions on investment changes. With a co-trustee arrangement, the trustee can takefull 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, butit can be anyone else the retiree names. Instead of passing the assets toanother 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 income taxes.The income from a Living Trust is generally taxable to the beneficiary.

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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