Jack and Diane Teach Us Why Our Trust and Life Insurance Policies Deserve a Check-Up

Jack and Diane have done well together, and now they’re grandparents. Life is good. They are all set—except for that “oops” lurking in their trust that they aren’t aware of.

After the first grandchild was born in 2002, Diane nudged Jack to have their Will reviewed. For good reason, the attorney recommended they create a Living Trust and did a fine job of incorporating their wishes into a superb legal document. They still feel very secure, and they both remember the way things are divided up for the survivor.

Their $4 Million dollar estate gets divided like this; the survivor (let’s say its Diane) has full control of $3M. She’s also entitled to income from the other million, but not control of the assets themselves.

The main reason for this structure is Uncle Sam. Without this planning, all of Jack and Diane’s assets would have been in Diane’s estate, potentially subject to a bigger payday for the IRS for taxes at her passing. This way, that last $1Million (and whatever growth it incurs) is still protected for her other needs and, ultimately, their heirs.

Unfortunately what this couple doesn’t know is that the wording in their Living Trust is exactly right for 2002. The “oops” is that it may not be right for 2023.

The worst-case scenario of that change looks like this: the entire $4M gets sent to the second trust where Diane’s access is restricted to just the income. But, that’s not what was supposed to happen.

We don’t mean to imply that everyone has this problem. Our experience, however, is that no one will know for sure that they don’t have this problem unless their trust has been professionally reviewed.

There are three possible outcomes for Jack and Diane’s situation:

  1. They find that the wording inside the trust is actually proper for today, and no change is necessary.
  2. The wording needs to be updated but isn’t. When Jack passes, Diane will need an attorney to go before a judge and ask the court to correct this unintended outcome.
  3. The wording needs to be updated. So Jack and Diane set up a meeting with their attorney and have it brought up to date. Afterword, they go out to dinner together, feeling content and confident knowing there’s no “oops” in their planning.

The cost and effort for scenarios (1) and (3) are minimal. But, the cost and the emotional strain of (2) is much more considerable.

The reason we’re telling their story stems from our experience as analysts, who review the financial health of existing insurance portfolios. Stratus does this as a team member for other professionals, as well as for individuals. If both their insurance portfolio and trust have been recertified as currently healthy by a qualified professional, all is well. Just ask the Jack and Diane from scenario (3).

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