How business, doctors and journalists prey on your food anxieties I

Exotic flavors
IF 1'OC HdV ;; more than a
~ fetv million dollars, or if
cour Familv situation is
complicated, your lai~~,er
, will recommend creatiug
~ as mane as six or a dozen
different trtuts . `Y always
~ svarn clients to expect an
- awfulhy big stack ofpaper,"
savs Arthur Andersen
cre David Bohl .
Here are some of the
more unusual tapes :
Qualifled terminable
interest prope••n-trusts arc
all the rage with people in
second marriages . These allow
vou to leave monev
I to your spouse under the
' unlimited marital deduct
on ~rhite still controllino
I who gets the assets after ~
I he or she dies- The spouse
~ gets the income only
while alive ; aftenvards,
~nur other heirs (such as
children from the first marriage)
get the principal,
minus estate taxes .
Generation akippi;tr7
trusts are less po%cerful no%~
than years ago, but still
fairly common . In the old
d-avs a «ealdty couple
«'ould lem e money to their
gr<strong>and</strong>children rather
than to their children, as a
way of avoiding estate tax
when the children die .
Since 1986 such transfers
(rare been subject to a
"generation skipping"
surtax that erases the benefit
of skipping a generation
. Ho i•ever, even donor
gets a S I million e ..-
cmDtion liom the surM .
Grantor retained annuity
trusts <strong>and</strong>,Frautor retainea'
inconse trusts al-
lo«'rou to gice au'ap ;tssets Example : You own SI
«hile retaining a tempo- million of stock, paying
rarv interest . If tl :e asset is a 530,000 a cear in divihouse
. Vou might retain dcnds . You transfer it to a
the rightto li%e in the house defecti~e trust, paying
for a certain time ; if the gift tax on [he S I million .
asset is a <strong>business</strong>, vou You also cover the annual
might retain a fised annu- income tax hill of, say,
al payout during y~our li ;e- $12,000 . After ten v_ ears
time . Because the ;ifr is vnu hare eAecticely h<strong>and</strong>ed
not ofpropern~ outright,
but of a remainder interest,
the ~aluc used to calculate
the gift ras is loa' .
A defectire trust is a gih
to }our heirs, constructed
in such aWae that cou are
subject to gift tax immediatelc,
vet the income
from the assets is tlvoxin
back on }our own tax return
for as long as cou li% e .
Did the trust backtire?
Not at all . Your ulterior
motive is to make a gih of
thc income tax paNmcnts .
anotherS120,000to ~
rour heirs, estate tax fiee .
YYhy not just leave the .
property in a«'ill? Because i
then the 513,000 a s'ear
in aftertax dis'idends lvould i
be piling up in cour estate
<strong>and</strong> would eventuall}' get
hit mth an estate ta., savs
Seattle la~,er itl alcolm
Moore . Also, estate tases,
because of the vay thin- arc
calculated, arc higher
than gifr taxes . Given a
dtoice, aou would rather
pay die latter, -C .T.G . ~ ~
Columbus, Oltio lawver Lanrence Fisher .
.Somc adX 'iscrs reconvncnd xx aidne until vou're older to
ftmd vour li~ins trust since it can pose some admi nistratiie
hassles, especially u'ith mortgaged properry . You can hare
a checking aceoun[ in die trust name, but Vou %cili need
one in aour own name if t'ou «•ant to use the S 10,000 gift
tax exclusion . The uu insists that you pa~the money to
}'ourselE diett give it to the bcnefician, .
O nce anv trttst is created, vou may need nro other kinds
of protcssional sen'ices : money management <strong>and</strong> trusteeship
. These can be bought in a bundle or a la carte .
Fee-onlt' financial planners arc a\aibable to h<strong>and</strong>le dte
investment side of trust work . Typically the\ ~cill park the
poitfolio at an insrinnion like Chmies Sclxrab & Co, <strong>and</strong>
charge 0 .0% to of assets per ~ear for selecting
securities <strong>and</strong> no-load funds . At no additionai fee-
Sch«ab makes its mone%7fi-ont commissions-Sch\cab acts
as cusmdian <strong>and</strong> u~ill mail out checks to beneticiaties .
T«w mutuai fund operators, Fidelity Inrestotents <strong>and</strong>
Neuberger & Berman, Itavc gotten into the trust <strong>business</strong>
in dte past tn•o pears . Slinimum accounr. S400,000 . For a
S400,000 trust where Fidelitv acts as trustee <strong>and</strong> investment
manager, the fee is 0 .75% per qear . At Neubergcr &
Bernian the fee is 52,500 or whidie% er is greatcr, if a
trust's assets are invested entirch• in house funds . With
eithrt' conipam', you also incur the expense ratios on tiie
fimds . Both shun illiquid ussets like real cstate .
Thcn there are tull-senice brokerage firms . Merrill
Lvnch <strong>and</strong> PaineS~'ebber take uvsts as smail as S 100,000 .
The annual fee for a 5200,000 trust imcsted in Merrill
Ltnclt funds is 1 .5°k,, escluding fund tccs . Merrill also
h<strong>and</strong>les Iife insurance trusts .
:lnodler option is to name relatices or friends as trustees
or cotrustees to nr,tke dif}icult decisions . You could also
hire a law tirm at an hourlc rare . Or, if vou haVe enough
monek',l ou could appoint a bank ora trustcompanp . Bank
trust departments tvpiealhha~c higher minintums than
Fidel'tn~, burtheirfees are competitice, tltey accept unusu,il
assets, <strong>and</strong> thea are tcil!iug to do much more h<strong>and</strong>holding .
Mellon accepts n-uste ordt at least S 1 million . Besides
the usual stocks <strong>and</strong> bonds, the bank has managed such
assets as talc mine rorulties <strong>and</strong> apartment houses . Annual
fee fbr a S1 million account : S 10 .000 . Bessemer Trust Co .
has a S5 million minimun :, for which the fee ~tould be
550,000 . It h<strong>and</strong>les secu ;ities, real estate, oil <strong>and</strong> gas
partnerships <strong>and</strong> prirate companies . The fee geuerallv
coNers moncv management, distributions <strong>and</strong> custoda,
but other tasks (like filing M retnrns <strong>and</strong> writing oat-roll
checks for Vour nucse ) will be billed srparately .
One caveat, if Mu uame ;.1t institution as trustee~ Make
sure rour heirs ifdiec are uuhappe, can fire the institution
in faNnr of u suituble replacement .
Anorltcr caveat'. Get good tas adeicc. For example, the
preceding proriso should, for t .t .x reasons ssc tron't go into,
be made subject to m'ersig':u ba disinterested cotrustee .
Here's another ue subden' cou h-aeV to think about : A fat
esacutor's tce could make cour heirs bettetotl: That motild be
trtte if one of Vour heirs is %\ Ting to be ul executor, <strong>and</strong> has a
cornbincd income <strong>and</strong> i\Icdiaare taa : brackct lower than your
estate tax bracket .
If vou haNc more than a fcumillion dollars or a complicated
tmancial life, ask t'our ad~is'er to look into die more esotic
u2tsrs listed in die box abo%n . But don't wait. Trusts todae
are a middlc-dass necessit~. Mi
Purbas 0 Augast 14, 1995
20461 5 7-3429
173
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