Magazine article Medical Economics

What Happens If You Change Your Mind?

Magazine article Medical Economics

What Happens If You Change Your Mind?

Article excerpt

Irrevocable: It does have a jaws-snapping-shut ring, but it's required if a life insurance trust is to save estate taxes for your heirs.

However, there are ways to maintain flexibility. Your trust might contain only relatively inexpensive term insurance, which you can "cancel" by simply not writing any more checks. Moreover, trust provisions might be more elastic than you'd think. For example, you can specify that your spouse can't be a beneficiary or trustee if the two of you divorce, says Avon, Conn. attorney Martin A. Goldberg.

You can also give trustees some discretion as to how they distribute among heirs, says David Schiller, an attorney in Norristown, Pa. "Suppose you had a falling-out with a child or a child's spouse. If one of the trustees knows you well-a brother, for instance-he'll probably honor your wishes."

Allowing for trustee changes is another way to achieve some latitude. Beneficiaries might be able to replace trustees or take the job themselves when they reach a specified age. Moreover, the IRS reversed a traditional position: As of 1995, you can change the trustee. But you must choose someone who's clearly not under your control.

"What people really want to know, though, is: Can I tear up the paper and start over?" says attorney Jay Soled, a professor of taxation and estate planning at New Jersey's Rutgers University. "The short answer is No. There are fiduciary obligations to the existing trust beneficiaries." In fact, if you were to simply rewrite the papers, leaving out a particular beneficiary, the trustee could be liable if that beneficiary sues, Soled says.

Despite that, he adds, there are options-though he cautions that they're not court-tested yet. "For example, you might set up a new trust and fund it with enough money to buy the existing policy from the old trust. Or the trustee might cash in the old trust's policy, then lend the new trust money to buy another policy. …

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