Complete v. Express Interview in a Revocable Living Trust Document

We’ve been asked . . .

Q:        “Today, I tried to assemble a Revocable Living Trust that included a residuary distribution to a charitable remainder trust, but the option to make a distribution to charity did not appear in any of the input screens.  Why doesn’t it appear?  What did I do wrong?”

A:         This is a great question because it points out that WealthDocx7® has different initial trust and assembly choices that affect the options that appear later in the WealthDocx7 interview.  In our last blog, Simplified v. Full Revocable Living Trust, we discussed the option that allows you to select either a “full” and “simplified” RLT document.  Today, we discuss the difference between the “Complete” and “Express” Interview.

One finds the option for a “Complete” or “Express” Interview at the “Revocable Living Trust Options” screen:

(Note:  If you set the trust length to “simplified,” this choice will not appear.)

The idea behind the Express Interview is to permit you to maneuver quickly through the Interview by providing the choices that you will need in the majority of estate planning cases.  The Express Interview provides fewer questions, relies on certain preference settings, makes assumptions based on most common practices, and eliminates some options that are available in the Complete Interview. 

The following is an outline of the differences between the Express and Complete Interviews:

1.      The following options are set based on your preferences and the software does not ask for these options in the Interview.  (If you have not set a preference, then the software selects the most commonly used option by default).  The idea is that you can always program the software to follow the settings that you prefer in these areas, which are typically used over-and-over again in the same manner by the planner.  A good example is the first one listed – ascertainable standards.  Most planners define ascertainable standards the same way in every document they create, so it makes sense to do it once as a preference.  NOTE:  Preferences are not just available in the Express Interview.  If you select preferences, those choices will apply also when you create a trust using the Complete Interview.  The difference is that in the Express Interview you can’t change these choices.  In the Complete interview you can change them. 

These are the options for which you can set a preference, if you choose, and the default language that will appear if you do not set a preference:

• Ascertainable standards term (defaulted to “health, education, maintenance or support”)
• Trustee Discretion statement (defaulted to “sole and absolute discretion”)
• How the Trustee is to determine apportionment between principal and income (Defaulted to “As the Trustee determines in a fair, equitable and practical manner” and the Trustee is not authorized to allocate capital gain to income)
• Income period on a general appointment marital trust (defaulted to “quarter-annually”)
• QTIP Trust options:
  • Income option (defaulted to “All income”)
  • Income period (defaulted to “quarter-annually”)
  • Principal distributions (defaulted to “An Independent Trustee may distribute principal to the surviving spouse for any purpose.  If there is no Independent Trustee principal will be distributed for ascertainable standards.”)
  • 5 and 5 power (defaulted to FALSE)

• Residuary design:
  • Descendants as current beneficiaries (defaulted to “No”)
  • Income options (defaulted to “Discretionary distributions of income and principal to the beneficiary.”)
  • If preference for income option is not discretionary distributions, then distribution frequency (defaulted to “quarter-annually”)
  • Principal option (defaulted to “An Independent Trustee may make distributions for any purpose and an Interested Trustee shall make distributions pursuant to ascertainable standards.”

• Underage beneficiary age (defaulted to 21)
• Standby Supplemental Needs Trust provisions (defaulted to “NO”)
• Standby Supplemental Needs Trust termination provision (defaulted to “NO”).

2.      The idea with the Express Interview is to provide only the options that most clients might want, and eliminate the options that only a limited number of clients might need – you can use the Complete Interview for those clients.  For example, experience teaches us that most clients probably do not include a testamentary charitable remainder unitrust to hold their retirement plan assets.  So, if you select the Express interview, the option will not even appear. 

The following options are not available in the Express Interview:

• In the Joint Trust, the option to create a trust that grants each Grantor a lifetime general power of appointment to permit funding the credit shelter trust with the trust property of both Grantors.
• Express GSTT planning options
• The following  enhanced trustee powers provisions:
  • Invest and manage Section 529 qualified tuition programs
  • Farm, ranch and other agricultural provisions
  • Closely-held business interest provisions
  • Professional Practice provisions
  • Sub-Chapter S Corporation stock provisions
  • Unitrust or Total Return Trust provisions

• A general power of appointment over any accrued but undistributed income remaining in the marital trust (stub income).
• Decanting Power
• Trustee indemnification statement
• Provision granting the Trustee the authority to make discretionary distributions of principal from the QTIP trust to assist the surviving spouse in achieving estate planning objectives
• An Independent Trustee may distribute property to the beneficiary of a trust so that the beneficiary’s estate may utilize the 1014 basis increase without causing an increase in the federal estate tax
• Testamentary charitable remainder trusts to hold retirement plan assets.
• Family trust “Total Return” unitrust for distributions of income.
• Minimum fraction to the marital share when using the Fractional Marital Share formula
• A formula to zero out the estate tax when both individual and charitable residuary beneficiaries are selected
• Trust Protector provisions
• Incapacity of a Trustee established by a written certificate.
• Provisions authorizing gifting powers to the trustee during the grantor’s incapacity.
• Distribution Trustee
• Federal Estate Tax repeal options
• Same gender couple alternative planning options

3.      The software offers sets a number of options automatically, based on what we believe are the most common practices of our members.  We believe you will want these options for the majority of clients for whom you create estate plans.  For example, the Express Interview provides an option to create charitable distributions since many clients include distributions to charities in their plans, but it does not include the option to create testamentary charitable remainder trust, lead trusts, or private foundations since only a minority of clients choose to make charitable distributions using those tools.

The following options are set in the Express interview and cannot be changed:

• Afterborn definition of children is always included when there are children
• Marital deduction language accounts for both federal estate and state death taxes
• Include a Personal Property Memorandum
  • If grantor is married but there are no children, the beneficiary is the spouse but if the spouse is deceased then the trust beneficiaries.
  • If grantor is married and there are children, the beneficiary is the spouse but if the spouse is deceased then the beneficiaries are the living children.
  • If the grantor is not married and has no children, the personal property goes to the residuary beneficiaries.
  • If the grantor is not married and has children, the personal property goes to the living children.

•  If someone other than the Grantor removes a Trustee, the person or persons removing the Trustee are not required to appoint a successor Trustee.  The grantor relies on the other provisions of the trust agreement to control Trustee succession when someone removes a Trustee.
• If Charitable residuary beneficiaries are selected, the only type of Charity is and existing charitable organization or foundation.  Private foundations, testamentary CRTs, CLTs, etc. are not available.
• Specific gifts to individuals are outright monetary gifts.  Gifts in trust and gifts of specific property are not available.
• A grantor may only make specific charitable gifts to existing charitable organizations or foundations.  Gifts to existing charitable trusts or testamentary private foundations, CLTs, and CRTs are not available.
• In community property states transfers of separate property to the trust use language for community property states.
• In separate property states, transfers of separate property to the trust use the language for separate property states and the document treats unscheduled property as half separate property of each spouse.
• The definition of Charities only includes public charities.  It does not include private foundations.
• The chosen marital deduction method will apply to both federal estate and state death taxes.
• If you select a pecuniary formula, the valuation method is “True Worth,” and not minimum worth.

4.      The following options are defaulted to common practices but the program allows you to select another option if you desire:

• Residuary Beneficiary trusts, separately stated:
  • The trustee will hold a residuary trust share set aside for an afterborn or adopted child in similar trust to another child’s trust.
  • If a residuary beneficiary is deceased, the Trustee will distribute the share outright to the descendants of the deceased beneficiary.
  • No precatory beneficiary guidelines
  • No withdrawal right
  • No 5 and 5 power
  • General power of appointment
  • In case of lapse, property goes to the beneficiary’s descendants.

• Residuary Beneficiary trusts, stated once
  • General power of appointment
  • Permissible appointees are “any person or entity”
  • No withdrawal right
  • No 5 and 5 power
  • No precatory beneficiary guidelines

• No common Trust for residuary beneficiaries
• Spousal right to remove current and successors trustees with or without cause.
• No requirement that at least two trustees serve.
• No provision as to a beneficiary’s right to serve as a trustee.
• A majority of beneficiaries may remove a Trustee with or without cause.
• No spouse’s right to remove and appoint the current and successor Trustees after the grantor’s death.
• A property agreement does not override the trust.
• Signature lines are not included on the schedules.

So, if you think you are missing an option that should have appeared, check the “Revocable Living Trust Options” screen.  Maybe you should have selected the Complete Interview rather than the Express Interview!

Yours for better drafting,

Thomas Ray
Executive Editor, WealthCounsel