Here’s an interesting exercise to help with your stewardship planning. Place everything you own (titled to you and/or your spouse) on your kitchen table. Wait, that will not work; instead, place pieces of paper that represent your ownership. Each piece of paper should have at least one thing in common: somewhere your name appears on it as the owner. Next, it is time to create 5 separate stacks.
5 Stacks of Ownership
Stack 1: savings accounts, certificates of deposit, and other banking instruments
Stack 2: stocks, bonds, and mutual funds
Stack 3: real estate deeds and contracts
Stack 4: business holdings, partnership agreements, and stock in closely-held corporations
Stack 5: life insurance contracts
Congratulations! You have your papers organized, but there are two potential problems you might want to consider.
First, if you become incompetent and cannot manage your property any longer, all 5 stacks of paper will fall under the jurisdiction of the conservator court. Second, when death occurs, those items will come under the jurisdiction of the probate court. In both cases, you stand to lose value through legal expenses and delays, and your heirs will encounter the complications of title transfer.
Now you might think to put someone else’s name on the papers, but that is often more costly, and your desires may not be carried out at all. What can you do?
Consider the Value of a Bucket
Let us show you have to use a bucket to solve the issue of property titling in your estate plan. Start by taking each piece of paper in your 5 stacks. Cross out your name with a pencil and title it “my bucket.” Then place each piece of paper in the bucket.
You have now changed ownership to your bucket. If you are holding the handle, you control the bucket and you can do everything you could do with your property before. Now write detailed instructions (in pencil) and stick it on the outside of the bucket for everything represented by the pieces of paper inside.
You can walk around carrying your bucket (living your life) with all the property in it. However, what happens if you become incompetent and drop the bucket? No problem, because you have arranged ahead of time for someone to pick it up for you. They do not have to worry about what to do with the contents because you wrote instructions on the outside of the bucket.
What happens when you kick the bucket? Again, the person you trusted to carry the bucket for you will pick it up and follow your instructions. In most cases, there will be minimal delays, costs are significantly reduced, and because you have entered into a private contract with a person you trust, it tends to be more confidential.
Revocable Living Trust
In this analogy, the bucket is another name for a Revocable Living Trust. Property is titled to (placed inside) the trust. Should you become disabled, it is handled by your successor trustee, without the jurisdiction of a conservator court. When you die, property in the bucket will not be subject to the probate court.
Another benefit is that a Revocable Living Trust can provide excellent tax planning. Since it is not death sensitive, it can continue after death to provide for dependent minor children or aged parents.
If for some reason you want to change what to do with your property, a Revocable Living Trust can be changed easily (remember you wrote your instructions on the bucket in pencil). When the bucket is no longer needed, the property can be distributed to your personal and charitable beneficiaries.